New Franchise Rules Called ‘Baby Steps’

Chicago Tribune:

Jobless, but holding a big check from an employee buyout in 2005, Priscilla Taylor took the road traveled by thousands of downsized managers like herself: franchising.

In December, after a year of due diligence and construction, Taylor opened on West Jackson Boulevard the first Maui Wowi Hawaiian franchise in Chicago with a fixed location. She hired an attorney to help her decipher the coffee-and-smoothie company’s franchise documents and talked with other franchisees. She came away with the knowledge that fixed locations didn’t have a long company track record. Nevertheless, she now dons a Hawaiian shirt for work every day, having spent $34,500 for the rights to open up to 3 locations.

‘I didn’t want to go back into the corporate world,’ Taylor said. ‘It was a well-educated gamble. [Franchise] agreements, from what I understand, are clearly written in the favor of the franchiser.’

New rules from the Federal Trade Commission, however, seek to correct that imbalance. The changes to the federal franchise rule, which had been in discussion for more than a decade, don’t entirely correct the law’s flaws, but they are baby steps in the right direction, say franchisee rights advocates.

‘It’s like they labored for 13 years and gave birth to a mouse. We got a little,’ said Susan Kezios, president of the Chicago-based American Franchisee Association. ‘The gaps, some of the largest ones, still remain.’

The federal franchise rule had not been altered since it originally was written in 1978. Since that time, franchising has exploded as an industry. It continues to be viewed by existing businesses as a growth vehicle and by entrepreneurs as a means of being their own boss.

In the past 3 years, almost 900 business concepts began selling franchises, sending the total number of franchise systems to more than 2,500 companies nationwide, according to the International Franchise Association.