Our new, comprehensive guide to state franchising laws finds that 32 states do not have laws that protect small-business franchisees from abusive franchisor practices. The analysis of franchise laws, available here, allows current and potential franchisees to better understand franchise-specific legal protections, which are too scarce.
See the state-by-state guide:
To spur reform, We Are Main St. is reaching out to every member of the legislatures in 49 states, calling on them to establish franchisee-specific protections where there are none and strengthen laws where they exist. Working with franchisees, the group helped push through the nation’s strongest pro-franchisee legislation in California last year and is not contacting lawmakers there. Hawaii, Minnesota and Pennsylvania are currently considering legislation to strengthen franchisee rights.
“There are unique risks inherent in franchising because of the profound imbalance of power between franchisors—often large, multinational companies like McDonald’s—and small-business franchise owners,” said Joan Moriarty, Director of We Are Main St. “Hardworking franchisees should have the necessary, common-sense protections that create an even playing field. These changes promote stability and prosperity for small business owners and the people they employ.”
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A blog post on the Nation’s Restaurant News site has raised a great question: “Franchisees spend a lot of time and energy, and their own money, investing in a brand. So why aren’t more of them on company boards?”
As NRN’s Jonathan Maze noted, franchisees’ interests are not always the same as franchisors:
“…franchisors make their money from franchisees’ top-line revenues because they take a percentage of those revenues as royalties. Franchisees prefer making a profit. And they prefer simpler operations. Those can go against what a brand might want.”
As we reported, this summer restaurant chain Famous Dave’s added California franchisee Anand Gala to its board. “As more brands move to an all-franchise model they have very little skin in the game,” Gala told NRN recently, explaining the importance of the franchisee perspective. Continue Reading
McDonald’s is bringing back a version of the dollar menu, which the company abandoned in 2013 after years of franchisee complaints that it was unprofitable. McDonald’s says franchisees “voted” to approve the new McPick 2 promotion, which starts January 4 and offers any two of a selection of four menu items for $2.
McDonald’s said McPick 2 “gained a ‘high majority’ of franchisee votes, although it declined to provide details,” according to the Associated Press. “When asked whether franchisees in regions with higher costs such as New York might lose money on the offer, [company spokesperson Deborah] Wahl said the deal is designed to drive customer traffic into stores.”
But will driving traffic through a program like McPick 2 be good for franchisees? As Nation’s Restaurant News has reported, many franchisees believed that the traffic driven by the earlier incarnation of the Dollar Menu was not profitable for them and that they would have been better off without it.
McPick 2 will run for about five weeks, and local markets will be able to extend the platform. It comes on the heels of the “Dollar Menu and More,” which McDonald’s launched at the end of 2013 and which reportedly confused consumers with its many different price points.
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California now has one of the country’s strongest franchisee protection laws after Gov. Jerry Brown signed the Small Business Investment Protection Act earlier this month. The signature capped years of effort by franchisees to pass franchisee rights legislation in the Golden State.
“The law protects franchise owners from franchisors who seek to terminate their business on a whim or from franchisors who desire to take possession of a lucrative franchise without compensating the franchise owner,” wrote Don Sniegowski on franchisee news site Blue Mau Mau.
Under the new law:
- It will be harder for franchisors to terminate franchisees, and franchisees will have more time to fix most violations before they can be terminated.
- Franchisors will have to buy certain items from franchisees if they terminate or refuse to renew a franchise. This means franchisees will not lose every dollar they invested if a franchisor terminates or refuses to renew them.
- Franchisees will have an easier time selling their units: Franchisors will have to approve proposed sales if the buyer is qualified and the franchisee follows the franchisor’s transfer process.
The Service Employees International Union joined forces with franchisees to press for the bill.
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