CONTRIBUTORS

Franchise owner ‘protections’ will hurt a rare bright spot in today’s economy

Posted March 18, 2014, at 2:32 p.m.
George Danby

Everyone knows that changing the rules in the middle of the game is unfair. It punishes those who have been abiding by the rules, but, worse, it discourages others from even joining the game.

With the Maine economy starting to turn around, our Legislature should reject LD 1458, the so-called Maine Small Business Investment Protection Act, which is being promulgated by a small but vocal franchisee group asking the government to rewrite franchise business contracts.

Rather than helping small businesses, this bill will only hurt existing small business franchisees, increase costs and reduce investment and growth in the state from an industry that is thriving in the current regulatory environment, with employment gains exceeding those of the overall private sector.

As the CEO of Coffee News, an international franchisor based here in Bangor with more than 800 franchises in 16 countries around the world, I resent the notion that only out-of-state franchisors oppose LD 1458.

As a Maine franchise company that is currently growing here and in other states and countries, I can unequivocally state that if LD 1458 were to pass, it would bring franchise development plans to a screeching halt in Maine for me and my other franchisor colleagues based in Maine.

Because of our strong working relationship with our franchisees in Maine, we continue to serve more customers, create more jobs and support more entrepreneurs.

We help guide Coffee News franchisees through the beginning of their business venture and provide continuing support as they seek to grow and create more jobs through training, advertising and the help of a proven service. Like any franchise company, without these strong relationships with franchisees, our business and our brand simply would not last.

Franchisees not only depend on a strong relationship with their franchisor, but they demand all franchisees uphold the standards of their brand, as well. If a customer has a bad experience at one location, then other locations suffer. LD 1458 threatens the viability of existing franchises by watering down the franchise contract, which helps ensure our standards are upheld from location to location.

Under LD 1458, a franchise could operate outside of the terms of their contract and a franchisor would be inhibited from enforcing the contract because of a fear of litigation. Without any enforcement mechanism to protect the brand, quality will vary from franchise to franchise within our system, leading to inconsistent customer experiences.

In franchising, customers rely upon the knowledge that their favorite brand is consistent, whether here in Bangor or down in Portland. Simply put, legislation that waters down contracts threatens franchise businesses and our model.

It’s not just existing franchisees that would lose out if this bill were to pass but potential franchisees as well. The bill will make it nearly impossible to franchise in Maine — the end result being that local entrepreneurs will be denied opportunities, and franchise brands will simply revert to company-owned locations, creating few opportunities for Maineʼs potential small-business owners.

Unfortunately, a small but vocal group of well-connected insiders are promoting falsehoods to convince policymakers to pass LD 1458. For example, claims that franchisees face the threat of unannounced termination of the franchise agreement are simply false. Franchise disclosure documents outline the conditions of termination, renewal and transfer in various “items” as required by the Federal Trade Commission franchise rule.

Moreover, franchise agreements include a notice and an opportunity for franchisees to address the situation, a so-called “ cure period,” except in instances of criminal actions. Of course, all franchisors want our franchisee small-business owners to work toward a solution to make their businesses successful, but we ultimately must protect our brand.

LD 1458 would make that impossible, thereby eroding the basic tenets of franchising as a business model.

The justifications for government to rewrite private contracts just do not hold up to scrutiny, especially considering LD 1458 goes well beyond every other franchise relationship law in the United States. If passed, Maine would be an outlier in the way its government treats private business contracts.

The contract is the most stable function of business. For franchisees and franchisors, it is essential that contracts oblige both parties to fulfill their duties to ensure a consistent customer experience that helps small businesses grow. We cannot afford to send the message to businesses in Maine that a business contract is not enforceable. This will stunt all new investment and bring economic growth to a crawl again.

I ask policymakers to support Maine small businesses by not changing the rules in the middle of the game and vote to reject LD 1458.

Bill Buckley is president of Coffee News.

 

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