law at Business Franchise

While surfing Internet I have met an article that made me overlook some of my views on franchise system.
It is called Marketing the Franchise and written by Edward N. Levitt, a franchise lawyer and partner with Gowling LaFleur Henderson LLP, who has over 30 years experience practicing franchise law, is a prolific writer, a noted lecturer and is currently General Counsel to the Canadian Franchise Association.
I used to consider franchises mostly from franchisees point of view. What should an entrepreneur do in order to find the right franchisor? What are the most thrilling franchise experiences in … (let’s say Australia)? What are the main rules to follow in order to be successful franchisee?
But franchise as any other system is a two-way highway. And franchisors also face a lot of problems during setting up and organizing a franchise system work.
Their problems are problems of other growth. Where should a company search for its franchisees? What are the criteria to choose the right guys to work with that business? How should business relationships be installed? Where are the responsibilities borders? What information and authority should be shared with franchisees? How should a company respond to improper franchisees?
All that topics are called franchise marketing. And a franchisor should be clear in his mind answering all that questions.
So the article is a must read to anyone thinking to install his own franchise system and highly recommended to anyone interested in franchises.

Today’s franchises are much alike to set a code of conduct. Whereas ages ago there were knights’ code, chevaliers’ code, mason code or just gentlemen code it has transformed for today.
It’s the franchisor who dictates the franchisee all the way he should perform the business.
Is it good or bad? Does he have the rights to do so or is it humans’ rights violation.
I think neither. Just the same as knights from Middle Ages you have the right to choose the franchise you like most. You could start your business with your confederates – the guy thinking just the same way you do. And nobody forces you to do the things you don’t like. You just have to choose properly…

By the way I wanted to write a message concerning smoking. I’ve found the information that last month Marriott International Inc., the large U.S. franchise hotel chain, is banning smoking in all its U.S. and Canadian facilities. The new policy includes all guest rooms, restaurants, lounges, meeting rooms, public space and employee work areas. Currently more than 90 percent of Marriott guest rooms are non-smoking. The information seemed interesting to me and I decided to make a little research of franchises that are prohibiting smoking.

I’ve found a lot of companies (mostly hotels and restaurants) that are struggling against smoking.

McDonalds has adopted a non-smoking policy for all modern restaurants in 1993. This existing non-smoking policy was adopted by most of its franchises.

The Spudulike Group has had a no smoking policy in all its managed stand alone restaurant units.  This policy is directly linked to the fresh and healthy nature of the core baked potato products.

The Hard Rock Café in the US has a no smoking policy as it’s the law. Whatever the law is for that particular country Hard Rock goes with that.

The Wagamama chain is smoke free throughout its 21 UK restaurants.

Kentucky Fried Chicken and Pizza Hut, has announced that all of their restaurants will be smoke-free by the 17th of August. The company operates 1,200 KFC and 1,675 Pizza Hut restaurants across the country. They are also encouraging their franchise owners to adopt the same policy for the nearly 4,200 franchised restaurants.

Hmm… I wonder if they are doing so just because they really think that way… Or they are moved to that by franchisors.

Anyway as I’m no-smoking-supporter I like they way the franchise system changes the world.

The first legislative act I want to write about will be the Small Business Franchise Act (the SBFA). I’ve read its statements and decided to range them according to their importance (as I think) for small business in general and franchise business particularly.
 
That Small Business Franchise Act was signed in 1999 after it raised heated debate. The proponents believed that the Act was necessary to protect the rights of small franchisees and to create favorable conditions for their development. But opponents insisted that this bill is only a waste of time and tax money as there was the good franchise legislation on the one hand, and the good small business legislation accompanied by different government supporting programs. Anyway the bill passed and I’m going to say some words about its content.
 
The first (not by the order but by its importance according to my opinion) statement of the Act protects the franchisee against unlawful transfer of the business. I think this to be very important because in the most cases franchisee is very dependent on the franchisor’s behavior according to their agreement. I’m not against this dependence but in the case when franchisor decides to sell his business, or to merger the new owner can easily forget about the rights and problems of franchisee (especially if we are speaking about a small business). So the SBFA guaranties that franchisees would be given at least 30 day’s notice of the franchisor’s transfer of ownership to another entity. I want to draw attention to the number of days. To my mind it’s very good that the bill not only makes franchisor to provide the information but also establishes the period of time. It would help franchisee to prove that his rights were violated.
 
The second statement I want to speak about protects the franchisee from unreasonable termination. As I understand this guaranty is rather close to the previous one. It will protect the small company from franchisor’s groundless decisions. According to the bill the main company has to provide a good cause to explain why it doesn’t want to continue business relations with franchisee. At the same time a compulsory 30-day period must be given to the franchisee to cure any defaults. The only thing I need to mention here is that I have a doubt that 30-day period would be enough in some difficult cases (for example in the situation when companies are located in different countries). Anyway according to the Small Business Franchise Act after that period both companies have the rights to turn to the court.
 
The third very important part of the Act ensures procedural fairness in the relations between franchisee and franchisor. It means that the conditions of the Small Business Franchise Act are more important in comparison with the conditions of the agreement between the main company and its small franchisee. Nothing in the agreement can limit or eliminate any of the franchisee’s rights.
 
