Wake up or let the legal battles begin

There seems to be more litigation than ever. While franchisor and franchisee lawyers meet this month at the International Franchise Association’s legal symposium and debate the issues on alternate dispute resolution, negotiating the franchise relationship, the impact of class action lawsuits and Internet enforcement – to name a few topics – franchisee attorneys will have their own conference through AFA. They will not invite franchisor counsels to be involved.

Franchise Times
May 1, 2000

Wake up or let the legal battles begin
Janet Sparks

I was recently chastised by a seasoned franchisor who is very active in the franchise community for Franchise Times giving Susan Kezios, founder and president of the American Franchisee Association, too much play in the magazine. As readers know, Kezios was on our cover in February and was profiled in the feature article. I won’t bore you with the details of our conversation, I’ll just tell you that in his opinion, he felt, “the less publicity you give her, the more likely she will fail.” In other words, ignore her and she’ll go away. But after ignoring her for the past seven years, it’s probably time franchisors stopped sticking their heads in the sand and started dealing with reality: AFA has made an impact on franchising and will continue to do so unless there is a coming together of franchisors and franchisees. Although many franchisors are actively involved in fighting the proposed federal legislation, and are scrambling to improve their own franchisee relations in their systems, at this point it might not be enough. The legal battles have already begun.

At the risk of sounding redundant, here again are a few arguments, which seem to be getting stronger, on why franchisors can no longer ignore the AFA: First, the association now has approximately 35 franchisee associations as members and supporters for the legislation, including the Burger King franchisees (National Franchisee Association), the National Coalition of 7-Eleven Franchisees, and the Asian American Hotel Owners Association.

These large members are not just a few disgruntled operators from their systems, but instead, represent the majority and are very political active and business-savvy.

“We have scolded franchisees for not reading their franchise contracts before signing them. The truth is many franchisors do not read their contract either. They turn it over to the lawyers and say ‘handle it.”

Another reason – after being recognized as the key player for getting H.R. 3308, The Small Business Franchise Act, introduced this year, Kezios’ group now has managed to get 42 co-sponsors – 25 Republicans and 17 Democrats – of the bill. Last November, it only had 23 co-sponsors. Many franchisors predicted that number would go down if re-introduced in 2000.

But even if franchisors want to ignore all of the above and once again pretend these things aren’t serious, consider this: AFA now has approximately 25 franchisee attorneys that are listed as affiliate members of the association. Many of these lawyers are improving their track records in defending franchisees.

They work hard at getting clients and for some reason there doesn’t seem to be a problem finding disgruntled franchisees these days. The franchisee attorneys by no means are a dying breed. They are thriving.

The Federal Trade Commission and some state regulators are meeting with the AFA and franchisee attorneys on a regular basis, discussing legal issues and educating them on regulatory matters. After their first meeting last June in Chicago, the groups agreed to have an ongoing dialogue. Steve Toporoff, with the FTC, stated these meetings were “long overdue.” As one attendee put it, “franchisor attorneys spend a great deal of time and money to perfect their relationship with regulators.” And, it was now time “for those of us on the franchisee side to do the same.”

There seems to be more litigation than ever. While franchisor and franchisee lawyers meet this month at the International Franchise Association’s legal symposium and debate the issues on alternate dispute resolution, negotiating the franchise relationship, the impact of class action lawsuits and Internet enforcement – to name a few topics – franchisee attorneys will have their own conference through AFA. They will not invite franchisor counsels to be involved. They will discuss with franchisee members “How to Organize an Association - a Turn-key Approach,” “Negotiate Now or Litigate Later,” “Sale of a Franchise System – How to Prepare Yourself,” “Exit Strategies – Can Franchisees Extricate Themselves from Being Forced to Purchase Supplies?” and “What the Feds Can Do, What the States Can Do.”

In past AFA Legal Symposiums, franchisee attorneys have discussed issues such as “how to file a class action lawsuit,” “if you screw up or if you want out of the system, here’s what to do to protect yourself,” “franchisee association lawsuits – another way franchisee associations can help.” Even though a franchisee may not be having problems now, they claim an association is its insurance if problems come up down the road.

AFA has gained strength by numbers and by getting the ear of the legislators. Some franchisors still may not want to recognize this, but sooner or later they will have to deal with it. Maybe franchisors need to also recognize turning it over to the attorneys may not be the best solution. We have scolded franchisees for not reading their franchise contracts before signing them. The truth is many franchisors do not read their contract either. They turn it over to the lawyers and say “handle it.” Once it’s in the hands of the attorneys the real battle is on.


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Risks: Susan Kezios, American Franchisee Association, AFA, Ignore franchisee advocates and they’ll go away, International Franchise Association, IFA, Raining litigation, United States, 20000501 Wake up

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