News Briefs

“This is long overdue,” said Ed Wolak, a Dunkin' Donuts franchisee in Maine, who spoke to FBLA after the hearing. “The Maine legislature has, in the past, shown that it will look at doing what's right for small businesses, and I hope it will here.”

Some provisions in LD 1458 are familiar as copies of pro-franchisee legislation that has been proposed in other states in the last two years. These include requirements that franchisors engage in fair sales practices and good faith and fair dealing with franchisees, extend the time that a franchisee has to cure violations, and grant franchisees the right to join a franchisee association without retaliation from the franchisor. “I have a hard time believing any reasonable person would deny business owners the right to join an association without retaliation,” said Wolak.

However, the bill adds new protections for franchisees that go beyond those proposals. For example, the bill would give franchisees the right to ignore price mandates from franchisors, an issue that has arisen when fast food franchisors have tried to increase volume with low-price menu items. The bill would allow a franchisee to close its store between 10 p.m. and 6 a.m., even if the franchisor mandates longer hours to increase traffic. Also, franchisees would be compensated by the franchisor if establishment of a new unit harms the gross sales or net profits of the pre-existing unit ' reflecting that franchisees are increasingly concerned about encroachment.

IFA, the Maine Restaurant Association, the Retail Association of Maine, owners of McDonald's franchises, and several multi-brand franchisees have declared their opposition to the bill. “IFA believes LD 1458 would grind franchise development and job creation to a halt in Maine at a time when the unemployment rate in the state is still above 7 percent,” said Dean Heyl, IFA senior director of state government relations, public policy & tax counsel, when he testified against the bill. “LD 1458 would completely undermine the model upon which franchising is built, including brand integrity and the processes that are in place to ensure consistency within franchise systems to ensure safety for consumers.”

But Wolak said that automakers and appliance manufacturers made the same arguments when Maine instituted “fair franchising” laws in those markets, and business did not grind to a halt. “This is about fairness and about protecting small-business owners from abusive franchises,” he said. “It's aimed at the lowest-common denominator, not at franchises that are doing the right thing.” He added that he is satisfied with his relationship with Dunkin' Donuts management at present, but that Dunkin' franchisees had filed more than 500 lawsuits against prior management of the company, which is indicative of how relationships can ebb and flow without strong protection.

One hot-button issue in the proposed legislation relates to renewal or transfer of a franchise. LD 1458 would require a franchisor to allow a franchisee in good standing to renew its license without an increase in royalties or new fees, and it would require franchises to spell out the terms under which a franchise could be transferred. From a franchisee's perspective, transferring the business with minimal restrictions would enable the owner to maximize the equity he has built. Renewal is at the heart of protecting his investment. “If you spend 20 years building a business, would you walk away at the end of the term without compensation, or would you sign whatever the franchise is offering, in order to protect your business?” asked Wolak, who has been a Dunkin' Donuts franchisee since 1975. “Without the right to renew the contract fairly, it's a rent-a-business.”

Franchisors, on the other hand, have argued that they need to protect the brand by having the right to select strong operators, whether as buyers of new or existing units.

Another issue that has raised a great deal of attention is the prohibitions on a franchisor imposing “a uniform standard of conduct or performance” on franchisees. In speaking with FBLA after the May 8 hearing, Heyl used the example of Hurricane Sandy as an argument against restricting the franchise contract in this manner. After Sandy, many franchisors suspended royalty and lease payments for affected franchisees ' which, conceivably, would be forbidden under the terms of LD 1458. “This bill doesn't say you can cut a franchisee a break; it says you have to treat all franchisees as equal ' and equal is equal,” he said. “Or, looking at it on the individual franchisee level, what if the owner of a franchise suddenly dies. The bill would have a chilling effect on a franchisor that wants to cut a break in this situation.”

Of even greater concern to franchisors might be the provisions that would allow franchisees some control over their hours of operation, supplies and prices. Heyl noted that at the hearing, State Rep. Jethro Pease described his positive experience as a McDonald's franchisee. Pease said that he could have opened Jethro's Burgers instead of McDonald's, but he said that he felt the McDonald's system made him more successful than he could have been on his own. “That's the whole point,” said Heyl. “If you take away the brand, training, supplies and the system, you don't have a franchise business.”

With the carry-over of the bill until January 2014, both sides have the opportunity to speak with each other and perhaps find common ground, and to lobby the legislators. “Basically, the legislature hit the 'pause button' on the bill when it realized that it represents wholesale, far-reaching changes in franchising,” said Heyl. “We're pleased with the carry-over, and between now and January we will be reaching out to committee members and legislative analysts assigned to the committee.”

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Maine Considers Unique Franchising Legislation

In an era in which state legislators have introduced numerous “fair franchising” bills, Maine's legislature is considering a bill with the greatest potential impact on the traditional franchisor-franchisee relationship. The Maine Small Business Investment Protection Act, LD 1458, was proposed in late April. A three-hour hearing followed on May 8 before the Maine Joint Standing Committee on Labor, Commerce, Research and Economic Development, and it attracted more than a score of representatives of franchisors and franchisees to testify about the bill's impact. On May 14, the Joint Committee held a working session on the bill, and at the conclusion of that session decided to carry it over until the next legislative term instead of voting on it; the next term begins in January 2014.

