NY Times urges ‘Fairness for Franchise Businesses and Workers’

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The New York Times is urging Calif. Gov. Jerry Brown to sign the Small Business Investment Protection Act (AB 525):

…developments in franchise law in recent decades have increasingly reduced the power of franchisees in dealings with their corporate parents. The result has been lower franchisee profits and lower worker pay, while corporate profits and executive compensation soar.

Worse, the imbalance of power has been largely impervious to reform, until now. A bill in California awaiting the signature of Gov. Jerry Brown would strengthen the legal rights of franchisees in the operation, sale and closing of their businesses.

The bill prohibits the most egregious corporate practices, including the termination of franchises for minor violations of the franchise agreement. Such terminations can ruin a franchisee, but benefit the corporate parent, by allowing the corporation to sell the franchisee’s location at a higher price to a new owner.

The Times notes that the problem goes far beyond California and mentions the petition to the Federal Trade Commission seeking an investigation into abusive franchisor practices. “By signing the California bill, the governor would help in the drive to improve profits and pay at franchise businesses and show the federal government where it needs to go at the national level.”

You can take action to make a difference for franchisee rights: Urge Gov.

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Franchisee burned by Planet Beach tanning chain

Franchisee burned by Planet Beach tanning chain

Shrinking spa chain Planet Beach is suing a Mississippi franchisee who allegedly walked away from her franchise, demanding royalties she would have paid if her tanning salon had stayed open. The company charges in court papers that Marie Porter “abandoned” her Biloxi unit and is demanding she pay royalties for the remaining nine years of her franchise agreement – plus attorney’s fees and “additional sums arising from and related to Defendants’ damage to Plaintiff’s brand and the resulting loss of goodwill.”

Porter is not alone in closing up shop. Although Planet Beach touts itself as “the future of the spa industry,” a wave of closures has hit its franchisees, who have shuttered 85 outlets in the last three years. That represents 30 percent of the chain’s 280 units at the start of 2012, according to the Planet Beach Franchise Disclosure Document.

The Wall Street Journal reported that the Small Business Administration had charged off over $10 million in loans to Planet Beach franchisees over a 10-year period. WeAreMainSt research also shows rising failure rates on SBA loans to franchised businesses. Please let us know what you think about the risks and financial pressures in your franchise system.

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California Legislature unanimously passes franchisee rights bill

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The California State Legislature has sent the California Small Business Investment Protection Act to Gov. Jerry Brown, and franchisees are urging the governor to sign it. The Assembly passed the measure 79-0 on Aug. 31 after the State Senate passed the bill 34-0 on August 28.

Noting bipartisan backing for the measure, Senator Hannah-Beth Jackson, D-Santa Barbara, said before the Senate vote that the bill will “help bring balance to the franchisee-franchisor relationship,” adding that it “provides needed protections against unwarranted actions by a franchisor.” Specifically, the bill, AB 525, strengthens protections against termination of franchisees; enhances franchisees’ ability to sell their businesses; and requires franchisor payments to franchisees if they do terminate or refuse to renew franchise agreements.

Overwhelming support for the bill prompted the franchisor lobby, the International Franchise Association, to stop its campaign against AB 525. The Coalition of Franchisee Associations and the IFA issued a joint letter stating that “the bill will further strengthen franchising as an engine for economic opportunity in California.”

Franchisees are signing onto a letter to Gov. Brown urging him to sign the Act. Brown vetoed a franchisee rights bill last year.

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Franchisees demanding FTC investigation

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Franchisees are urging the FTC to investigate abuses in the franchising industry through an online petition launched by WeAreMainSt.

The problems franchisees face are national: Rising demands for expensive investments; unfair terminations; blocked sales. An investigation by the FTC, which oversees franchising, will show the need for a national solution.

The online campaign supports the request for investigation that SEIU filed with the FTC in May.

“The Franchise system desperately needs reform,” said Kathryn Slater-Carter, a former McDonald’s franchise owner from California’s Bay Area. “The Federal Trade Commission needs to investigate on behalf of the small-business owners whose investments of sweat and savings make franchising work.”

Franchisees can sign the petition here.

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