When Should a Franchisor Deal with an Independent Franchise Owner's Group?


In 2012, I led a Independent Franchisee Association Roundtable Discussion at the IFA Legal Symposium in Washington D.C. Below is a summary of the discussion.

Predominantly we had franchisor attorneys at our table, although in the first session I was not the only attorney who primarily represents franchisees or dealers.

1. Recent FTC Rule

The table members did not see much effect from the recent amendment to the FTC Rule in the way that franchisors deal with their associations.

This would be disappointing for franchisee advocates to hear, as there was hope that the amended rule might create more market pressure in favor of the associations.

2. Decision Making by Association

Overall the franchisor attorneys at our table, and Mr. Saukas, a franchisor, displayed what I personally found to be a surprising level of resistance to the idea that franchisees, through their independent association, should play any role in the franchisor's decision-making process with respect to the brand.

This view was forcibly stated by several participants and none of the franchisor attorneys in attendance seemed to dissent.

The sentiment seemed to be that independent associations have no business seeking to invade the franchisor's decision-making province. Franchisee arguments to the contrary did not seem to persuade this crowd.

3. Why an Association instead of an Advisory Council?

 The franchisor attorneys also questioned why the franchisees would need an independent association in systems where there is a franchisor-sponsored advisory council. Obviously, it was recognized that franchisees may tend to regard a FAC as a rubberstamp, which is often the impetus for forming an independent association.

But again there was not much sympathy expressed for this position.

4. Incentives offered by an Association

One incentive offered to encourage franchisor acceptance of associations was the notion that, on any given issue if the franchisor can persuade the association of the merits of its position, the fact that the association approved the franchisor's decision could be evidence of the franchisor's good faith, which could be useful to the franchisor in the event of any challenge by any other dissenting franchisees.

This has worked in systems in which I have represented the association. But there did not seem to be much enthusiasm at our table for this carrot.

5. When to Recognize an Association

The question of what constitutes recognition of the association was also discussed. There is no formal process for this, unless of course in a given system the franchisor and the association enter into a contract. Experience teaches that this usually happens after a lawsuit.

The question of when the association represents a sufficient number of franchisees to have standing was discussed. There is no clear bright line. 

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