As a franchisee-side lawyer, I’m painfully aware of the steep imbalance of power between franchisors and franchisees. Disclosure requirements aside, the federal government and most state governments take a fairly hands-off approach to franchising – which they tend to consider a primarily contractual arrangement between two “equal” parties. Accordingly, the generally much more powerful and sophisticated franchisors are often able to impose remarkably one-sided terms on their franchisees. It’s for this reason that I wholeheartedly embrace the work of franchisee associations, which seek to even the playing field through numbers and pooled resources. In particular, I largely support the Universal Franchisee Bill of Rights (“UFBOR”) – which various associations have adopted as an aspirational document and have urged franchisors to adopt as well. The UFBOR would, for example, require franchisors to operate under a duty of good faith and fair dealing (even in states in which the duty’s not established by law), entitle franchisees to adequate protected territories, prohibit termination without good cause, and require use of fair dispute resolution procedures. I respectfully take issue, however, with the proposed “right” to have the franchisor impose “uniform” brand requirements on all franchisees.
The “uniform application” provision reads as follows:
- Uniform Application of Brand Standards: Franchisors shall maintain consistent operating standards under a specific franchise system brand name and uniformly apply such standards in a non-discriminatory manner.
I must admit that this sounds good. After all, aren’t most of us in favor of “equal treatment” and against “discrimination”?
When one scratches below the surface, however, the “uniform application” standard looks less attractive. To begin with, the term “non-discriminatory” might be unintentionally misleading to a non-lawyer – or at least to an inexperienced franchisee. Most people probably associate the term “discrimination” with racist, sexist, or other bigoted conduct that results in a civil rights violation. In the franchise context, however, “discrimination” is interpreted much more broadly to mean that no two franchisees – not just those, for instance, of different races – may be treated differently. (Incidentally, there is a non-franchise-specific federal law that protects racial minorities from race-based discrimination in the formation and enforcement of contracts.)
The question, then, is whether we – franchisees and the people who advocate for them – should encourage franchisors to blindly impose the same franchise brand standards on everyone, regardless of circumstance. What if, for example, a franchisee’s particular financial condition and competitive realities make it reasonable for her to seek a postponement, reduction, or waiver of a franchisor-imposed “major renovation requirement”? If the franchisor has accepted the UFBOR as written and incorporated it into its Franchise Agreements, it might be (or at least feel) constrained to take a hard line with this franchisee – even if it feels otherwise inclined to give her a break. While certain co-franchisees might applaud the adherence to “uniformity,” the truth is that the requirement doesn’t necessarily help all of them – and it sometimes doesn’t help any of them. In short, rather than prompting the franchisor to occasionally give a franchisee a good deal, it might instead lead to all franchisees getting the same bad deal.
Another downside to the UFBOR language is that it arguably provides the franchisor with a mandate to mark an otherwise excellent franchisee down on QA inspections or even hold that franchisee in default for trivial reasons. (What’s worse, it gives an excuse to a franchisor that, for whatever ulterior motive, is looking for reasons to declare a default.) For example, it is difficult to see the harm suffered by a fast-food franchise system – or its franchisees – if one of the franchisees uses non-conforming salt shakers. While a franchisor might decide on its own that such a rigid requirement is necessary, the franchisees as a group probably don’t need to insist on it.
I do understand, though, why franchisees might want to require some, or at least a great deal, of uniformity. Indeed, a Maryland-based McDonald’s franchisee could reasonably argue that the franchisor’s failure to maintain standards in other states – and therefore to ensure the general public essentially the same McDonald’s experience throughout the country – would negatively impact the brand’s image and thus harm that franchisee’s business. The problem, however, is that the UFBOR provision doesn’t recognize nuance. A requirement of “reasonable” efforts to maintain general or substantial uniformity might adequately serve the franchisees’ interest in brand consistency while allowing for flexibility under the appropriate circumstances, and thus pose less of a danger to the very group of people who are demanding uniformity.
What’s your opinion?