According to a recent article in the November 2011 issue of Entrepreneur Magazine, a franchisee organization calling itself the Coalition of Franchisee Associations ( CFA ) has recently decided to take a stand against what it asserts is as an inequity of bargaining position and a dramatic power shift in favor of franchisors. CFA asserts that franchisees are at a distinct disadvantage at the expiration of the initial franchise term when their renewal agreements are presented to them as often times the renewal terms are considerably more onerous than the original franchise agreement’s terms. If the franchisee fails to sign the renewal under the new terms proposed by the franchisor, they are often left with little choice other than to sell their business to a third party or to go out of business. In response, CFA has proposed a Franchisee Bill of Rights in an effort to deal with the “my way or the highway” position taken by many franchisors.
In the past, other organizations have taken note of the perceived disparity of bargaining position between franchisor and franchisee at renewal time and have tried to address the issue with little to show for their efforts. In 1992 the American Association of Franchisees and Dealers issued a document known as the Fair Franchising Standards Guidelines, a proposed set of guidelines which could be used to assess the fairness of franchise contracts.
The International Franchise Association (IFA) has asserted that its Code of Ethics is sufficient and that the CFA Bill of Rights is much ado about nothing. They assert that the more eminent threats to franchising are the policies coming out of Washington as well as the lack of credit and that the CFA Bill of Rights is not even on the radar screens of most of its members.
One thing is for sure. There will always be a natural tension between franchisors who believe that change is important for the growth of their franchise systems and individual franchisees who believe that “if it’s not broke don’t fix it” and want to leave their business models static.
Stay tuned. The debate will remain lively.
– Gary C. Angiuli, Esq.