[Congressional Record Volume 145, Number 159 (Thursday, November 11, 1999)]
[Extensions of Remarks]
[Page E2368]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                THE SMALL BUSINESS FRANCHISE ACT OF 1999

                                 ______
                                 

                           HON. HOWARD COBLE

                           of north carolina

                    in the house of representatives

                      Wednesday, November 10, 1999

  Mr. COBLE. Mr. Speaker, I rise today to reintroduce the Small 
Business Franchise Act of 1999.
  In the closing days of the 105th Congress, Congressman Conyers and I 
introduced similar legislation aimed at leveling the playing field in 
the business relationship between corporations that sell franchises and 
the small businessmen and women who invest in them. Franchise 
businesses represent a large and growing segment of our nation's retail 
and service businesses and are rapidly replacing more traditional forms 
of small business ownership in our economy. As a result, franchise 
owners have become the heart and soul of America's economic engine and 
the backbone of local commerce.
  The franchisor/franchisee relationship is fundamentally an economic 
one where the objective of each party is to make money. Capitalism at 
its best one would think. Unfortunately, that is where the mutuality 
ends. In the context of a means to an end, the interests of the 
franchisee and franchisor are not always the same. For instance, 
because the parent corporations collect royalties on sales, not 
profits, it is in the economic interest of the corporate franchisor to 
open more outlets, even if it is at the expense of an existing 
franchisee. It is exactly this type of activity that has brought us 
here today.
  As a conservative Republican who supports smaller government and less 
regulation, many people have asked why I support franchise legislation. 
First of all, this legislation is not about bigger government and more 
regulation--it is about protecting freedom. The freedom for small 
business entrepreneurs to contract fairly, honestly, and without fear 
of retribution. Second, the Constitution provides Congress with the 
authority to regulate interstate commerce which Congress has already 
done for some franchisees by enacting the Petroleum Marketers Act and 
the Automobile Dealers Day in Court Act. I believe the time has come to 
apply these same standards to all franchise business relationships.
  One of the key provisions of this legislation applies the Duty of 
Good Faith and Fair Dealing to the franchise relationship. One would 
think that this obligation is inherent in all contractual 
relationships, however, because there has been inconsistency in 
judicial interpretation, clarification is needed. The Duty of Good 
Faith provision requires both the franchisor and the franchisee to act 
in good faith in its performance and enforcement of the contract. A 
Duty of Good Faith obligates each party to do nothing that would have 
the effect of destroying or injuring the right of the other party to 
obtain and receive the expected fruits of the contract. If the 
franchisees are willing to apply this provision to themselves, why are 
the farnchisors unwilling to do the same?
  There is also great concern among franchisees about monopolistic 
behavior among franchisors with respect to sourcing requirements. Many 
franchise contracts require franchisees to purchase equipment, fixture, 
supplies, goods and services directly from the franchisor or its 
subsidiary, thus eliminating competition from the system and driving up 
costs for the franchisees and ultimately the consumer. Under this 
legislation, competition would be injected into the procurement 
process, ultimately lowering costs for everyone. Along these same 
lines, franchisors would also be required to disclose any rebates, 
commissions, payments or other benefits resulting from the mandated 
sourcing requirement imposed on the franchisees. These kinds of 
``kickback'' have been illegal in other industries for years, and the 
time has come to shine the light of day on these long-standing 
franchisor abuses.
  During the past 20 years, there has been tremendous change in the 
franchising industry, and as a result, I believe the time has come for 
Congress to examine this issue and level the playing field for small 
business franchisees across our great nation. The legislation that I 
introduce today, along with my distinguished colleague from Michigan, 
Congressman John Conyers, addresses the fundamental and necessary 
safeguards that this industry so desperately needs. This legislation, 
like the Automobile Dealers Day in Court Act and the Petroleum 
Marketing Practices Act, rights the imbalance that has existed for too 
long in the franchisor/franchisee relationship.




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