The Small Business Franchise Act was introduced by Congressman John Conyers, Jr. in 1998. It was intended to prevent abuse of franchisees and from preventing them from being taken advantage of or even cheated in numerous ways. Although the bill passed the House of Representatives, it did not pass the Senate. The Small Business Franchise Act (SBFA) was an attempt to help small businesses as well. It was supported by the American Franchise Association (AFA).
One of the benefits that this law would have given small business franchise owners was the requirement for franchisors to treat buyers fairly and honestly. Although the bill was intended to have mutually fair treatment between franchisor and franchisee, it was primarily proposed to protect the franchisee. Some franchisors take part in buyouts or mergers, leaving franchisees stuck in the middle of the situation. The law would have protected franchisees from this by giving them 30 days notice so that they could transfer ownership.
The Small Business Franchise Act also would have protected franchisees from franchisors cancelling their franchise agreement due to problems they saw with the franchisee running the business. The law would have required 30 days for the franchisee to correct any problems. In addition, franchisees would have had their right to join or create a trade association which would have been a definite advantage for them.
Without this law, franchisees are obligated to buy their products from the franchisor at any cost. Those franchisors who want to take advantage of investors who buy their franchises may charge ridiculously high prices for products that are much higher than other similar products on the market. They do this because they know that franchisees are obligated to buy products from them. The Small Business Franchise Act would have allowed franchisees to buy products from the open market. The only stipulation would be that products had to meet the franchisor’s standards and be similar to the product that they sold.
If any of these mandates created by the Small Business Franchise Act would have been broken, the Attorney General would have had the right to step in. Because each state has an attorney general, this would have resulted in collaboration between the federal and state governments.
Opponents of the bill claimed that the bill could have caused problems that would contradict antitrust policies. The Antitrust Section of the American Bar Association (ABA) claimed that this law would have made it too hard for a franchisor to break off from a franchisee. They claimed that some franchisees project negative images of their company, and that franchisors have the right to revoke their agreement with the franchisee if this were to occur. If they could not swiftly break off from the franchisee who was not keeping with the rules of the franchise, they feared that it would hurt their image. The Antitrust Section of the American Bar Association said that a strong legal agreement between the franchisor and franchisee at the time of the sale of the franchise would protect all parties.
Small businesses are the majority of privately owned companies in the United States. Many people believe that franchisees need more protection, and that this will stimulate the economy by ensuring investors that their hard-earned money will not be taken by dishonest franchisors, so more people will be willing to begin small businesses. Many small businesses fail because of other causes, such as poor management or lack of funding, and proponents of this law say that protecting franchisees from dishonest franchisors would encourage more business in the United States. They say that it would take away one reason why some investors may shy away from making an investment in a small business.
