Franchise laws worldwide

Laws serve those classes able to influence their passage.

Thanks to our friends down under.

Tony Martin asks a few questions of the Canadian Franchise Association, CFA

Mr. Richard Cunningham spoke very professionally and accurately for the franchisor- and supplier-only association.

Mr. Tony Martin, MPP was a key player in asking the right questions which helped clarify how much contempt each stakeholder had for the democratic process. There were five expert witness spots in the 4 days of travelling public hearings that resulted in the Arthur Wishart Act (Franchise Disclosure), 2000. The subcommittee gave the CFA one of those slots.  The complete record of testimony can be found on WikidFranchise.org.

Questions

[...]
Mr Martin: I’m following up on the question that Richard [Patten, MPP] asked a few minutes ago in terms of who you’ve actually kicked out of the association. I’m led to believe that, in fact, you’ve only revoked the membership of one and that was Pizza Pizza. Is that correct?

Mr Cunningham: I’m not at liberty to say, I believe. That would be privileged information of the association and I don’t think it’s appropriate to make any of that public here.

Mr Martin: You’re not going to give me any numbers even?

Mr Cunningham: No.

Mr Martin: Then just to query as to the membership in your group and who you speak for, I’m led to believe that you have 220 out of about 1,300 franchise systems in the country. Is that correct?

Mr Cunningham: I don’t what the date of that paper is, but our franchise member list is just over 300 right now because some of our member companies, like CARA, for example, would have eight brand names.

Mr Martin: And 80 of your members are lawyers, accountants or consultants?

Mr Cunningham: Correct.

Mr Martin: Also there are some big systems-and we heard from one of them today-that don’t belong to your association. Do you have any auto dealers?

Mr Cunningham: No.

Mr Martin: Do you have any food stores?

Mr Cunningham: Yes.

Mr Martin: How many?

Mr Cunningham: One chain.

Mr Martin: Petroleum stations?

Mr Cunningham: Yes, Petrocan.

Mr Martin: What about hotels and motels?

Mr Cunningham: Yes, a number of them.

Mr Martin: You made a statement earlier about the information I shared with the committee that the perception out there is that there’s lower risk by going into a franchise than the independent small business route. I have a study that suggests that’s not the case that the incidence of failure in franchising is greater than in going the independent route.

Mr Cunningham: I don’t know your study so I can’t comment on it.

Mr Martin: It’s a study called Survival Patterns among Franchisee and Nonfranchise Firms Started in 1986 and 1987. I can give you a copy of the report. It was reviewed by Ms Susan Swift from our legislative research branch, and it’s actually quite interesting. It has a number of findings that I think maybe your association might find worth looking at because it challenges very seriously the contention-and I suggest it’s something that needs to be perhaps looked into further. If we’re offering franchising in the country as a more secure way to get into business, particularly in an environment where there are a lot of people who are being restructured and walking around with severance packages looking for someplace to invest them and they are thinking that franchising is a bit more risk-free than actually setting up an independent business, then we may be sending them down a road that will result in stories such as the ones we’ve heard over the last two or three days here.

Mr Cunningham: Can I respond to that?

The Vice-Chair: Go ahead, sir. We’re just about out of time here now.

Mr Cunningham: Even if these statistics are out there, and as people are being told that franchises are more successful than non-franchises, the disclosure is going to give them the information and the ability to contact people in the system. If they call up XYZ system and talk to 10 of the franchisees and they say, “I’m not allowed to associate,” “I’m not making any money,” “I’ve been in this business five years and I’ve lost money,” or “I’m not in the system any more because I lost my life savings,” I think that in itself is going to tell those people, regardless of what any statistics are, not to buy.

Mr Martin: The problem is, though, that a lot of the people that they should actually talk to have signed confidentiality agreements and they can’t talk.

Mr Cunningham: They wouldn’t be able to do that, though, with this disclosure legislation.

The Vice-Chair: Richard, thank you so much for your time today and for the presentation you left with us.

There was one glorious time when the truth about Big Franchising was revealed and recorded

Four days in 2000.

March 6, 7, 8 and 9.

Public hearings into the franchise relationship. Four days of traveling public hearings: Toronto, Sault Ste. Marie, Ottawa and London. Ontario, Canada. Traveling public hearing: extremely rare, if not unheard of, under the Mike Harris government.

