Franchisee and franchisor advocates air opinions at franchise hearing

A franchisor attorney commented that insofar as legislation was concerned, the tally of recent efforts came to 10 federal initiatives and 30 at the state level, all to no avail. To which one of the three congressmen sitting on the panel responded testily that perhaps this is one of those instances where the right thing takes a considerable time to come about.

Franchise Times
August 1, 1999

Franchisee and franchisor advocates air opinions at franchise hearing
Frankie Peltzman

WASHINGTON, D.C. – In a hearing June 24, franchisor and franchisee advocates alike had the opportunity to air their laundry list before the Commercial and Administrative Law Subcommittee of the House Judiciary Committee. George Gekas (R-Pa.) chairs the subcommittee.

The hearing, which is unusual in light that no bill regulating franchising has been introduced as yet, underscored several themes, including:

  • the franchise relationship,
  • termination-transfer,
  • encroachment,
  • the validity of franchise statistics,
  • the need for legislation, and
  • the question of further government regulation.

Panel members testifying before the subcommittee included Susan Kezios, president of the American Franchisee Association; Michael Adler, of Goodman & Company and a former Kampgrounds of America (KOA) franchisee; Darrell Dunafon, a Sandella’s franchisee and a former Taco Bell franchisee; Lawrence “Doc” Cohen, a Great American Cookie Company franchisee and the former head of the international Franchise Association’s Franchisee Advisory Council; Timothy Bates, a Wayne State University professor who has conducted franchise studies; Dennie Wieczorek, a partner with Rudnick & Wolfe; Peter Singler Jr., a franchisee attorney; and Larry Tate, vice president of franchising for Golden Corral Corporation.

The panel members present were Rep. Howard Coble (R-N.C.); Rep. John LaFalce (D-N.Y.); and Rep. Jay Dickey (R-Ark.). Rep. John Talent (R-Mont.) could not attend due to a scheduling conflict, Rep. Gekas said in his opening statement.

Advocates for franchisees pressed for litigation that would balance “a gross disparity in economic strength” between the parties in the franchise relationship and require “minimum standards of conduct” and “freedom of contract” for the parties to the relationship.

A franchisor attorney commented that insofar as legislation was concerned, the tally of recent efforts came to 10 federal initiatives and 30 at the state level, all to no avail. To which one of the three congressmen sitting on the panel responded testily that perhaps this is one of those instances where the right thing takes a considerable time to come about.

Several of the representatives, however, admitted to a basic conflict; i.e., that their interest is greater support for the franchisee bumped directly up against their distaste for more government involvement in business.

The spur of the hearing, and renewed interest in legislation, was the 1995 White House Hearing on Small Business. A session on franchising concluded by sending 60 issues to the Congress. “Franchisee legal and constitutional rights” was one of the final initiatives the Conference sent to the President and the Congress.

Late in 1998, Rep. Howard P. Coble developed his Franchise Act of 1998 – to be renumbered and reintroduced shortly after Congress returns from this year’s July recess. The Coble bill, which was co-sponsored by Rep. John Conyers (D-Mich.) had bi-partisan support, a feat other franchise bills had not been able to achieve.

At the hearing, Rep. John LaFalce (D.-N.Y.) announced he was brushing up a revision of his prior franchise bills to minimize injury to franchisees by bringing franchising under the UCC and by establishing five duty of good faith standards.

The tone of the hearing occasionally became strident. When pro-franchisor witnesses noted that the prospective revision of the FTC’s Rule on Franchising would provide adequate protection for prospective franchisees, franchisee advocates characterized the Rule as “inadequate.”

In an earlier statement Coble defended his bill as not being “an intrusion of government”…but that “I don’t know of a single member Congress who would stand by while their hard-working small business owners are left buck-naked and defenseless” against the bad faith tactics…of a host of corporations.” (Earlier, in a corporate document, a suggestion to contact Coble said that “if you are afraid to give your name”…just identify your system.)

The testimony of the American Franchisee Association and Bates’ discussion of survival patterns among franchise and non-franchise small firms conflicted with the positions generally put forth by the IFA (despite the association’s relatively new openness to franchisee members). One subcommittee member commented on the lack of testimony from the IFA itself, although Arleen Goodman and Doc Cohen, IFA Franchisee Advisory Council members, and Michael F. Adler, CEO of MotoPhoto, represented the association. In addition Dennis Wieczorek is a partner with the firm that serves as IFA’s legal counsel, while Larry Tate, vice president, Golden Corral, serves on the board.

Susan P. Kezios, president of the AFA, presented the position of those franchisees who find “basic flaws” in the franchise structure. The AFA in conclusion asked the committee to establish minimum standards of conduct for the franchise industry and restore freedom of contract for those who choose franchising as a way of doing business.

Whether additional federal legislation is the appropriate solution will be up for discussion – most likely – in the second session of the 106th Congress.

Quotations

“The franchise is a safe bet, according to conventional wisdom. It is time to reconsider this wisdom.”
Timothy Bates – Professor

“Despite the highly visible role that franchising plays within our economy, there are fundamental flaws in its basic structure. Some franchisors take advantage of those flaws.”
Susan Kezios –AFA

“Franchising has made it possible for millions of people to achieve their ‘American Dream.’ Do we need further regulation or legislation to change it? I think not.”
Doc Cohen – Franchisee

“I strongly urge Congress to avoid legislation that encourages costly, divisive and unproductive adversarial action by either the franchisee or franchisor. Our society has greatly suffered with its preoccupation to resolve its disputes via litigation.”
Michael Adler – MotoPhoto

“If a franchisor opposes Federal fair franchising legislation…the motivation behind such an objection should be scrutinized. Those in opposition will be the franchisors currently engaging in unscrupulous practices.”
Peter Singler Jr. – Franchisee Attorney

“At the end of the day, oppressive legislative restrictions on the operation of franchise relationships, and the litigation that is sure to follow, will simply stop franchising in its tracks.”
Dennis Wieczorck – Franchisor Attorney


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