wpeF.jpg (712 bytes)May 2000 Blast Fax

dotsm.gif (39 bytes)  Assault of Iowa Franchise Act
dotsm.gif (39 bytes)  Encroachment is "Bad Business"
dotsm.gif (39 bytes)  Canadian Legislation
dotsm.gif (39 bytes)  New Members
dotsm.gif (39 bytes)  Coeur d' Alene Conference
dotsm.gif (39 bytes)  Franchisee Web Community
dotsm.gif (39 bytes)  AFA PAC Contribution

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Franchisors Continue to Assault Iowa Franchise Act

Franchisors have continued their unrelenting assault this year on franchisees in the state of Iowa by attacking the Iowa Franchise Act. The Iowa Franchise Act, passed in 1992, provides Iowa franchisees with a small measure of protection against opportunistic actions by franchisors. 

Finding it impossible to get the Act repealed in prior years, franchisors sought changes this year that provide great insight into the motives of the franchisor community. The original Act said that franchisors must be "reasonable" in most aspects of their relationship with franchisees. Franchisors pushed this year to strike the word "reasonable" as it relates to franchisee training, transfer of ownership and franchisee payments. Other changes

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 pushed by franchisors allows them to act in an arbitrary and capricious manner regarding termination, allows the franchisor to enforce covenants not to compete under any circumstances and deletes the ability of franchisees to independently source equipment.

Last year franchisors succeeded in passing a bill in the Iowa Senate that made some twenty changes to the Iowa Act. However,Iowa franchisees managed to get language in that bill which actually strengthened the original encroachment provision. The language provided a franchisee could seek an independent remedy for encroachment based on a violation of the duty of good faith and fair dealing. Because franchisees were successful in getting that provision attached to the bill, franchisors refused to pass their own bill last year in the Iowa House.

This year the Iowa House again took up the Senate bill. This time, franchisors succeeded in attaching an amendment to the Senate bill, which stripped the favorable encroachment language and added an
exemption for Bandag, a tire recapping company located in Iowa. Bandag, one of Iowa's largest employers, had requested this exemption after its largest client, Michelin Tire and Rubber, dropped it. Even though a majority of the House opposed the good faith changes, the House leadership held the Bandag language hostage. Faced with the unpleasant choice of offending Bandag or diluting the good faith protections, the majority of the House chose the latter. The bill passed the House, then passed the Senate as amended and the governor signed the bill.

What have franchisees learned from this experience? Mostly that franchisors are determined to maintain dominance over them. Franchisees not only have to fight for better legal protection of their rights they must also constantly monitor the few statutory protections they currently enjoy. Without such protection
franchisors will continue to act unreasonably and without regard to a duty of good faith and fair dealing.

Franchisors have not, however, even with unlimited resources, been successful in repealing the Iowa Franchise Act. Yet their paid lobbyists return to Iowa year after year as is evident by the Bandag bill. They do not give up. Franchisees must be equally determined. The lesson here is that organization and
persistence is key in the legislative arena if franchisees are to be successful in protecting their economic investments.

Just when we thought we heard everything. . .

Franchisor Admits That Encroachment Is "Bad Business"

. . . but claims that the franchise agreement permits bad business practices.

Admitting that it was "bad business" to encroach upon a franchisee's territory, Interim Healthcare, Inc. ("Interim") argued in the U.S. Court of Appeals in Chicago that it enjoys a contractual right to encroach so long as its company owned offices are located outside the franchisee's territory. Interim, the franchisor of a national home health care network, provides each franchisee with a defined territory, and claims that it strives to respect the franchisee's territory whenever possible. However, Interim denied
contractual liability for encroachment, arguing that its franchise agreement permits it to encroach even though encroachment is a bad practice that it supposedly strives to avoid.

AFA Affiliate Member Carmen D. Caruso, the franchisee's lawyer, argued that the franchisee's territory is protected by the franchise agreement, because an alleged right to encroach was not included within the franchisor's "reservation of rights" regarding the defined territory. Caruso cited admissions by Interim that in drafting its franchise agreement, Interim was intentionally vague on territorial issues because
it sought to avoid "rigid rules" that might straightjacket the system. Caruso argued that the implied covenant of good faith and fair dealing prevented Interim from taking opportunistic advantage of a deliberately vague agreement by encroaching in a way that even an Interim vice-president labeled "unethical" in his pre-trial deposition.