Approved by the former Ontario  Minister Robert Runciman over a beer with Tony Martin at the Queen’s Park members’ bar. Two men who share a love of democracy as expressed in the Legislative Assembly of Ontario.

• 35 life stories told in 20 minute chunks to the Standing Committee on Regulations and Private Bill.
• 4 expert witnesses given 45 minutes (John Sotos lawyer, Susan Kezios franchisee expert, Dr. Gillian K. Hadfield scholar and Richard Cunningham franchisor advocate).
• and me, Les Stewart franchisee advocate.

I had the tremendous honour of traveling throughout Ontario as before these life stories were twisted into the Arthur Wishart Act (Franchise Disclosure), 2000. I seemed to have made an impression on the politicians.

Of the current MPPs (107), I know 29 of them. One Minister since I was 17 years old. 45 minutes from my house to their House.

It happened once.

It can happen again.

– The Legislative Assembly of Ontario, looking north to the main doors, University Avenue, Toronto Ontario

Franchisee organizations need legal standing in civil litigation

It’s only fair to both sides and will stop the continuing carnage.

Independent franchisee associations, IndFA and their consultants should be treated as if they were individuals within a franchise agreement.

• Franchisors’ corporations get to accumulate over decades information, expertise and capital.
• Franchisees should have the same advantages by building their own IndFA and contracting with a consulting firm that specializes in leadership development,  conflict resolution and system reform.

Dr. Gillian Hadfield: Amend the Bill to include mechanisms for low cost enforcement of the rights and obligations. Mechanism could include permitting franchise association/class standing in civil litigation; dispute resolution mechanisms including mediation that would operate outside the civil litigation system.  SUMMARY OF RECOMMENDATIONS, BILL 33 – Franchise Disclosure Act, 1999, Legislative Assembly of Ontario, Canada, March 31, 2000

– Justice, Plaster model created by Walter Allward between 1925 and 1930 and used by stonemasons in the construction of the Vimy Memorial in France. The figure of Justice leans her forehead against a sword hilt.

Opposition to Australian state lawmaking exorcizes industry puppets

The sky will fall if you legislate, cry those that profit from no change.

“And we’ll boycott any jurisdiction that tries,” is the implied threat.

• Franchisor threatens to move headquarters in protests over WA franchising laws, survey examines franchise disputes
• Franchise Council up in arms
• The inconvenient truth about rogue franchisors

For a more thoughtful approach, see Classic federal-state battle reaching ultimate showdown by Chalpat Sonti who asks:

Why wouldn’t good franchisors want to set up in states where prospects are confident enough to invest their money and feel protected?

– Thanks for the fuzzy monsters, From Outer Space

Is a weak/any franchise law better than no franchise law?

In my opinion, no.

Why I believe this goes back a little ways.

No Law: In 1998, Mr. Ken Fong, McDonald’s Canada, VP and Corporate Counsel formed an industry  committee together to discuss ways and means to have industry disputes heard in other than the Courts. I attended as the founder and president of the Canadian Alliance of Franchise Operators, CAFO the 1st and only national franchisee advocacy group.

In Feb 1999, I was vigorously questioned by a couple of the 2nd Tier attorneys on the committee about my unwillingness to accept a “disclosure-only” law solution. The industry wanted a law to give an impression of order and oversight in what was seen as the “wild west of the business world”. They wanted what I subsequently defined as a McLaw: toothless legislation designed to protect the dominant parties.

It became apparent at that meeting that CAFO either:

1. agreed with their desire for a McLaw or
2. CAFO/Les was not welcomed at the meeting.

I quickly showed the work we had done on the corporate Identification of a proposed industry dispute resolution process, thanked Mr. Fong and shook his hand, and left the meeting.

McLaw passed: In June 2000, I sat with some other franchisees in the opposition guest gallery at the Ontario legislative assembly and watched the Canadian Franchise Association get the law they wanted: Arthur Wishart Act (Franchise Law), 2000.

However, the Ontario judiciary are not easily intimidated, black-balled  or threatened.

Judge-made law: Provincial court justices are smart, independent-minded (no elections) and not easily fooled. Since 2000, they have tended to assume that the Wishart Act was passed as a sincere piece of legislation and that its intent was to protect franchisees.

I listened to Chief Justice Winkler last year at the Ontario Bar Association’ Franchise Law Conference in Toronto and he was just great! He told the +100 attorneys that every justice knows the “deal” about franchising because they have all had franchisee clients before being called to the bench. One of the two attorneys at side seemed a little ill-at-ease.

