AUGUSTA, Maine — Franchise contracts between megachains such as Dunkin Donuts and Burger King too often are weighted toward the chain — to the franchise owner’s disadvantage.
That’s the central premise offered by Rep. Erin Herbig, D-Belfast, who successfully shepherded a proposal through the House on Monday that she says would make strides toward leveling the playing field.
Herbig’s bill, LD 1458, was approved 75-60. The bill would write into law protections for franchise owner/operators, such as provisions requiring “good faith” on the part of the franchiser, protections against abrupt termination of franchise agreements and a right of franchise owners to pass their businesses on to family members.
The bill has been the subject of a fierce lobbying campaign, with Herbig at the center. Advertisements condemning Herbig by name began appearing in Maine media in recent months, followed by other ads praising her and supporting the bill.
Herbig on Monday dismissed the smear campaign against her, saying her efforts always have been in support of Maine’s franchise owner-operators.
“A lot of the negative ads were from out-of-state corporations,” she said. “But those aren’t my constituents.”
Maine is home to more than 3,600 franchise businesses, which employ 38,900 workers and generate about $3 billion in economic activity in the state, according to the International Franchise Association.
The IFA opposes Herbig’s bill, saying it would undermine the franchise contracts on which the entire market is built and drive businesses out of Maine.
“Like any business, franchise companies will consider the regulatory environment when choosing where to invest,” the company said in a written statement after LD 1458 was advanced by the House on Monday.
“Creating a new regulatory scheme governing complex business-to-business relationships puts Maine on an island by itself, making it the least attractive state for franchise development by restaurants, hotels, retailers and many other service sector franchises,” the company said.
Among the provisions of the bill are rules requiring “good cause” for a franchiser to cancel, terminate or refuse renewal of franchise agreements. Specifically, the proposal would prevent franchisers from ending the contract because a franchisee:
— Refuses to participate in “unreasonable” promotional campaigns that are unlikely to benefit the individual franchise.
— Ignores sales quotas not explicitly set forth in the franchise agreement.
— Sets its own prices, independent of the franchiser.
— Establishes its own operating hours.
Those protections may seem like decisions that should be made by local owner/operators, not distant corporate chain offices, but some franchisers say they cut to the core of their businesses’ brands.
For example, 7-Eleven said allowing local owner/operators to set their own hours would hurt its brand, which is well-known for its hours of operation and requires many of its franchises to be open 24 hours.
Additionally, promotions that cost a small fortune to advertise — such as a McDonald’s 2010 campaign to sell any drink at any size for $1 — could be meaningless if local franchises are allowed to opt out.
The subject of brand maintenance was foremost for many of the bill’s opponents in the House, who said Herbig’s proposal would give franchise owner/operators an unfair advantage over the brand they are buying into.
Rep. Amy Volk, R-Scarborough, said the bill would cause franchise chains to “lose control of their brand” if they were not able to terminate franchise agreements held by owner/operators who refuse to play ball.
That would hurt not only the company, but consumers, she said.
“Consumers expect a strawberry glaze doughnut from Dunkin’ Donuts in Florida to taste the same as a strawberry glaze doughnut from Maine,” she said.
Supporters say they simply want to protect small, local franchises owners from much their much larger franchisers.
“Franchise contracts are ‘take it or leave it,’ and they should be to a certain level,” said Rep. Mark Dion, D-Portland. “But they aren’t supposed to be used as a club to beat down the franchisee. The idea here is that we give them a tool. ‘Good faith’ and ‘reasonable expectation’ is simply that: a tool. It will allow [franchisees] the opportunity to petition a court and be heard.”
The bill faces additional votes in the House and Senate.
Follow Mario Moretto on Twitter at @riocarmine.