The number four in that list imposes limited fiduciary duty on the franchisor. In English it will sound like this: “Franchisor must provide financial information about their activity to the franchisor”. Why? Because franchisee’s business results depend on franchisor’s decisions and financial decisions are not an exclusion. But is it fair toward franchisor? Yes, because he will provide a full disclosure of disbursements and a full accounting only for the money received from franchisee. The main company must not provide any co-called secret information, or information about long-term investment in some projects that have no connection with franchise business at all.
 
The fifth important part of the bill is dedicated to relations between the franchisor and the franchisee after the franchise agreement has expired. This regulation protects the rights of both parties. On the one hand, it permits the former franchisee to continue business activity in any sphere and at any location. On the other hand, the bill prohibits using the franchisor’s intellectual property, trademark, or any other commercial or business secrets. Why do I consider this part of the Small Business Franchise Act to be less important than the previous ones? Because I really believe that every clever franchisor will include the same point in the franchise agreement and the Act only provides additional guaranty.
 
OK. I’ve reached the middle of the list of the important regulations in the SBFA. Let’s go forward! In the sixth part I’ll speak about trade relations between the main company and its franchisee. The authors of the bill decided that they needed to guaranty the freedom of any franchisee while buying goods and services for the business purposes. It means that it’s illegal for franchisor to include in the franchise agreement the point saying that franchisee is obliged to purchase raw materials, equipment, other goods and services only from the main company. I like this statement but don’t think this to be so important than the previous ones. I really think that freedom is a good thing but as I understand the franchisor has an incentive to provide beneficial conditions for franchisee to attract him and it’s better to buy from the main company and save some money on transactional costs.
 
The next item of the Act is very sound but a little bit naïve as I think. That’s why I gave it only the seventh place in my list of importance. It speaks about common to all mankind values as honesty, good behavior and good faith. The Small Business Franchise Act insists that every party in the relations has to “act honestly and in good faith with each other and observe reasonable standards of fair dealing in the trade”. But how measure the level of honesty, reasonability or faith? I have no idea…
 
 
 
Three more left… Brace up! The SBFA also says some words about the relationships with government and local authorities. The Act gives the right to an attorney general of any state interfere in the transactions between the franchisor and the franchisee by bringing a civil action on behalf of its residents in an appropriate U.S. District Court. It can happen if the government official believes that that the SBFA is being violated. I put it on the eighth place because I think that the same statement characterizes every legislative act. I mean that to ensure the law is the main role of every government. Am I right?
 
The last two statements are the least important. The first of them determines that small business franchisees have the right to form and to participate in trade associations. And the last statement of the bill acts as a slogan as I think. It establishes that perpetrating a fraud within the franchisor-franchisee relationship is prohibited. It’s not more than a remainder of the statements of the other general business laws.
 
At the end of my comments to the Small Business Franchise Act I want to remind that this list of more or less important regulations of the bill is only my personal point of view. Can anyone introduce his or her list? I will be very happy to hear any grounded ideas.

I’m opening a new category in my blog speaking about the franchise and small business law. During all that time I was writing my articles I was choosing between a wide topic of small business and narrow topic about franchise. If you read my blog you can easily see that many times if was very difficult for me to make this choice.
  Looking back I realize that very often I start my article about franchise but can’t stay focused on it. I really hope that nobody will find a big problem in it. I like both topics and both concepts because both of them play a tremendous role in the world economy and both of that spheres involve ordinary people who managed to achieve something in their lives and every day impact the development of our society. I want my site to help these people to operate better. And I want newcomers to make it easier, faster and more successful.
 The proverb says that it’s much wise to learn by somebody’s mistakes but not by your own. And I believe that my new category will be helpful.

McDonald’s is launching the first lunar franchise. At first sight it looks like a joke. Whom to serve on the Moon? How to deliver the food ingredients? Who will work there?… These and many other questions appeared in my mind immediately after I’ve read that information.
 

Certainly, they can’t consider this as a profitable project. As I understand they can’t even think about getting their investment back within the next dozens of years. But as I understand they are thinking about indirect benefits.
 

The first unquestioning benefit is promotion and advertising. That idea is enough interesting and strange for many journalists to write about it. People will discuss it too… At the same time the idea gives rise to positive emotions. Just listen to your emotional reaction when reading the following:
“The famous astronaut is lending the Moon and he has only 2 hours to meet his sweetheart. They meet at the McMoon. The stars are surrounding them. They can see the Earth through the window…A robot in a traditional uniform is serving them… ”
 OR
“A small space ship flies up to the McMoon using the special corridor. Two strange aliens are ordering 4 BigMacs and 2 Colas. It’s a “McMoon drive”…” 
Is it funny? Yes! Fantastic? Sure! But I bet that you’ve smiled while reading this. That’s what I meant while speaking about positive emotions. And what will you say about Ronald McDonald in the rocket?…
 

The second benefit for the company concerns costs. According to the official information, because of the high cost of providing living space and life support technologies, all food preparation, serving, cashier duties and maintenance will be performed by a crew of specially designed robots. And if everything works OK they will start using the same technology in some terrestrial restaurants! As a result this can help saving thousands in annual labor costs (certainly if trade unions will not lobby a law to forbid it).
 

I hope I managed to prove that this idea is not so strange and stupid as it seems from the first sight.

This page is generated by Wpkeys plugin