T he Coalition of Franchisee Associations (CFA) recently held its quarterly board meeting in Boston, and while some of the more compelling issues of interest to franchisees (the repeal and replacement of Obamacare and tax reform) remain mired in political struggles, there was much insight to be gained on an assortment of topics impacting franchise owners.
CFA executive director Misty Chally updated members on recent legislative actions involving menu labeling, credit card swipe fees and regulatory reforms, but the program was also enhanced by an in-depth presentation of a subject that directly affects DDIFO members as well as all members of franchisee groups.
Freedom of Association
Noted franchise attorney Jeff Haff of the firm Dady & Gardner presented a primer on what freedom of association means for franchise owners. He began by emphasizing the importance of the work being done by the individuals in the room.
“As people who are investing your time, hard work, and blood sweat and tears to be involved in [the CFA], I think you probably would like to know if you have a right to associate. Is there such a thing?” he asked rhetorically.
While there is nothing in the First Amendment that guarantees the right of association, Haff said the 1958 landmark U.S. Supreme Court case, Alabama vs. the NAACP, established that right, essentially saying that if you have the right to speak on a subject, you also have the right to gather together with similarly situated people and make the same point.
“And that’s the whole point of our franchisee associations, as one person or business owner, we are weak, but together, our voices are stronger,” he said.
Unfortunately, freedom of association is treated by franchisors with varying degrees of acceptance, and only nine states offer specific franchisee protections – Franchise Acts – including Arkansas, California, Hawaii, Illinois, Iowa, Michigan, Minnesota, Nebraska, New Jersey, Rhode Island and Washington. The statutes essentially state that a franchisor may not – directly or indirectly – inhibit the right of free association of its franchisees.
Haff urged independent franchisee associations to ensure that they will be recognized by the franchisors by being included in Item 20 of the Franchise Disclosure Documents of their franchisors.
“If you can write a letter every year to the franchisor, and the franchisor has to put you in a federally required document, I’m going to state in the position of your lawyer that you have a federal right to be a franchisee association. If the Federal Trade Commission (FTC) says, ‘You must put them in Item 20,’ how can the franchisor then say that they don’t exist or they won’t recognize them?”
Haff, who has practiced franchise law since 1994, can remember at least 20 franchisors telling him that they do not recognize their franchisee associations. “And I don’t know how they can square that with the FTC, which states that ‘If I write you a letter, you’ve got to put me in there.’ And you’ve got to give a disclosure to all of your prospective franchisees that we have a franchisee association. It’s an imprint of legitimacy.”
Haff also discussed the state of the covenant of faith and fair dealing that should exist between franchisors and franchisees, noting that “today it is all over the place.” For instance, the states of Texas and Indiana do not recognize territorial protections for franchisees. “It doesn’t exist [in those states] and in the other 48 states it varies wildly,” he said.
Fortunately, there have been some landmark cases that have served to protect those rights. Haff cited Scheck v. Burger King Corp., in which a franchisee (whose agreement did not include territorial rights protections), successfully sued BK because they put another franchise within two miles of his location. The U.S. District Court for the Southern District of Florida ruled that “while Scheck is not entitled to an exclusive territory, he is entitled to expect that Burger King will not act to destroy the right of the franchisee to enjoy the fruits of the contract.” In another case, Dunafon v. Taco Bell Corp., it was alleged that Taco Bell was denying franchise expansion opportunities to members of IATBF – the International Association of Taco Bell Franchisees – including the association president. The case was settled in favor of the franchisees.
Haff’s takeaway for the CFA: Work for better laws to protect franchise owners and their associations. “In my experience – from a legal standpoint – 90 percent of the time franchisors will either treat you the same, or a little better for being in a leadership position of a franchisee association.”
Following the board meeting, DDIFO Executive Director Edwin Shanahan told Independent Joe, “I think the whole freedom of association is very important. It’s an issue that continues to ripple in the franchisee community, even though it has not been a significant problem for Dunkin’ owners since Nigel [Travis] took over.”
