MODULE 5
FRANCHISE ASSOCIATIONS: THE GOOD, THE BAD AND THE UGLY
In determining whether franchise associations will benefit or undermine a franchise system one
must first determine the manner in which the association is to be organized and secondly, the
purpose behind the proposed formation. Generally, franchisee associations are either formed by
franchisees themselves, primarily for their own interest, or they are formed by the franchisor,
primarily for the franchisor’s interest first and secondarily that of the franchisees.
The Good
If a franchise association is being formed by the franchisor rather than franchisees, the
association is customarily denoted a Franchise Advisory Council (“FAC”). As the name
connotes, FAC’s are purely advisory. Organizational, communication, travel and other expenses
are normally paid by the franchisor. Franchisors considering whether to form a FAC usually look
for the best and most loyal franchisees to be on one or more committees to advise the
franchisor on topics such as marketing, new product development, reporting and
operations. FAC’s are a good mechanism for franchisors to obtain valuable input from prime
franchisees. Because franchisees feel that they are a team member and their contribution is
meaningful (which it should be), the FAC members normally give the franchisor their
endorsement which in turn draws the support of the entire franchise system.
The Bad
When an association is formed by franchisees rather than the franchisor, the franchisee
association usually involves a conflicting economic interest with that of the franchisor.
Franchisees sometimes find that by pooling together their resources they jointly have a much
louder and stronger voice. As a result, a franchisor is much more apt to listen and address
complaints of franchisees. Unfortunately, for many franchise systems, franchisee
associations formed to address a single issue common to the system expands to include a wide
range of issues, including issues that might have otherwise been addressed by a FAC. An
example of this change of direction occurs in the franchise system discussed in an article
appearing in the magazine, Franchise Times. The story is about a franchisee association initially
formed for the sole purpose of helping franchisees survive a number of lean financial
years. After the franchisees were again profitable, the franchisee association changed its
purpose and became primarily concerned with decoupling the franchise brand from that of the
franchisor’s parent company. Neither franchisor nor franchisee could ever have foreseen the
total change of direction.
The Ugly
The ugly referenced in our title occurs when politicians and academia get involved. Today there
is growing sentiment that franchisee associations should be treated like labor unions and be
granted an antitrust exemption. With this type of protection franchisee associations could
engage in collective bargaining and be free to negotiate royalties, advertising fees, operational
issues, termination rights and many other facets of the franchise system.
Like so many aspects of franchising, the decision of whether associations should be allowed in
your system depends upon the intent of formation. Before agreeing to an association contact
our firm. Together we can look at the legal ramifications pertaining to an association. Perhaps it
may be more important to be proactive and form a franchisee advisory council yourself, or
address the specific issues without even having to address the formation of an association. The
choices you make can mean a win-win for all parties or the ultimate demise of your entire
franchise system.
