Protecting Franchisees

While franchises may have the uniform appearance of a chain store, many are in fact locally owned. Ideally, they can provide an opportunity for rootedness within a community while providing their owners with the economies of scale available to large corporate retail and service businesses. Unfortunately, the way most franchise contracts are currently structured, franchises have very little control over the business and must shoulder most of the financial risk. The franchise corporation retains much of the authority and reaps much of the financial reward.

This imbalance of power often leads to abusive practices on the part of the franchise corporation. The local business owner, for example, may be forced to buy all supplies from the franchisor at higher than market prices. Or the franchisor may encroach upon the sales of the franchise outlet by locating a company-owned outlet nearby.

Existing federal law and most state laws afford only minimal protection to the local business owner. In 1992, Iowa enacted a comprehensive franchise law that protects the franchise owner and ensures that the authority, rights, and responsibilities of the business are fairly shared between the two parties.

More Information:

• American Franchisee Association
• See Chapter Six, "Restoring Franchise Autonomy," in The Hometown Advantage