AFA's President, Susan P. Kezios and Director of Public Policy, Samuel Crawford, attended the appellate argument. They couldn't decide whether they were more startled by Interim's admission
that encroachment is bad business, or by its argument that the franchise agreement permits bad business practices. "They're using their agreement to legally defend "unethical" and "bad business" practices on its franchisees - that's the best argument yet showing the need for the standards of conduct contained in HR 3308, the Small Business Franchise Act," Samuel stated.

Special Note: Carmen Caruso will join AFA Affiliate Member attorneys Michael Liss and Jeffrey Goldstein to discuss ambiguous franchise agreements at AFA's Franchisee Leadership Conference in Coeur d' Alene, Idaho, May 4-5th.

Canadian Legislation Spurred by Franchisor Abuses

Spurred to action by repeated complaints over the years from Canadian citizens, the Legislative Assembly of Ontario held a series of public hearings in March regarding newly proposed franchise legislation. Over the last several years, elected officials in Canada had been receiving complaints of bad faith business practices by franchisors against Canadian franchisees. The hearings were finally convened March 6, before the Standing Committee on Regulations and Private Bills and specifically dealt with Bill 33, the Canadian government's proposed Franchise Disclosure Act.

Susan P. Kezios, President of the American Franchisee Association (AFA), was asked to testify about the American experience with disclosure legislation. Ms. Kezios told the Standing Committee that after 30 years of experience with disclosure legislation in the U.S. it was clear that disclosure, "does not work." She cited various states' enactment of franchise relationship laws since the 1970's to fill the gaps when disclosure was inadequate to deal with the opportunistic behavior of certain franchisors. She also
provided as a further example that disclosure alone does not work by mentioning the pending federal relationship legislation, The Small Business Franchise Act, HR. 3308.

Ms. Kezios then gave examples of where the proposed Bill 33 didn't go far enough to protect franchisee's investments. Specifically, she advised the Committee that the proposed duty of good faith was "unenforceable" as it was currently written. She suggested that the Canadians learn from the American experience and go beyond mere disclosure and into the relationship between franchisor and franchisee to truly prevent abusive trade behavior. After presenting her prepared remarks, the Standing Committee questioned Ms. Kezios further about American franchise laws and their relevance to the problems being experienced by Canadian franchisees.


Welcome Newest Association Members

Denny's Franchisee Association (DFA)
Colors on Parade Franchise Advisory Council, Inc.

Franchisee Leadership Conference in Coeur d'Alene, Idaho

The AFA is ready to welcome its members and friends to its Franchisee Leadership Conference in Coeur d'Alene, Idaho May 3-5. The proceedings begin with the Franchisee Leadership Summit on
Wednesday, May 3rd where franchisee leaders of independent associations will participate in a round table discussion about their top issues and concerns. They will also discuss how they are growing their independent associations to the next level with regard to revenue enhancement, membership recruitment and other activities.

Thursday, May 4th, Michael Einbinder, Esq., Rosen, Einbinder & Dunn, P.C. and AFA President Susan P. Kezios will open the Franchisee Legal Symposium which is subtitled, Smooth Sailing Ahead. Mr. Einbinder is the Chairman of this year's Franchisee Legal Symposium. Nineteen lawyers and a half 
dozen other invited speakers will discuss with franchisees a number of topics including the worst franchise contract clauses, wrongful termination, ambiguous clauses in franchise agreements, forming an independent franchisee association, encroachment, renewal, sourcing of supplies, the sale or
purchase of a franchise and the sale or the purchase of a franchise system, just to name a few.

The Franchisee Leadership Conference is being held this year at the Resort on the Lake in Coeur d' Alene, Idaho. Coeur d'Alene is located just 30 minutes east of Spokane, Washington. Most major airlines have direct or non-stop flights into Spokane. The Resort has a shuttle bus available ($40 roundtrip) for attendees who do not plan on renting a car. For more information call the AFA office at 312-431-0545 or the Resort on the Lake at 800-688-5253.

AFA Establishes Online Franchisee Web Community

The American Franchisee Association (AFA) has launched a new interactive online Franchisee Web Community. AFA members can now create their own free web sites, engage in online conversations with one another, obtain quick access to industry news plus use many other customized online services. This new member benefit will make it easier for fledgling franchisee associations to communicate amongst themselves. Franchisees across brand names can also communicate with one another using an exclusive interactive online gathering place. AFA created the Franchisee Web Community with the help of InfoStreet, a leader in the development of community web sites. The Franchisee Web Community's suite of products and services include internet dial-up access, web hosting, web-based email, classified ads, discussion forums and private chat rooms.

Visit the Franchisee Web Community through AFA's web site at www.franchisee.org.

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