Carol Cross (guest) 18 Jun 2010 18:25
I understand what the judge is saying but I think many retail franchisors, because of their ability to third-party churn failed founding franchisees, are operating pyramid schemes — in the sense that the pyramid that always directs profits to the top of the pyramid remains standing because of the mitigation of the risk for the franchisors — which risk is absorbed often by failed founding franchisees who are hidden from view of new buyers of the franchise opportunity because of ineffective disclosure in the sales process.
The Judges must know that franchisors perpetuate themselves because they have no capital investment in their franchisees' tangible assets and as long as these tangible assets remain in the service of the franchisor, the franchisor survives. We see that the Courts appear to always protect the franchisors and that "failure to thrive as franchisees" is never litigated in the courts because all franchise agreements require the new buyer to acknowledge that the franchisor hasn't promised him success or profits beyond what is indicated in the unnegotiated contract that the two (independent contractor?) parties have signed.
The majority of franchisors make no representations about success and profits within their written contracts and "needy" franchisees are suckered into signing these onerous and unbargained contracts by the appearance of viability suggested by "standing" units and the implication of advertised (and unsubstantiated) startup expenses and time elements and earning claims made outside of the written contract and mandated disclosure process.
Surely, the Judges only have to look around and they can see that many large corporate entities use franchising to enhance their business operations by escaping the expense of being corporate owners/employers who have to build corporate units in order to expand gross sales and profits. Obviously, franchising has been so successful for franchiSORS because they mitigate the risk and expense of being owner/employer of the small business while the small businesses grow the gross sales upon which the franchisors always realizes profits as long as enough of those small businesses survive and are perpetuated in the local economies.
The switch from "distribution" and distributors to "franchising" and franchisors was enabled by the use of "independent contract law" that was on the books and the thin line between a franchisor and an employer then became a fence that protected the franchisor as an "independent contractor" who is dealing with another "independent contractor" the franchisee. Of course, the franchisor, under the routine and adhesive and unbargained franchise contract reserves to himself all of the privileges and advantages of an employer while escaping the expense and obligation of being an employer and owner of the small businesses. Franchisors set the hours the business will be open, what can and cannot be sold, the decor and design of the physical setting, the uniforms that will be worn, the software that will be used, the royalties, advertising fees, supply fees, etc..the pricing, etc.. all by contract —-and can survive quite nicely even as their franchisees never realize any actual profits and even as they are operating in the red, and eventually fail.
Conveniently, however, it seems that the regulators and the courts have never have to look at the management practice of "churning" and "overselling" and the ineffective regulation of the sale of franchises because conveniently this does allow franchise SYSTEMS to survive and
feed local economies and state, local and federal governments in terms of jobs and tax revenue, etc..
However, perhaps franchisors are abusing a good thing and will themselves force the courts to look at the rampant abuse and exploitation of good faith investors in franchises who are now trying to approach the courts for some kind of justice.
