Conference Offered Full Serving, Including Turkey

In Ontario, opponents of the legislation have argued that it places the franchisor in the position of being an advisor to the franchisee, with unknown legal consequences even if all the information provided is demonstrably accurate. As a private member’s bill, the proposal does not have the explicit support of the government … but it did have sponsors from all three parties represented in the Legislative Assembly.

Franchise Times
January 21, 2011

Conference Offered Full Serving, Including Turkey
Philip F. Zeidman

philip-zeidman.jpg

Dateline: Vancouver, British Columbia

This handsome city, one of the most beautiful in North America, offered a welcome respite in October from the cacophony of the elections in the United States then less than a month away. That was not, of course, the purpose of the trip.

The Annual Conference of the International Bar Association is one of the three yearly events where information is exchanged among the world’s lawyers who practice in the field of franchising. The other two are the International Franchise Association Legal Symposium (which includes the following day’s joint seminar with the IBA), and the American Bar Association Forum on Franchising.

And a full serving it was: Sweeping surveys of topics such as compensation to franchisees upon termination and nonrenewal, in a number of countries; a discussion of the use and control of social media in international franchise systems; examinations of franchise agreements in two countries with franchise statutes, Belgium and Sweden, and in a country without a franchise law, Turkey. Finally, the conference culminated with a broad-ranging survey of franchising in North America and the Caribbean.

The week, incidentally, provided some relief from the endless barrage of political advertisements, speeches, policy papers and debate filling the airwaves in the United States. The overriding theme of the mid-term elections in the U.S. - the asserted evil of a large and intrusive federal establishment versus the presumed virtues of localized government - was muted and muffled by the chasm of time and space that separated us from the noisy workings of democracy 3,000 miles to the east.

But not for long.

The bags from Vancouver were not yet unpacked when two developments, on (literally) opposite sides of the world, reminded us of just how relevant that political argument remains to the arcane realm of franchising. To most of us, the principle of federalism - the division of power between two constituent bodies of government - is a theme that we dimly recall from a dusty civics course. Every few years we are reminded of it by the big government/small government debates that punctuate a political campaign (and, sometimes malodorously, by the earlier arguments over “states’ rights”). But what do they have to do with franchising?

As it turns out, quite a lot.

We, in the U.S., have become accustomed to thinking about our laws in a framework of “federal or state,” with the “or” sometimes yielding to “and,” leaving the courts and legislatures to sort out jurisdiction when the same subject is dealt with at both levels. Perhaps we recall that the 10th Amendment to our Constitution. It provides that “the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States.” Most people have no reason to think about that principle (“federalism”), but franchise lawyers deal with it daily; the regulation of franchising in the United States is an intricate web of federal and state law.

There is a tendency to think we are alone in that respect. After all, the other economic powerhouses of the world need not bother themselves with laws being passed by bodies below the central level. The events immediately following Vancouver served as a useful reminder that, in fact, we are not alone.

In Ontario word came that the Legislative Assembly was well on its way toward possible passage of a startling expansion of the disclosure document already required by law in that province. Among the additional “information” to be provided is a wide range of required statements calling for subjective judgments, all intended to guide the prospective franchisee in his own decision (e.g., “self-evaluation criteria”; guides as to whether the particular franchise is the best choice, or whether a franchise is needed at all). In short, a striking departure from the original concept of a “disclosure” document.

In Australia, legislation has been proposed which would, among other jaw-dropping features, empower a judge to renew an existing franchise agreement and to rewrite it as the judge thinks justice requires. This was an especially disappointing development in the light of the earlier announcement at the federal level that no further “franchise review” would be undertaken for several years.

At the time this column is being written it is not certain what will be the fate of any of these legislative proposals. Indeed, there has already been a flurry of recent developments that evidence the extremely controversial nature of the proposals.

In Ontario, opponents of the legislation have argued that it places the franchisor in the position of being an advisor to the franchisee, with unknown legal consequences even if all the information provided is demonstrably accurate. As a private member’s bill, the proposal does not have the explicit support of the government … but it did have sponsors from all three parties represented in the Legislative Assembly.

The proposals drew heated opposition in western Australia. The Franchise Council of Australia described the bill as a “tenant automatic right of lease renewal.” Critical responses came not only from commentators, financing sources, and industry and legal groups in Australia, but also from beyond: The International Franchise Association focused on the unprecedented scope of the renewal provisions. One prominent franchisor in the region threatened to relocate its corporate headquarters (and several thousand jobs) to the east if the proposals were to become law. In the end, the pressures were effective: The western Australia Premier announced the government’s intention to withdraw the bill (and the opposition party also withdrew its initial support), and to refer it to a parliamentary committee for proper examination and scrutiny. In the meantime, though, perhaps prodded into action by the activity in western Australia, proposals for franchise litigation have been advanced in both south Australia and Queensland.

While the fate of these proposals is uncertain, what seems more certain is that none would have gained much traction if proposed at the national level, to be applicable throughout the country. The greater scrutiny applied to laws that would have nationwide applicability would have impeded and might well have stopped such proposals at a nascent stage.

The specter of an array of state or provincial laws - each requiring interpretation and monitoring, with sometimes duplicative or disparate requirements, and each carrying its own set of burdens - is what led the International Franchise Association 40 years ago to seek to explore the feasibility of a national franchise law which would preempt inconsistent state action. But by that time, the legislative horse was out of the barn. Now, two other countries with federalist systems are confronting the same unpleasant scenario.

No one is enamored with the prospect of more national laws, but there is truth in the old shibboleth, “better the devil you know than the devil you don’t.”

Philip F. Zeidman is a senior partner in the Washington, D.C. office of DLA Piper U.S. He is general counsel to the IFA and can be reached at moc.repipald|namdieZ.pilihP#moc.repipald|namdieZ.pilihP

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Risks: Arthur Wishart Act (Franchise Disclosure), 2000, Canada, Arthur Wishart Amendment Act (Franchise Disclosure), 2010, Canada, Australian state franchise legislation, 2010, United States, 20110121 Conference offered

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