An important bill that could affect thousands of small business franchises made its way through the Alabama Senate in the regular session but remained in a House committee when the session ended.
Called the Alabama Small Business Protection Act, SB129, it addresses the needs of franchise owners — which make up a huge share of small businesses in the state.
Franchisees are the little guys in the franchise license deal with franchisors.
The bill proposes changes it says would keep franchisors from unfair treatment of their franchisees.
As soon as the bill was aired, lobbyists for franchisors began actively opposing the bill and voicing opposition in the media. “SB 129 would take private franchise contracts like mine and turn them into state law,” Pauline McKean, a FASTSIGNS franchise owner in Mobile, wrote in a Yellowhammer.com opinion piece.
A number of franchisees have been recruited as associate members of the largest group representing big franchisors, the International Franchise Association, and they are used in campaigns against franchise reform. The IFA has been most active nationally in its opposition to city and state campaigns to raise wages.
The Alabama bill proposes no such wage measures, but it is still getting opposition from the IFA and critics who call it unnecessary government regulation, says the bill’s sponsor, Sen. Chris Elliott, R-Fairhope.
“Opposition comes from the national Franchise Association. These are big franchisors,” says Elliot. “They set up sub-associations to make it look like they are conservative organizations, but when you peel the onion, there is nothing more than an effective, well planned campaign by the IFA.
“What this bill is trying to do is to leave them (franchisors) all kinds of ability to police the franchisee and the brand standards but just get rid of the franchisor’s ability to arbitrarily threaten franchisees with non-renewal of the license.
“The bill really just talks about a couple pretty simple things. It sets the venue (for legal hearings) in Alabama. So you don’t have to file outside the state. It’s pretty typical for the venue to be set in the corporate headquarters of the franchisor, and it stacks the deck against the small business guy unless the claim is a half million dollars or more.
“The bill also precludes the franchisor from canceling at a whim. All too often in disagreements between a franchisor and franchisee, the franchisor says he is just not going to renew the license, in order gain some level of compliance. That is fundamentally unfair. This law says you can do it but you have got to pay the franchisee.”
The bill requires franchisors to pay just compensation to a franchisee if the franchisor terminates the licensing agreement “except for good cause.” It also requires that when selling a franchise, the franchisor must disclose “any effort to sell or establish more franchises than is reasonable to expect the market or market area for the particular franchise to sustain.”
CFA chairman John Motta wrote in the Wall Street Journal on June 4 “Alabama Senate Bill 129 does nothing to destroy the franchise model, but allows franchisees more freedom in running their businesses.
“No entity currently protects franchisees because their franchise agreements, which are nonnegotiable, deprive them the right to their day in court.
“The Protect Alabama Small Business Act has nothing to do with unions or government interference with businesses, and everything to do with protecting the life savings of franchisees.”
The bill has been endorsed by the Alabama Franchisee Association, and a number of major Alabama franchise owners have written letters of support.
“In Alabama, franchisee business owners are at a real disadvantage. Currently, there is no basic protection for franchisees in Alabama. These small businesses invest in and support local Communities, yet Alabama franchisees risk losing everything due to the disproportionate power and unjust practices of corporate franchisors,” wrote the Alabama Franchisee Association.
“In the hotel industry, I have seen the franchisors add enormous transfer fees when a property is being sold. These fees are in excess of the value of the new franchise,” wrote Beau Benton, president of Larry Blumberg & Associates Inc., a Dothan-based company that is one of the largest franchisees in the state, with 2,500 employees working in Marriott, Hilton, IHG and Hyatt hotels in Huntsville, Birmingham, Trussville, Prattville, Montgomery and Dothan.
“Current franchise agreements, which are drafted by franchise lawyers and whose disclosure documents are hundred of pages long, present a ‘take it or leave it’ situation wherein franchises cannot negotiate the terms of their contract. Furthermore, franchise agreements are often substantially changed via franchise operations manuals, which are not within the four corners of the signed agreement,” wrote Scott Applefield, president of Dothan-based Winco LLC and Moonshot DDL, owners of Bojangles chicken and biscuit and Full Moon barbecue franchises.
“We feel this bill is long overdue given that some franchisors impose non-negotiable, one-sided and inequitable franchise agreements upon their franchisees,” wrote John Howard, vice president and general counsel of Montgomery-based Burger King franchise owners Premier Kings Inc., Premier Kings of North Alabama LLC and Premier Kings of Georgia Inc., as well as Popeyes chicken franchise owner Premier Cajun Kings LLC.
Restaurants are the largest category of franchises and the one category the U.S. Census reports on by state. Alabama has 3,042 franchise restaurants, 82 percent of them owned by franchisees, according to the most recent (2012) Economic Census.