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Franchising In Good Faith: Debates Remain Regarding Government Intervention

From the US to Australia, and perhaps with pending shifts to arise in alternative countries, questions and opinions about government intervention in the franchise agreement process are creating a discourse worthy of consideration.  With California’s latest Senate Bill 610 having moved through the senate and into the state assembly where it awaits support, many across the US are considering the benefits and drawbacks of the bill.

Meanwhile, in Australia, a four month review of franchising code of conduct has brought to light numerous amendment proposals that would also focus on resolving disputes between franchisees and franchisors, good faith definitions, and disclosure practices.  Potential challenges associated with defining what good faith actually means and how this would affect code of conduct and franchisor-franchisee relationships are being raised, such as concerns that an unclear definition of good faith in the code of conduct would lead to further disadvantages to both parties and favorable settings for unfair exploitation.

Concerns over court legal battle costs exceeding the funds available to franchisees should they wish to take their case before a judge also may create inherent disadvantages for franchisees.  Other concerns highlight the fact that any imposed duty of good faith into the code of conduct would not eliminate situations where disclosure procedures are less than ideal, or where unfair dealings occur in various nuanced ways, and that the current legal situation already provides avenues where injustices can be meted out and brought to court.

Likewise, in California, existing Federal Trade Commission guidelines require that comprehensive disclosures be made to franchisees prior to signing agreements, which would appear to offer an opportunity for franchisees to consider the offer and remain or walk away.  Arguments for the good faith changes to franchisor-franchisee relationships report that the bill offers franchisees solid ground to stand on where they can follow up on legal recourse should franchisors change contract obligations when renewal time arrives, after franchisees have invested a great deal of their own capital into the arrangement.

By specifically emphasizing “good faith” in the scope of franchising agreements, the bill further empowers court system ability to review franchise agreements for compliance in an even more concerted manner.  Freedom of association is another aspect that the bill in California highlights, which would allow franchisees the ability to work together to support their interests without prohibition.  The bill would prevent any existing laws in place that interfere with franchisee freedom to associate or join groups to consort with one another.  Existing franchisees argue that this particular freedom is critical for the health of their business and supports wiser decisions with the organized camaraderie of fellow franchise professionals.

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