Carol Cross (guest) 19 Jan 2011 19:57
In the United States and in Canada and Australia and other places in the world, the voices of franchisees are being heard in protest against the loss of their investments and the terrible pain of losing, sometimes, everything they own! Class Actions are on the rise. In the United States, they end up in the federal courts. Federal Regulatory policy and the FTC Rule in the USA governing the sale of franchises to the public appears to protect the SYSTEMS and their surviving franchisees. Those franchisees who don't survive and who weren't informed of the risk pre-sale in any real terms appear to be calculated sacrifices to promoting the growth of franchising in the economy. .
Unfortunately, franchisees don't do very well in the courts because of the contracts they have signed wherein the franchisor NEVER promises profits and success in the written contract and wherein the franchisor makes no promises in writing that relate to the viability of the franchise for the buyer of the franchise. Franchisees sign these "boilerplate" unilateral contracts wherein they acknowledge that they haven't been promised profits and success and are only relying on the terms within the four corners of the contract because this is the only way they can buy the franchise and access the success and profits promised and implied outside of the written contract.
Unfortunately, governments all over the world have set the qualifications to be a franchisor very low in order to promote franchising activity in their economies. It is public policy to protect the franchise SYSTEMS and their gross sales and the "parts" of the system who fail, sometimes a large percentage of the founding franchisees, are not allowed to bring down the surviving franchisees (the successful parts) that comprise the system.
It is also public policy to hide the risk from unsophisticated and naive prospective buyers and to permit franchisors to sell their so-called "proven plans" without providing proof of their success in terms of current and past historical financial statistics of the UNITS that comprise the franchise systems.
Additionally, the franchise agreements, the binding contracts of sale, contain terms that set malicious legal traps for franchisees when their businesses start to fail but the terms of the written contracts are held up out of necessity to protect the commercial paper of the international franchise systems. It is the assets and personal guarantees of the franchisees of these systems who form the base of the financial pyramids that suck the profits of these "personally guaranteed" small businesses up to the top of the financial pyramids.
Should the attorneys who take class actions into the courts for the franchisees advise the franchisees that the franchisor holds a stacked deck and that it is rare indeed when franchisees overcome the written terms of the contracts that they have signed? And, why would franchisors settle when they KNOW they can bring their stacked deck to the courts? When was the last time a franchisor was found guilty of fraud or breach?
But, if franchisees don't protest to the courts, things will only get worse. These class actions, "The Revolt of the Franchisees" will perhaps make the courts look at the nature of this business model and the "constructive" silent fraud of selling franchises to the public with no obligation under the law to disclose negative facts, before the sales are finalized, concerning the financial performance of the units that comprise franchise systems.