I can hardly wait for Thursday to see what Ms. Debi M. Sutin (Gowling Lafleur Henderson LLP) and Ian N. Roher (Teplitsky, Colson LLP) as co-chairs will be presenting.

Record attendance again in 2010, I bet.

Would it be better to have no legislation? That’s a no-brainer.

The public hearings that led to the Ontario Wishart Act (Franchise Disclosure), 2000 started on March 6, 2000.

1. The first expert witness was Ms. Susan Kezios from the American Franchisee Association (her testimony, above to right).
2. Mr. John Sotos was the next of the five expert witness (40 in total :: 4 days :: 4 cities) was a Toronto attorney called (his full testimony, left).

Mr. Tony Martin, a politician from Sault Ste. Marie  asked Mr. Sotos a question:

Mr Martin: Would it be better to have no legislation than to put a piece of legislation in that gives people a false sense of security, given some of the statistics?

Mr Sotos: That obviously is a no-brainer. The purpose of legislation is remedial, it’s to correct a problem. If the legislation doesn’t achieve that, then I think it’s misplaced.

“That obviously is a no-brainer.”

• summum ius summa iniuria -  The more law, the less justice

The case for repealing disclosure laws

Any law exists because those most able to compete for it goes to the political process and wins.

This is how the Ontario franchsie law went in 2000. I was there.

Everyone’s interests were served very well, except the powerless: mom-and-pop franchise investors.

Sure a few attorneys were made multi-millionaires (continue to blackball, block and betray sincere advocates), the franchise bar has reached record numbers (God love those disclosure document revisions!) while the 2nd-worst-chumps, the false protagonists (the franchisors) got  a short-term sales bump but their reputation continues to nose dive.

On any legitimate public policy level, the Arthur Wishart Act is a complete and total failure.

But as a way to launder mom-and-pop life savings via dim-witted franchisors?

Priceless to the true champions of tyranny (the franchise bar legal elite).

Does the Wishart Act belong only to the franchise bar?

I went to a terrific franchise law meeting in Toronto.

Met some really smart and charming young lawyers.

Sure there are some dinosaurs around but they just reveal themselves for what they are.

No need to shout or leap about.

Room enough for everybody.

Is your paper boy a franchisee?

Maybe yes, Maybe no.

Maybe not the urchin on the street but maybe those that deliver his papers to him.

My understanding is that there are 3 types of legal business relationships in Ontario:

1. employee:employer,
2. independent contractor and
3. franchisee:franchisor.

It seems everyone is happy to consider them as independent contractors but I’m not so sure.

The Ontario Wishart Act defines a “franchise” (at a minimum, based on the U.S. FTC Rule) as having 3 elements:

1. franchisees make direct or indirect payments to a franchisor (very, very broadly defined),
2. the distributed good or service is “substantially associated” to the franchisor’s trade- or service-mark and
3. the franchisor exercises “significant control” or assistance over the offered business opportunity.

Humm…seems like someone could claim that this commercial relationship is in reality and in practice, a franchise and not an independent contracting arrangement.

No one that I’m aware has asked an Ontario court or labour tribunal to determine what actually is and is not a franchise since Wishart was passed in 2000. I’d hate to think that the owners of Canada’s major newspapers are failing to write honestly about franchising because they may have become “accidental franchisors“.

This is an excellent article by Thomas M. Pitgegoff on the topic of these “hidden” franchises.

A clever card trick:

“professional” journalists stop writing about franchise abuses (after the jurisdiction’s 1st toothless law is passed) because they don’t want to draw attention to the fact that their own distributors are now unintentionally franchisees — a secret which would be an expensive hit to an already dying industry.

They talk about an “iron curtain” between the editorial and business sides of newspapers. This is, again, much more of a theory than a practice especially when high levels of corporate concentration, plummeting ad revenue and vertical integration are considered. Franchising is almost never written about now in anything other than an advertorial manner in Canada’s elite daily newspapers (eg. Toronto Star, Globe and Mail and Natinal Post) since Wishart was passed in 2000.

The underlying abuse has not been solved:

Accurate reporting is almost extinct except by non-professional journalists in the new media.

I continue to send out news ideas, run WikidFranchise and continue only to be interviewed by American journalists.

No wonder only fools as I read these papers anymore.

Too bad.