Government Relations Update
While franchisees must await the outcome of a proposed repeal and replacement of the Affordable Care Act, and tax reform is unlikely to be taken up for debate until the fall, Chally focused the board’s attention on other regulatory matters, highlighting a win for franchisees regarding the high cost of swipe fees. The House of Representatives recently passed its Financial Choice Act which preserves the Durbin Amendment—the post-recession deal that keeps a cap on swipe/interchange fees, reducing them from approximately 40 cents to 21 cents per transaction.
Chally said that the provision was saved thanks to the active lobbying of merchants, who flooded the offices of Congress with phone calls, urging representatives to vote against the bill unless the Durbin provision is protected.
“CFA sent out a national alert and that’s exactly what happened. They whipped the votes, they didn’t have enough with that repeal still in it – and that specific provision was pulled from the bill. That’s a great example of grass roots activism, and it’s a huge win for merchants.”
The bill is now in the hands of the Senate.
Chally also discussed the FDA’s latest delay implementing menu labeling, with a new plan to make the rule effective on May 7, 2018. The House is considering H.R. 772, a bill called the Common Sense Nutrition Disclosure Act of 2017, sponsored by Representatives Cathy McMorris Rodgers, Republican of Washington and Tony Cárdenas, Democrat of California. In the Senate, a companion bill, S. 261, “allows franchisees to choose one format in which they can provide calorie (counts for items),” according to Chally, who had encouraged franchisees from across different restaurant systems to provide comments during the open public comment period the government held until July 3, 2017.
As it relates to DDIFO members, Shanahan said that the menu labeling is “almost a problem because it was put off – because the menu boards are already installed. But was it good thing in the overall scheme of things, because it’s a pro-business measure that in nine out of ten cases is beneficial.”
Chally also discussed the increase in ADA Title III cases, also known as “drive-by lawsuits.” These occur when attorneys sue small business owners for minor or nonexistent infractions with the hope of achieving a quick settlement. Instances of these have more than doubled since 2013, and jumped by 37 percent from 2015 to 2016. Representative Ted Poe, Republican of California, has introduced a bill that would require plaintiffs to put the actual violation into the complaint so that it is clearly articulated, and allow small business owners an opportunity to fix the issue before being subjected to a lawsuit. The bill is receiving support on both sides of the aisle.
Chally also said this will be a priority legislative agenda item at the October CFA board meeting in Washington, DC.
The panel delved into the nightmarish but very real prospect of predictive scheduling, which in some cases requires businesses to schedule 2-3 weeks in advance, with “penalty pay” awarded to employees for schedule changes, and also seeks to curtail the practice of “clopenings” by mandating a designated number of hours off before an employee resumes work the following day. John Motta, a Dunkin’ operator who serves on the CFA board as well as the Dunkin’ Donuts Brand Advisory Council, told the gathering that franchisees in Massachusetts have taken a proactive approach to the pending legislation.
“We figured that this is going to happen, so instead of saying ‘no, no, no’ all the time, we actually drafted [a legislative proposal],” said Motta. “We put things in there that they wanted and that we wanted so that it would be fair and balanced for our franchisees, and took it to the State House and presented it, and I think we’re okay with that. Instead of fighting them all the time, let’s show them that we want to be a part of the process.” The bill is still being studied.
Since its inception over a decade ago, the CFA has convened franchisee association representatives from some of the largest and most reputable brands in the nation. While issues the CFA addresses have changed, the organization’s mission to leverage the strengths of franchisee associations for the benefit of the franchisee community has not. Protecting swipe fee reform from repeal is just one of the fruits of this group’s labor. As Chally noted, the CFA’s grassroots approach to communicating with legislators – at both the state and federal level – is critically important to ensuring misguided laws and regulations don’t interfere with the ability of small business owners to thrive in the face of mounting challenges. •