Two years after a similar bill stalled, U.S. Rep. Jan Schakowsky, D-IL, reintroduced legislation giving franchisees more rights to take action against franchisors.
On December 5, Schakowsky brought forward the Franchisee Freedom Act. If enacted, the bill would grant franchisees a private right of action to address violations of the Federal Trade Commission’s Franchise Rule. Specifically, the bill gives franchise owners an opportunity to take action against a franchisor in cases where details aren’t properly disclosed.
The Franchise Rule requires brands to provide sufficient information with franchisees before an agreement is signed. However, no private right of action exists for operators when there is a violation of this rule. Schakowsky said the goal of the bill is to “level the playing field.”
U.S. Rep. Jan Schakowsky, D-IL
“I have worked closely with a number of franchisees and I think that we wanted to make sure that we empower them,” Schakowsky said. “Right now, the only way to really get any compensation is through the FTC. While Lina Khan, the director of it, has done as much as she could, they don’t have the resources actually to go after enough of these folks when people get misled as to what the real criteria is.”
Related: Attorneys Weigh In as Action at FTC Turns to Franchising
Since its introduction, the legislation garnered endorsements from the Coalition of Franchisee Associations and the American Association of Franchisees and Dealers. Keith Miller, AAFD director of public affairs and founder of Franchisee Advocacy Consulting, said with the congressional session ending soon, the recent action is meant to build momentum.
The plan then, Miller said, is to get visibility on the legislation and bring up the bill again in the ensuing session.
“It helps highlight a long-standing problem,” Miller said. “You’re supposed to get disclosed everything upfront. That’s the idea of disclosure. Yet franchisees have no legal right to sue a franchisor for, in a sense, misrepresentation in the disclosure. Though some states allow it and you can also sue them if you can prove fraud, but it’s a very high legal bar to jump over.
“Often, lawyers for franchisors will argue that the franchisee doesn’t have a right to sue and will make multiple motions related to that,” said Miller. “The franchisees, meanwhile, never really have the resources to fight the franchisor. So, a franchisor can string it out through motions and win by never having to argue the facts of the case.”
The bill is co-sponsored by Reps. Jared Huffman, D-CA, and Hank Johnson, D-GA. Schakowsky called the legislation’s ability to provide equal opportunity for legal action a “no brainer.”
“I feel optimistic that we can get some bipartisan support for this,” Schakowsky said. “I know there are a number of franchisees who work with people on both sides of the aisle. So, I’m going to continue to work with them. We’re going to work on adding more co-sponsors to the bill and I think we’ll get a lot of members.”
AAFD Director of Public Affairs Keith Miller
Miller said the bill may be met with opposition from representatives who worry about franchisees filing too many lawsuits. However, while he expects a fair amount, most lawyers would take cases on contingency.
“I go to the matter of resources,” Miller said. “Franchisees usually don’t have the resources to sue the franchisor, even when they’re in the right. So, this bill opening that up, knowing franchisees don’t generally have the resources, means you’re going to have lawyers taking these on contingency.
“To me, the reality is that the only cases that would be taken up with this bill are the most egregious ones that are almost blatantly obvious that a lawyer will take it on contingency because they know they’re going to win,” said Miller.