LD 1458 (co-filed as HP 1043) is pro-franchisee legislation, and it has won praise from many individual franchise operators in Maine and the Coalition of Franchisee Associations. It is opposed by the IFA and franchisors (as well as by some operators of large, well-established franchises).

“This is long overdue,” said Ed Wolak, a Dunkin' Donuts franchisee in Maine, who spoke to FBLA after the hearing. “The Maine legislature has, in the past, shown that it will look at doing what's right for small businesses, and I hope it will here.”

Some provisions in LD 1458 are familiar as copies of pro-franchisee legislation that has been proposed in other states in the last two years. These include requirements that franchisors engage in fair sales practices and good faith and fair dealing with franchisees, extend the time that a franchisee has to cure violations, and grant franchisees the right to join a franchisee association without retaliation from the franchisor. “I have a hard time believing any reasonable person would deny business owners the right to join an association without retaliation,” said Wolak.

However, the bill adds new protections for franchisees that go beyond those proposals. For example, the bill would give franchisees the right to ignore price mandates from franchisors, an issue that has arisen when fast food franchisors have tried to increase volume with low-price menu items. The bill would allow a franchisee to close its store between 10 p.m. and 6 a.m., even if the franchisor mandates longer hours to increase traffic. Also, franchisees would be compensated by the franchisor if establishment of a new unit harms the gross sales or net profits of the pre-existing unit ' reflecting that franchisees are increasingly concerned about encroachment.

IFA, the Maine Restaurant Association, the Retail Association of Maine, owners of McDonald's franchises, and several multi-brand franchisees have declared their opposition to the bill. “IFA believes LD 1458 would grind franchise development and job creation to a halt in Maine at a time when the unemployment rate in the state is still above 7 percent,” said Dean Heyl, IFA senior director of state government relations, public policy & tax counsel, when he testified against the bill. “LD 1458 would completely undermine the model upon which franchising is built, including brand integrity and the processes that are in place to ensure consistency within franchise systems to ensure safety for consumers.”

But Wolak said that automakers and appliance manufacturers made the same arguments when Maine instituted “fair franchising” laws in those markets, and business did not grind to a halt. “This is about fairness and about protecting small-business owners from abusive franchises,” he said. “It's aimed at the lowest-common denominator, not at franchises that are doing the right thing.” He added that he is satisfied with his relationship with Dunkin' Donuts management at present, but that Dunkin' franchisees had filed more than 500 lawsuits against prior management of the company, which is indicative of how relationships can ebb and flow without strong protection.

One hot-button issue in the proposed legislation relates to renewal or transfer of a franchise. LD 1458 would require a franchisor to allow a franchisee in good standing to renew its license without an increase in royalties or new fees, and it would require franchises to spell out the terms under which a franchise could be transferred. From a franchisee's perspective, transferring the business with minimal restrictions would enable the owner to maximize the equity he has built. Renewal is at the heart of protecting his investment. “If you spend 20 years building a business, would you walk away at the end of the term without compensation, or would you sign whatever the franchise is offering, in order to protect your business?” asked Wolak, who has been a Dunkin' Donuts franchisee since 1975. “Without the right to renew the contract fairly, it's a rent-a-business.”

Franchisors, on the other hand, have argued that they need to protect the brand by having the right to select strong operators, whether as buyers of new or existing units.

Another issue that has raised a great deal of attention is the prohibitions on a franchisor imposing “a uniform standard of conduct or performance” on franchisees. In speaking with FBLA after the May 8 hearing, Heyl used the example of Hurricane Sandy as an argument against restricting the franchise contract in this manner. After Sandy, many franchisors suspended royalty and lease payments for affected franchisees ' which, conceivably, would be forbidden under the terms of LD 1458. “This bill doesn't say you can cut a franchisee a break; it says you have to treat all franchisees as equal ' and equal is equal,” he said. “Or, looking at it on the individual franchisee level, what if the owner of a franchise suddenly dies. The bill would have a chilling effect on a franchisor that wants to cut a break in this situation.”

Of even greater concern to franchisors might be the provisions that would allow franchisees some control over their hours of operation, supplies and prices. Heyl noted that at the hearing, State Rep. Jethro Pease described his positive experience as a McDonald's franchisee. Pease said that he could have opened Jethro's Burgers instead of McDonald's, but he said that he felt the McDonald's system made him more successful than he could have been on his own. “That's the whole point,” said Heyl. “If you take away the brand, training, supplies and the system, you don't have a franchise business.”

With the carry-over of the bill until January 2014, both sides have the opportunity to speak with each other and perhaps find common ground, and to lobby the legislators. “Basically, the legislature hit the 'pause button' on the bill when it realized that it represents wholesale, far-reaching changes in franchising,” said Heyl. “We're pleased with the carry-over, and between now and January we will be reaching out to committee members and legislative analysts assigned to the committee.”

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