Making the big guys play fair

Kezios said a survey of AFA franchisees showed 63% would not encourage others to buy a franchise. While entrepreneurs may buy a franchise to become master of their domain, they may instead find they’re pawns of a powerful landlord.

The Toronto Sun
March 8, 2000

Making the big guys play fair
Maryanna Lewyckyj

PizzaPizza%20logo.jpg

‘Nobody should be able to hold the public hostage like that’
– Dave Michael, testifying about franchisees’ cartage fees

A franchise relationship – like a good marriage – should be a mutually beneficial arrangement.

Both parties contribute. Both parties benefit.

But the tales that emerged from the first day of public hearings into Ontario’s proposed franchise law were sordid stories of abuse, inequality, domination and intimidation.

A lawyer representing the Ontario Franchise Coalition characterized working conditions for franchisees of one fast-food chain as “indistinguishable from slavery of 200 years ago.”

He went on to call the franchisor of the chain “the lowest of the low,” “rapacious” and accused them of preying on new immigrants who can “barely write their own names.”

Like a veteran divorce lawyer, Ontario Franchise Coalition lawyer David Sterns has witnessed some of the ugliest, most bitter and most vindictive breakups. About 80% of his practice is litigation, representing both franchisees (buyers of franchises) and franchisors (sellers of franchises).

The hearing heard how franchising has evolved from an industry based on handshake agreements, trust and simple three-to-four page contracts to a sophisticated, multi-billion dollar industry with complex agreements that can run 60-70 pages.

The proposed Franchise Disclosure Act – which would be the first Ontario legislation specific to franchises – would offer more protection for potential investors.

Among its measure, it would provide for mandatory disclosure, a legal right for franchisees to associate and a legislated “cooling-off” period for franchisees with second thoughts.

While all parties who appeared before the hearing agreed that franchise legislation was long overdue, some felt that proposed law didn’t go far enough.

Dave Michael, one of a group of franchisees who won a $3-million settlement from Pizza Pizza, didn’t think that proposed legislation would have helped him.

Michael testified he was not only forced to buy ingredients from a single supplier at an inflated price, but also to pay large cartage fees to transport the over-priced supplies.

“My rent was less than what I paid in cartage,” said Michael.

“Nobody should be able to hold the public hostage like that.”

Michael would like to see some sort of mandatory escape clause that would require franchisors to buy out a franchisee at a reasonable cost, if there was a significant change in the franchisor’s policies or management.

Susan Kezios, President of the American Franchisee Association, said the biggest problems facing franchisees are encroachment (the selling of new franchises close to an existing franchisee) and sole-supplier buying requirements.

The first cuts into a franchisee’s profits. The second prevents a franchisee from buying cheaper supplies.

Kezios said a survey of AFA franchisees showed 63% would not encourage others to buy a franchise.

While entrepreneurs may buy a franchise to become master of their domain, they may instead find they’re pawns of a powerful landlord.

Kezios said investors would get a better perspective if franchisee contracts carried a disclaimer stating, ”You do not own a business. You lease the right to sell our goods and services.”

Kezios said that today’s contracts are so complex, you have to specialize in franchise law to understand them.

“Mr. and Mrs. Smith don’t have a chance,” said Kezios.

She said that while Bill 33 will make franchisees’ lives easier, it doesn’t go far enough.

She’d like to see the bill include an enforceable duty of good faith dealing, prohibit sole-source supplying and provide for reparations if an existing franchisee is encroached.

Without such measures, notes Kezios, “You will still have many of the problems franchisees are experiencing.”

The hearings will conclude tomorrow.

The first day of hearings in Toronto made it clear that even if legislation is passed, it won’t be a substitute for due diligence by investors.

As one speaker noted, no legislation can eliminate the inherent risks of starting a business.

But some rules should help curb abuses so more franchisees live happily ever after.


Brought to you by WikidFranchise.org

Risks: Ontario Public Hearings, Canada, 2000, Intimidation, Indentured servants, Renting a business, Toothless law, Immigrants as prey, Must buy only through franchisor (tied buying), Susan Kezios, American Franchisee Association, AFA, Encroachment (too many outlets in area), Canada, 20000308 Making the

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