Lying Down The Laws

How new legislators may determine the fate of franchise regulation
Magazine Contributor
6 min read

This story appears in the February 1997 issue of Business Start-Ups magazine. Subscribe »

For a while, franchising hearings were all the rage in the House Small Business Committee, as grievance after grievance echoed through the halls. Then-chair Rep. John J. LaFalce (D-NY) welcomed wronged franchisees to Capitol Hill with open arms. But LaFalce's successor, Rep. Jan Meyers (R-KS), drew those days to a halt--complete silence on the franchising issue ensued.

And what of the latest round of musical chairs in the House Small Business Committee? The committee's new chair, Rep. James Talent (R-MO), promises to follow in the footsteps of the retired Rep. Meyers, who placed franchising hearings immediately and firmly at the bottom of her priority list. "I agree with Ms. Meyers that there is no reason to be suspect of franchising arrangements," says Talent. He adds that although he doesn't believe all franchise arrangements are fair, he thinks they are better dealt with at the state level. "I don't see this as being a priority for the committee," he says.

Though Talent acknowledges that he could, like LaFalce, "put people before the committee who could tell you some horror stories--and there are some [horror stories] on both sides, to be sure," he just doesn't see franchise regulation as a responsibility of the federal government. "I'm generally not very hospitable to new federal regulations," Talent says. "There's also a tremendous danger of increasing the cost of franchising to the point where we foreclose an option that has been a tremendous avenue of upward advancement for many people. We don't want to make that arrangement so expensive or risky that companies don't engage in [franchising] anymore."

Even Rep. LaFalce, now serving his second term as ranking minority member of the Small Business Committee, has chosen to refocus his energies away from the franchising issue. With no one to hold the franchising regulation torch, several industry watchers wonder whether federal franchise regulation, poised just a few years ago to cross the bridge from concept to reality, has breathed its last.

Perhaps the situation isn't quite so definitive. "This doesn't strike me as the death of federal regulation," says Andrew A. Caffey, a franchise attorney in the Washington, DC, area. "But the issue is going into deep sleep for a while."

Whatever the climate, LaFalce will, at the very least, reintroduce his franchising bills this session, says Dean Sagar, an aide to LaFalce. "There's more a sense of holding the line, maintaining a base
of people who are knowledgeable, until such a time that the issue can move again," says Sagar, who predicts "two years with very little motion."

And after the two years? "If the Democrats retake Congress, then I suppose we can expect a series of franchise hearings again," with or without LaFalce, says Caffey. "Mr. LaFalce is not the first champion of franchisee interests in Congress, and he won't be the last. I wouldn't be surprised if another congressional leader steps forward and suggests that it is time to once again look at franchising."

State Your Case

While franchise legislation is simmering on the congressional back burner, the issue appears to be coming to a boil in several state legislatures. Perhaps not since the wake of the controversial Iowa Franchise Act has the franchising industry witnessed such a flurry of bills in the state arena. Barring a new bill passed in California that added and clarified exemptions to registration and disclosure for franchisors, 1996 was a fairly quiet year. But 1997, on the other hand, will probably be a season of reintroductions of franchise bills, as well as consideration of new legislation, says Kim A. Lambert, a partner with Bartko, Zankel, Tarrant & Miller in San Francisco. "It seems as though there will be a push in a number of states to consider legislation that didn't make it in previous years."

According to Lambert, a relationship bill introduced in Nevada in 1995 is expected to be reintroduced this year; Georgia, Connecticut and Massachusetts may also grapple with the franchise legislation issue. The real question is whether this time such legislation will be not merely considered, but actually adopted.

While Lambert acknowledges that the potential cumulative effect of this activity has created somewhat of a buzz that bills will pass this year, she won't venture a guess as to the outcome. "This is the first flurry of activity since [the Iowa act], but it's hard to say whether it will result in legislation," she says. "No one thought Iowa was going to pass, either."

In fact, Iowa itself hasn't managed to put the franchise issue to rest. After introducing some modifications, this year's Iowa state legislature should once again focus on the franchise relationship law in 1997, continuing its attempt to soothe all parties involved. Meanwhile, other states continue to watch carefully, to discern which parts of Iowa's bold move it would be wise to emulate and which parts should be avoided at all costs.

"I hope they see it has been modified and continues to be looked at in terms of modification. It was also the subject of a Supreme Court case, in which its attempt to apply retroactively was found unconstitutional," says Lambert. "So there have been a number of problems with the bill. Whether other states will heed that warning, I don't know."

With some of the momentum again mounting, this year may be crucial for several states. "It's important for everyone interested, including franchisors, to closely follow and monitor this legislation to the extent that it might impact them," says Lambert. "And then they must become actively involved in voicing their opinions, in communicating how legislation may affect their businesses. The practical effect of these legislative proposals is really what legislators want to hear about."

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