Hal March Public Hearing Testimony

…so if we don't need to name my franchise, I'd rather not…One of the things I've learned very quickly is that if you don't go along then you can end up in some very serious fights with the franchisor, where they can make things very difficult for you or try to force you out of the system.

LegislativeAssemblyofOntarioCostofArms.jpg

Legislative Assembly of Ontario
March 9, 2000

Public Hearing Testimony
London, Ontario, Canada
Mr. Hal March, franchisee

Standing Committee on Regulations and Private Bills
1st session, 37th Parliament

FRANCHISE DISCLOSURE ACT, 1999
Consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors

MARCH GROUP INC.

The Vice-Chair (Mr Garfield Dunlop): To the committee, there has been a little bit of a problem, and Mr March is going to go on here now instead of Mr Sovereign. They've agreed to trade places. So, Mr March, if you could take 20 minutes, please.

Mr Hal March: I don't have any handouts here. My name is Hal March. I'm part of a national franchise system. I have six locations. My problems are a little bit different than what you've been hearing so far, because I'm an ongoing operation. But I've learned some things the hard way, so I just thought I would give you a few comments about my situation.

One of the things I am concerned about is saying anything that could hurt my business or come back on me, so if we don't need to name my franchise, I'd rather not. We'll just call it March Group, which is my incorporated company.

One of the things I've learned very quickly is that if you don't go along then you can end up in some very serious fights with the franchisor, where they can make things very difficult for you or try to force you out of the system. I think you really need to have something in your new legislation that will allow franchisees to get together without any kind of repercussions from the franchisor. I've been involved with this particular system for over six years, and we have experienced some really bad times where it was important for us to get together as franchisees. I've been accused of being an organizer. At one point, they asked me to leave the system, and that was the reason cited: I'm an organizer, trying to get the franchisees together so that we could resolve common problems that we have. Our feeling has been that they want to keep everybody separate, a sort of divide-and-conquer attitude about things, because if you get them together, then you have a stronger voice and it's harder for them to fight a group, but they can certainly fight individuals.

When I was listening earlier about people trying to avoid going to court, that's exactly what I did. When they asked me to leave the system, I avoided going to court because there's no way. I don't have the deep pockets of this major corporation, which at the time was owned by probably one of the largest corporations in the world, at least they'd rank in the top 50. How can you fight someone like that when you're just a private business individual? I managed to sort out my particular problems. I guess you find ways to get around them and continue.

But I think you should force the franchisors to facilitate a licensee group or a franchisee group so that they can meet on their own without feeling the pressure of the franchisor and try to help solve problems and make presentations together. That's really important. I think they have to be forced to encourage that. It's really hard. A lot of people like myself - what I ended up buying myself was really a job. I invested a bunch of money. I make less money than I made before when I worked for a company, but you learn those things and accept them as you go along. You don't have a lot of money in a lot of cases. A franchise system, I think they control it in such a way that you - they want you to make money, of course they do. They want you to be successful. But if they can control it so that they're always guaranteed to make money and you're just satisfied and can continue, I think that's what they do.

The next point I wanted to make was that I found, when I got into this, they had a 19-page franchise agreement with really fine print. I said: "I want to change this. I don't agree with that, I don't agree with this." They said: "No, if you change anything, then that's it. We just won't accept this. Everybody signs it." So I reviewed it with my lawyer, and he said, "If you want to get into business, you have to have a certain amount of trust, and I guess if everybody else in the entire system signs this, then go ahead." I signed my agreement and then I found out afterwards that in fact is not the case. There are different deals for different people across the country and who knows who, and when the companies changed hands certain special deals were made and that kind of thing.

I think you should obligate the franchisor to disclose those kinds of differences. If they're saying there's a standard contract, then tell everybody what is not standard in the system, that company A has a special deal because of this and company B has another special deal because of this and you are lumped in with everybody else and you pay on a different basis because of these reasons. I think that should be disclosed. It really hurts you if there are no negotiations and you're told that's the way it is. You have to have some confidence in the company that you're dealing with, that they're telling you the truth and that things are in fact fair and equal across everybody. But when someone else has an advantage, then it destroys the whole system.

The other thing, and I think it was mentioned again this morning too, is that there should be some way to resolve conflicts. We've tried in our franchisee organization to get them to help solve conflicts. I guess one of the biggest conflicts we had was when they asked me to leave the system. I called all the franchisees I knew who had any kind of influence with the company and said, "Here's what they've said." We more or less got a petition together, saying: "Are you nuts? Here's a guy you said has been your top franchise for the last five of six years, and you want him to leave the system? What's that about?" It had to do with the organizing, that's why. It was only because of getting that petition together that they felt, "OK, we've got the rest of the franchisee body here behind this guy; let's make this problem go away." So I came back in the system and we solved our problems.

