Hearing impaired? - decreasing number of franchise legislations

Entrepreneur, March, 1996 by Janean Chun

Is franchise legislation dead and gone--or alive and kicking?

WHEN Rep. Jan Meyers (D-KS) took the helm of the House Committee on Small Business in January 1995, she made it crystal clear that franchising hearings were low on her priority list. Nonetheless, whether inspired by a loose inter- pretation of her statements or simply hoping against hope, some continued to believe that the door for such hearings was left slightly open.

That door recently slammed with a resounding thud. Consequently, the issue of franchising legislation may be on its last legs.

In a letter to the Federal Trade Commission last August, Meyers wrote, "Unless there is some higher public policy interest involved [such as a possible antitrust violation], the federal government should not be involved in regulating or refereeing the relationship between parties in a contract that was freely entered into.

"During the last three Congresses, I, as a member of the Committee on Small Business that I now chair, sat through numerous hearings on the issue of fran- chising. As a result of that exposure, together with my active interest in this area, I have yet to detect a pattern of abuse in the franchise industry that requires a more pervasive federal involvement be injected into the after-sale relationships between franchisors and franchisees. While I understand that some would like Congress to create an intricate new body of 'federal contract law' revolving around franchising, together with a whole new area of federal litigation, I and many others see this as an inappropriate attempt at federalizing state law issues that would probably only benefit a cadre of trial lawyers."

Craig Orfield, press secretary for the committee, says the statement isn't so much a change in Meyers' position as it is an affirmation of it. Orfield asserts Meyers has "consistently felt there really isn't a need to visit the issue at this time. She has not heard any complaints from her home district on this issue. She says she has never been approached by a franchisee [from her home district], so she doesn't see a need to open a new chapter of federal law to deal with the issue."

Even outside of Meyers' home district, Orfield believes legislation is more a matter of hype than real demand. "We have had a number of calls from the beltway lobbying interests trying to push ahead this issue of more hearings, more legislation, on behalf of franchisees," says Orfield. "But from the grass-roots level, we have not seen any groundswell of calls for either legis- lation or hearings."

As a result, Orfield attributes the spate of franchise hearings near the end of former chair Rep. John J. LaFalce's (D-NY) reign more to LaFalce position- ing his own franchise bills than to any real demand.

LaFalce's spokesperson, Dean Sagar, argues otherwise. "LaFalce always tried to separate hearings from his legislation," says Sagar. "We never did have a hearing on legislation. [The hearings] were always on the key issues to uncover what the problems were."

As The Chair Turns

Adding another twist to the franchise legislation saga is Meyers' recent announcement that she will not seek re-election in 1996. Though Orfield doesn't foresee Meyers' announcement affecting anything in the second session of Congress, he concedes, "The landscape could change after [Meyers] leaves Congress. Certainly, the subsequent chair has the discretion to guide the course of issues we look at for hearings. But my perception is that there just isn't a great sentiment among the Republican members on the committee to entertain this issue."

Even if the Democrats take control of Congress in the next election, that doesn't necessarily guarantee franchising legislation will again become a hot topic. Though LaFalce, the ranking minority member in the House, was quite vocal about franchising issues as former chair of the committee, he has been uncharacteristically silent on the subject of franchising this past session. Sagar says that's due not so much to a lack of interest as to a full plate. "The agenda this year was rather packed," Sagar says. "We did not make any requests [for hearings]."

Sagar admits the chair of the committee "does have to accommodate the minority, so if we had asked for [hearings], there's a chance there could have been hearings. We just did not take the opportunity to do that because the schedule was fairly full."

Sagar says the shift in priorities is due to "political realities, which are that you don't put a lot of time into something you know is just going to be squelched. We could have put forth an all-out effort to get hearings, to send letters, to get co-sponsors, but in reality, we don't control the agenda. And [franchise legislation] flies in the face of literally hundreds of big cor- porate contributors."

In fact, Sagar says those opposed to LaFalce's franchising bills and hearings were actually confusing government legislation with government regulation. "The repetition of the rhetoric of 'government regulation, government regula- tion, government regulation' often overshadows the facts of the issues and the bills," says Sagar. "The bills were constantly misrepresented as regulating the sale of franchises in minute detail, which is totally false. Part of what annoyed us was that our effort merely to update what already existed in fran- chise disclosure laws [was interpreted as] an attempt to regulate the specifics of franchise businesses. We were never asking for [new regulation]."