[Congressional Record Volume 143, Number 157 (Sunday, November 9, 1997)]
[Extensions of Remarks]
[Pages E2281-E2282]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                LEGISLATION TO PROMOTE FAIR FRANCHISING

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                       Saturday, November 8, 1997

  Mr. LaFALCE. Mr. Speaker, I am today introducing legislation to 
address serious problems in the promotion and sale of franchise 
businesses and in the conduct of franchise business relationships. The 
legislation incorporates key proposals from bills I introduced in prior 
Congresses.
  In the past two decades franchising has changed the way Americans do 
business and the way we purchase goods and services. In large and small 
communities in my district and across the Nation the growing majority 
of businesses are either franchises or licensed outlets of national 
companies or retail chains. Franchising has been a significant factor 
driving both the expansion of our service economy and the growth of our 
small business sector.
  Thousands of American families invest in franchises each year in the 
hope of realizing dreams of business ownership and economic 
independence. Unfortunately, too many of these dreams are shattered by 
franchise promoters who never fulfill promises to help build successful 
businesses. Rather than owning their own business, many franchisees 
find they have merely purchased below-minimum wage jobs that have 
neither the benefits or protections available to employees nor the 
legal rights and remedies of business ownership. For many franchisees, 
dreams of business ownership often turn into legal and financial 
nightmares.
  These problems stem, in large part, from the fact that Federal and 
State law hve failed to keep pace with the rapid development of 
franchising and offer franchisees little, if any, viable legal recourse 
against fraudulent and abusive conduct by franchisors. We have no 
Federal laws governing the sale or operation of franchise businesses 
and the only regulatory procedure at the Federal level, the Federal 
Trade Commission's franchise disclosure rule, is outdated and 
inadequately enforced. Only a handful of States have laws or 
regulations governing franchise sales and practices, and most of these 
now defer to the Federal Government for enforcement.
  These problems are compounded by the fact that franchise contracts 
are written by franchisors to preempt every legal remedy available to 
franchisees. As a former chairman of the American Bar Association's 
Franchise Forum told the Small Business Committee several years ago, 
indemnification provisions in franchise contracts are drafted so 
broadly as to protect franchisors even for the franchisor's gross 
negligence, wanton recklessness and intentional misconduct.
  Procedural devices also are routinely employed in franchise contracts 
to bar legal actions, to deny coverage of protections in State laws and 
to make litigation inconvenient and costly. Even basic principles of 
common law applicable to all other business relationships--concepts 
such as good faith, good cause, duty of competence and due care, and 
fiduciary responsibility--are routinely denied in franchise contracts.
  In short, a huge and growing number of American business owners are 
routinely required to forego their basic rights and legal remedies just 
because they choose to become franchisees.
  The bill I am introducing today, the Federal Fair Franchise Practices 
Act, addresses these problems and does so not by increasing Government 
regulation, but by enhancing private remedies that permit individual 
franchisees to protect their legitimate financial interests in a court 
of law.

[[Page E2282]]

  My bill would promote greater fairness and equity in franchise 
relationships by establishing minimal standards of conduct for 
franchise practices, by prohibiting the most abusive acts by 
franchisors, by clarifying the legal rights of franchise owners, and by 
nullifying procedural devices intended to block available legal 
remedies.
  In addition, the bill incorporates basic prohibitions against fraud, 
misrepresentation and discrimination elsewhere in Federal law and 
applies them to franchise sales and business practices. It protects the 
right of franchisees to organize franchisee trade associations and to 
engage in collective legal action to protect their financial interests. 
And it provides a private right of actions for violations of Federal 
franchise disclosure requirements--something the FTC has requested for 
18 years.
  Mr. Speaker, franchising has undergone tremendous growth in the past 
two decades and now dominates our nation's retail and services sectors. 
But Federal law and regulation have failed to keep pace. Federal 
guidelines intended to protect the public from false or misleading 
franchise promotions are sadly out of date and only marginally 
enforced. Legal rights and standards taken for granted in other 
business relationships continue to be debated and denied in franchising 
arrangements.
  It is time Congress acted to provide basic protections in Federal law 
to discourage fraudulent and abusive franchising practices and to help 
strengthen the American dream of small business ownership. I believe 
the proposals I am introducing could constitute landmark legislation. 
In much the same way that the Wagner Act helped revolutionize labor-
management relations in the industrial economy of the 1930's this 
legislation can help restore fairness and balance in the growing 
franchising sector of the services-based economy of the 1990's.
  I recommend this legislation to the consideration of my colleagues 
and I urge its adoption by the Congress.

                          ____________________