But there is nothing in place today to resolve any conflicts. Any time there is a conflict, they separate you and treat you as a one-on-one situation, and then when you start talking to other franchisees you find that your problems are common. I mean, you're running a similar system. It's a franchise system, and they're supposed to be the same. But there's nothing there to resolve those conflicts. So I think that's really, really important, and it has to be controlled by some outside party so that there's no undue influence by the franchisor.

The last point I want to make is about contracts. Mine wasn't quite as bad as the previous one, which said you couldn't take them to court. But mine basically says that all conflicts etc and/or interpretations are left up to the franchisor. So if there's an interpretation to be made on our contract, their decision is final. By the way, they can change the contract at any time, and you have to agree to it and live with it. So it's basically a contract that says, "We'll tell you what to do, and if you don't like it, tough." I think that's a very unfair kind of contract, because you don't know what's going to happen in the future.

I think the franchise agreement should have a lot more give and take, so that it's not one-sided and is there to protect the franchisor and the franchisee. A one-sided agreement doesn't work very well. You don't find out how well these things work or not until you have a conflict or that kind of thing.

One example I would like to cite about this area where things may not be fair is that I pay 8% of my gross revenue back to them just to have this name in place. They say that part of that money is for administration, which I understand - they have to provide for overhead - and part of it is for advertising. That's fine. Let's just say there is this lump of money that is supposed to be spent for advertising, so that you get the benefit of that back in your marketplace.

Well, in our system, many of the locations are still owned by the corporation. It's their choice. They've decided to run them and that's the way they want to run this. It tends to be the very large cities that they want to own. They take all the advertising money and spend it all in their cities. Back in the cities where I run my locations, we don't get anything. I have questioned them about it, and so have other franchisees, and they say: "Well, we do spend the money. In fact, we spend more money than we have." When it comes time to question, "What goes into that advertising fund?" they won't give us the details.

We've had some meetings when we've had questions periods. We questioned our president about where the money comes from and where it goes. We have found out that they end up paying salaries to their own sales reps for their specific areas, those kinds of things, out of our advertising fund. If something is set up and the intent is for it to be used for advertising, then the money should be dealt out in such a way that it's fair for everybody. I think there needs to be something in there to make sure the franchisees are protected in those instances as well. Maybe you can settle it through conflict resolution or through making sure that certain clauses and phrases are in the franchise agreement. But it's just frustrating when you have to try to fight a corporate giant to get back money you have already paid them.

That is pretty much what I had to say this morning. I'm sorry I don't have any formal handout or anything.

The Vice-Chair: That's fine, Mr March. Do people from the Liberal caucus have any questions for Mr March?

Mr Crozier: Yes. Thanks for coming, in spite of the fact that you're concerned that someone, or your franchisor, would know you are here. I think the mere fact that you are reluctant to name your franchise goes a long way in speaking to why we need this kind of legislation. Some would believe that in this country you should never be afraid to come forward. Thanks very much for doing so.

In view of that, the one part of the bill that you mentioned that's interesting to me is the right of association. Again, I think any reasonable person would think you should never have any doubt about the right of association in this country. It's a little scary that you have to bring that forward. Again, it speaks to the need for this kind of legislation and, in my view, the need to make the legislation binding on the franchisor or, more important to the franchisee, because it brings the franchisor to the table, because in many instances they are large corporations. I appreciate the fact that you would take these steps under those circumstances.

I think you also mentioned conflict resolution. That would appear to be important to a franchisee, because oftentimes, in fact in many instances, you are small, independent business people. I have some understanding about what you're saying. Although I wasn't involved in a purely franchise operation, I operated a retail business where there was a marketing agreement. It was an independently owned business, but the type of marketing, the advertising and the style of the store were under a marketing agreement. So I have some appreciation of what you are saying, and I want to thank you for coming forward, notwithstanding the fact that there was some concern about naming your franchisor.

The Vice-Chair: Thank you, Mr Crozier. Mr Martin.

Mr Tony Martin: I also want to do the same. I know we have had a number of people, very courageous entrepreneurs, come before us over the last two or three days pleading a case and asking for some relief in terms of some circumstance they had already experienced or were in. They weren't looking for undue advantage. They weren't looking for a playing field that was slanted in their favour. They were looking for some fairness, some access to justice and some return on the investment and work they put into a particular operation. I don't think that's a lot to ask.

To a person, franchisees have called for some kind of dispute resolution mechanism. We need to work with that little bit. Exactly what should that look like? There is some concern that we will introduce into the industry something that will be onerous and expensive and take away from a person's or a system's ability to actually do the thing they are good at, which is sell a product or service. We need to find some way of balancing that. I suggest there are ways, if people of good faith sit down around a table and try to come up with something.

Have you given much thought to the details or specifics of a dispute resolution mechanism that you think would work perhaps in your circumstance?

