Franchise Fairness - Myths and Realities
What is franchise fairness?
According to failed franchisees
and franchisees locked (so they think) into abusive franchise
relationships, franchise fairness is that state of affairs in which they
are not required to observe strict compliance with the very one sided
contracts they signed.
According to franchisors,
franchise fairness is that state of affairs in which franchisees bought
franchises and signed franchise agreements after doing competent due
diligence and making affirmative investment decisions as adults
responsible for their acts.
Both of these notions are
fantasies. Neither state of affairs exists and neither ever existed in the
history of franchising. If you need the particulars of why these notions
are fantasies, read the franchise fraud tutorial articles published at
Where is the reality? What is
reasonably expectable in the real world of franchising?
To come to a reality based
appreciation of the franchise relationship of today, 2009, there have to
be factual reference points. Once we identify the reference points, we can
begin to have practical comprehension. Everything starts with the facts of
the current situation.
First, a disclaimer - You can’t
read anything written by a lawyer without his asserting some CYA
disclaimer or other, right? Well, this isn’t a CYA disclaimer.
Over the years I have had a
running feud with the AAFD, a pseudo franchisee affiliation group claiming
to be the foremost advocate of fairness in franchising. It was never an
advocate of anything, as advocacy is a prelude to action. Chanting mantras
into the air without doing anything in furtherance of the cause is not
advocacy. “We want franchise fairness” is just noise in the absence of
overt competent action. The AAFD never engages in any action other than
holding ridiculous meetings; publishing pie in the sky criteria for what
it called fair franchise agreements; bestowing awards upon some of the
worst franchise thieves in the modern history of franchising – all in the
hope of generating sufficient revenue to “pay the rent”, as one famous New
York City franchise lawyer so often puts it. It was never anything more
effective than being the Alvin and the Chipmunks of franchising – a
chatting society of loser, underfunded timid franchisee groups.
Because I have always loudly
and often voiced my disrespect for the AAFD and its absurd “leader” some
franchisee supportive lawyers and writers have accused me of being against
fairness in franchising. Nothing could be further from the truth.
I am very aggressively in
favor of balanced franchise relationships. Fairness only happens in
balanced transactions. If you can’t find a route to a balanced
transactional relationship and make it happen in reality, the weaker side
will always get screwed. In the instance of franchise investment, the
weaker side consists of people who refuse to use competent pre investment
due diligence resources that vet the deal quality as well as the legal
documents. They refuse to use competent due diligence resources for two
reasons. They falsely believe they know enough about franchising and how
it works and what the contracts and disclosure packages mean – they don’t
have a clue – they have no prior relevant experience. They are unwilling
to spend the money that competent pre investment due diligence costs.
Consequently, they sign on to ridiculous deals and go broke. They then
blame the circumstances on the government and on so called crooked
The reality is that crooked
franchisors are out there, and they can be identified before you buy their
franchises. There are telltale facts about franchise deals that no one
should ever sign on to. People who understand how to spot these can save
you from going broke on bad franchise deals. If you choose not to use
them, your being fleeced is not the result of franchise unfairness. It is
the result of your own incompetence. In short, it has nothing whatsoever
to do with unfairness.
In reality there are also
crooked franchisees that cheat their franchisors. Having signed very one
sided agreements, and having failed to organize effective independent
franchisee associations to deal with the legal imbalances, they falsely
believe they are justified in simply fudging. They lie, cheat and steal
just like the crooked franchisors. This is also not franchise unfairness.
The difference is that in this instance the franchisors do have effective
machinery to deal with noncompliant franchisees.
associations can overcome the disadvantages of one sided franchise
agreements. Let’s pretend independent franchisee associations cannot get
there. Lets pretend independent franchisee associations are those that
were not started very early; have insufficient support through
(sufficient) dues paying membership; are led by people who have no clue
how to lead an independent franchisee association; and accomplish nothing.
They may hold meetings and call people names and pass out ridiculous
awards (that I call Brass Bob awards), but they are useless.
If you want franchise
fairness to become a reality, you must vet the deals you invest in
competently, and you must have an effective independent franchisee
association. If you lack either one of those, you will get screwed almost
every time. Since an effectively led independent franchisee association is
as much benefit to a franchisor as it is to its franchisees, failing to
establish and support one is one of the most absurd things franchisees
could ever do.
Will you ever live to see
franchise fairness provided by legislation? NO. Never. Nothing any
government can do could ever produce “fairness”/balanced transactions in a
free market without destroying the free market. No right that anyone has –
none whatsoever – is self executing. You must defend your position.
Statutes that prohibit fraud do not eliminate fraud any more than statutes
that prohibit murder have eliminated murder. You must be locked and loaded
and affirmatively protect your interests in every human situation. What
you were taught in high school and college about notions of “equality” –
especially economic equality – was an absurd lie. If there were economic
equality there could be no freedom to negotiate the kinds of deals that
free markets provide. Economic freedom depends upon people being able to
decide for themselves what terms they will accept or decline and what they
can live with, considering how adept they are in managing commercial
relationships. Both these actions require competence. When the incompetent
fail to recognize their limitations, they are the sheep that the wolves
enjoy eating. These are not arguments. These are plain old facts.
I am the most forceful
advocate I know of in favor of franchise fairness. The difference is that
I know that it will not happen without self help. Holding meetings and
fantasizing about how to use words to overcome a complete lack of action
are ridiculous notions with no possibility of achieving any worthwhile
These, my friends, are
the differences between the realities and the myths about franchise