The Future Of Franchise Laws

Current Franchise Laws

Franchise Zone: Do current franchise regulations provide sufficient protection to franchisees?

David J. Kaufmann: Before they sign any contracts or pay any money, franchisees are given all the information they need to make informed and intelligent investment decisions regarding whether to proceed [with] acquiring a franchise. These franchise laws have achieved two goals simultaneously and delightfully. One is that federal and state franchise disclosure laws have driven out criminals and organized crime from the franchise marketplace. Number two, they've made prospective franchisees informed investors who understand exactly what they're going to get, what they're not going to get, what the fees and charges are, who the franchisor is and what his management is like, and what the track record has been.

The second category of laws on the books are so-called franchise-relationship laws. I don't think franchise relationship laws do anything in particular to benefit franchisees. They do serve as a fertile ground for litigation, but at the end of the day, franchisees don't make money through litigation. They make money through operating successful units.

Susan P. Kezios: There's a patchwork quilt of very few state laws and a federal rule. The emphasis of the federal rule is mostly pre-sale-what happens to you before you buy the franchise so you're not defrauded in the pre-sale. The majority of the problems that our franchisees encounter are post-sale, after you buy the franchise. The federal rule doesn't deal with any of those issues. There [is] basically nothing out there to provide a post-sale standard of conduct between the [franchisor] and the franchisees.

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