In a year that has seen efforts in several states to impose additional restrictions upon franchisors, Massachusetts will close out 2013 with a hearing on its pending franchise legislation, the “Fair Franchise Act.” In addition to the common themes in most state franchise laws (limitations on termination and non-renewal, opportunities to cure, notice provisions, etc.) the Massachusetts legislation provides this gem;
“A franchisee may terminate a franchise agreement for good cause shown, without penalty or fees. Good cause shall include but not be limited to changes to the franchise system or the competitive circumstances of the franchise agreement created or expressly required by franchisor which would cause substantial negative impact or substantial financial hardship in the operation of its franchise.”
If the Massachusetts legislature wants to give trial attorneys in their Commonwealth a Christmas present, this is it… A good franchise lawyer could take those two sentences and tie franchisors in knots for the foreseeable future. If Massachusetts wants to impose a 90 day notice period prior to termination or non-renewal – fine; want to prohibit liquidated damage fees in excess of a six month multiplier? Great. But please do not create legislation that is going to tee up frivolous lawsuit after lawsuit for years to come. That is not “Fair” for anyone.
According to this “New York Times” article, the best franchisee investors are hybrid entrepreneurs who mix risk & structure.
Franchisors spend a great deal of time trying to determine what kind of person will make the most successful franchisee for them. Once you get past the financial requirements, this piece in the “New York Times” suggests that frequently, the ideal franchisee investor is not a person who is an out and out entrepreneur. Rather, the more successful franchisees are those people who are entrepreneurial and yet they are comfortable working within the formula and structure of their franchisor. What do you think?
The famous quote from the Terminator, California’s former Governor Arnold Schwarzenegger, might as well apply to “Level the Playing Field for the Small Businesses Act,” legislation that failed to pass in California in 2012. As predicted, legislation is now pending in California that picks up on the 2012 effort to expand California’s existing franchise laws.
2013’s version is called the “California Small Business Investment Protection Act.” The 2013 version is based upon the same underlying principle as its predecessor, that the franchise relationship is inherently unfair, pitting the naïve small business owner against the sophisticated corporate giant. This comparison is tired and dated. The reality is that in 2013, the franchisor is more likely to be a small business with a solid concept and lean infrastructure that is looking to partner with smart business owners to seize upon opportunity. While I want to assume the authors of the pending legislation have good intentions supported by valid business concerns, the following section gives me pause;
“As opposed to corporate entities that are franchisors and most often reside outside California, franchisees are the local small business owners who personally fund the franchise brand development, sales, use and income tax, and who invest in building, equipment, pay leases, and other spill over investments. Franchisees invest their substantial assets, take loans sometimes secured by their family homes, and enter into long-term commercial leases and other obligations while looking to their franchise businesses for their livelihoods.”
While this is sometimes a true statement, it implies that franchisors are not “small business owners” who “personally fund” the development of a franchise system. While many trial lawyers may be drooling at the prospect of this new legislation, I don’t believe the business community will benefit.
Yesterday, the Pennsylvania House of Representatives voted in favor of House Bill 790 by a vote of 105-90. The bill now heads to the Pennsylvania Senate where I expect to see additional changes to the legislation. It looks like Pennsylvania is about to get out of the business of selling alcohol to its citizens.
My colleague, Sarah Ivy, did a great job speaking at the Pennsylvania
Restaurant & Lodging Association’s annual meeting this past weekend. The
topic of Sarah’s presentation was the Patient Protection and Affordable Care
Act (“PPACA”). There were many questions from an audience consisting of
franchisors, owners and operators of many well known restaurant and lodging
brands. Whether the operator was large or small, the questions focused on
how the PPACA will impact the bottom line and the workforce. The restaurant
and lodging industries face unique challenges with the implementation of the
PPACA as they tend to rely heavily on part-time workers. One of the large
franchisors in attendance explained that their system now designates one
full-time employee in each restaurant location to manage workers’ time so
that their number of full-time equivalent workers stays within the
parameters that ownership has determined acceptable. Dedicating additional
resources to manage the penalties and costs of the PPACA will be the norm
for many businesses going forward.
If you are an employer, large or small, and you are uncertain how to manage
the impact of the PPACA, you need to speak with Sarah or another tax