Mr March: It could be made up of the people involved in the process, as long as it has some way for people to vote on the outcome and is balanced. Maybe it's four people, two company representatives and two franchisee representatives, and they vote on issues, or something along those lines. It doesn't have to be terribly complicated or expensive.

Mr Tony Martin: I get the feeling from what you just said too, and this is another important point: the sense of balance and equity of power.

Mr March: There has to be. No one is going to agree to things if it's going to be one-sided. It doesn't make sense. It has to be win-win. If you're with a franchise system, you have to do things that are going to support that system too. Your investment is in that name, not just in your own franchise outlet but also in the entire name. So you want to make sure that whatever works is going to work for everybody and is beneficial. There's no sense in doing things that are going to make the franchisor go bankrupt.

Mr Tony Martin: There's some sense that this new piece that's tagged onto the court system now, which calls for mediation, would be a vehicle, although Professor Hadfield said to us yesterday that that's the first step into the legal system. So before you got to mediation, you would have to have had legal advice, put together a case and the adversarial system would already have begun. I suggest that as much as possible we would want to try to stay away from that and try to come up with solutions that, as you say, benefit both parties.

I also appreciated your comment on the right to associate, which is in this bill. I commend the government for that. I think it's a good move. But, again, how far does it go if the franchisor isn't willing to recognize your right? You can associate as much as you want, but if the franchisor isn't willing to negotiate with you or sit down with you across a table and deal with the association, if they still continue to want to deal with individuals, then what's the point, as in situations like your own? I know there is at least some generic value in the right to associate - to get together, share, come up with some commons solutions and move forward. But it seems to me that we need to be looking at something in the legislation that forces the franchisor to actually recognize the association, otherwise -

Mr March: Yes, I see that point now. And you want to make sure that things are happening. I don't know how you would follow that up. I guess it wouldn't be an easy thing to do. I don't know if you would force them, so that in order to carry on a licence as a franchisor, or something along those lines, they're forced to sit down and have meetings with representatives from the franchise committee and the franchisor and send the minutes on to the government body, or whatever. I don't have an easy answer for that, but I see what you're getting at. It's a bit of a problem.

Mr Bob Wood (London West): Do you have any sense of what return on investment the franchisees in your system might be getting?

Mr March: I've been doing this for six years and this is the first year we've had any significant numbers of people who have been profitable. The return on investment is probably well under one tenth of 1%. Our business is fairly capital-intensive. That has some influence on it. Yes, it's pretty ridiculous.

Mr Wood: Do these people have to put in capital money up front?

Mr March: There are a couple of ways you can do it. Because it's so asset-intensive - you have to pay a franchise fee up front, yes. But that's not the most significant thing. In order to acquire the assets, you can lease the assets that are needed to make this work, but everybody in our system who is leasing assets is still continuing to lose money. They lease the assets from the franchisor. The others that have the financial ability to borrow the money to acquire those assets are probably making less than a tenth of a per cent return on investment.

Mr Wood: What sort of return did you expect when you went into it?

Mr March: That's funny. I got a pro forma made up which showed that I would probably make about a 15% return. I didn't draw a salary for the first 18 months I was in business. After that I've taken a modest salary, only at a mid-manager level, not someone who's invested a lot of money in a business. From that standpoint, it's a little bit frustrating. My business might be unique because of the amount of capital required to run it, but in a lot of cases what you're finding is that people are investing a big chunk of money in franchises and buying themselves jobs, and not high-paying jobs. Most people who are in their own business tend to work long hours. There should be some protection against that kind of thing. I don't know how you deal with that. You have the same problem even with a cab driver. He spends all his money for his licence and his car and that kind of thing, but he's still making a little over minimum wage. I don't know how you get around that. There are other businesses with similar problems.

Mr Wood: I gather the return has fallen well below your business plan's expectations.

Mr March: Yes. We keep thinking it's around the corner, because it has been cyclical. That's the other thing they tell you: The business has been cyclical. They were making those kinds of returns in the 1980s, but it hasn't been here for the 1990s. Hopefully the new millennium will be a bit better for us. I realize I'm leaving you a little bit in the dark here by not telling you my franchise name.

The Vice-Chair: That's perfectly fine.

Mr March, we appreciate your taking the time to come and make a presentation to us today. Sorry about the mix-up in the time that happened.

This document is a verbatim copy of this witness’ oral testimony. To review the original transcript: http://www.ontla.on.ca/web/committee-proceedings/committee_transcripts_details.do?locale=en&Date=2000-03-09&ParlCommID=1&BillID=&Business=Bill+33%2C+Franchise+Disclosure+Act%2C+1999&DocumentID=19723#P278_77481

Copyright (c) 2000
Office of the Legislative Assembly of Ontario
Toronto, Ontario, Canada


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