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Page 3 |
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Ask the AFA |
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Our franchisor says it is illegal for me and my husband to help form our franchisee association. Is that true? Could the franchisor sue us for helping to organize our group? |
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Franchisee associations for the most part function in a legal environment that favors their creation and operation. Trade associations of persons sharing a common economic interest have existed from the middle ages. Trade associations are a widely established and legally respected form of advocacy organization within the United States and other free market economies. In a variety of cases, the U.S. Supreme Court and the lower courts have recognized and, with certain important limitations explained below, approved trade associations including franchisee associations as having socially beneficial effects on society. In McAlpine v. AAMCO Automatic Transmissions, Inc., 461 F. Supp. 1232 (E.D. Mich. 1978), the U.S. District Court noted that franchisee “…gatherings and joint activities which do not violate the law…” are proper and legal and do not give rise to claims by the franchisor of improper interference in its affairs or contractual relations, even where the “joint activity” that resulted from the “gatherings” was a mass defection of disaffected franchisees to a new independent system. In New York v. Carvel Corp., Bus. Fran. Guide (CCH) ¶ 7787 (N.Y. App. Div. 1981), the New York intermediate appellate court in effect held that it was illegal for a franchisor to forcefully interfere with a franchisee meeting, harass and intimidate association leaders and threaten association members with loss of their franchises. Recently, however, some franchisor attorneys have commented that the kind of collective activity that franchisee associations pursue may be unlawful under antitrust laws that prohibit conspiracies in restraint of trade. Informed practitioners of antitrust law believe that franchisee associations are not within the intended scope of the federal antitrust laws. In fact, the mere mention of this issue is probably only designed to intimidate franchisee associations from pursuing their lawful goals. Currently, the laws of 11 states formally protect the right of franchisees to freely associate for lawful purposes. These states are Arkansas, California, Hawaii, Illinois, Iowa, Michigan, Minnesota, Nebraska, New Jersey, Rhode Island and Washington. For instance, the Michigan statute voids any provision in a franchise agreement that would prohibit a franchisee from joining an association. Hawaii and Washington make it unlawful for a franchisor to restrict or inhibit a franchisee from joining an association. Arkansas, Minnesota, Nebraska and New Jersey’s statutes prohibit the franchisor from directly or indirectly prohibiting the right of association among franchisees for any lawful purpose as does California. California’s law states that it is illegal “…for any franchisor, directly or indirectly, through any officer, agent or employee to restrict or inhibit the right of franchisees to join a trade association or to prohibit the right of free association among franchisees for any lawful purpose.” Cal. Corp. Code § 31220. These laws have not been totally effective in preventing franchisors from engaging in intimidation and retaliation of franchisees who form and lead franchisee associations. However, the trend in the law and in the practice of franchising is clearly in the direction of recognizing franchisee associations as useful positive contributors to the entire franchise organization. For example, as a result of intense lobbying over the past several years by the American Franchisee Association (AFA), the Federal Trade Commission (FTC) has proposed changes to its Trade Regulation Rule entitled “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” (the “franchise rule”) regarding franchisee associations. Specifically, the FTC is proposing to require franchisors to disclose in their offering circulars the existence of trademark-specific franchisee associations in order that prospective franchisees can contact the independent association. Franchisors need only disclose those incorporated franchisee independent franchisee associations that make their existence known to the franchisor on an annual basis. The burden to inform the franchisor each year would fall upon the franchisee association leadership. That AFA looks forward to the day when this change to the FTC’s franchise rule takes effect. In the meanwhile, so long as the franchise agreement you signed does not specifically state that you cannot participate in the formation of an independent franchisee association during the term of your contract, you have no need to fear a lawsuit from your franchisor for engaging in that activity. Only the most unenlightened franchisor (and/or their legal counsel) would attempt to sue you solely for helping to form an independent franchisee association. Check your contract with the help of a franchisee lawyer for additional guidance in your particular situation. Be sure to employ a FRANCHISEE attorney; visit the AFA's preferred affiliate list at http://www.franchisee.org/legalresource.htm
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AFA Enews - December 12, 2003 - Volume 1 Number 3 |
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American Franchisee Association |
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(312) 431-0545 |
