International Law

Is Arbitration Bad for Franchisees?

Over at Blue Mau Mau, Susan Kezios, speaks about against mandatory arbitration clauses in franchise agreement,

AFA's Kezios on Federal Initiatives for Franchisees in '08: "

Says FTCs New Franchise Rule Has Given Birth to a Mouse, Franchisees Should be Supporting Arbitration Fairness Act and More 

Ms. Susan Kezios is the president of the American Franchisee Association, an organization that works to help franchisees, assists with the formation of independent franchisee associations, and organizes franchisees for legislative action. Ms. Kezios gives an interview with the Blue MauMau franchisee community about important issues in 2008 that should concern franchise owners and investors.

BMM: What major legislation do you see in 2008 that franchise owners should be rallying behind and what will be your role?

Kezios: The Arbitration Fairness Act of 2007 is something that franchisees could have jumped on en masse but didn’t. 

The IFA was really upset with the speed with which it was moving through the Judiciary Committee. We’ll have to see what happens with that (and other) legislation in 2008 before we can tell you how active we will become.

BMM: Why is the Arbitration Fairness Act important to franchise owners and so high on the AFAs radar screen?

Kezios: Because the vast majority of franchise contracts nowadays mandate arbitration. And many, if not most of those contracts go so far as to ask the franchisee to waive his/her rights to a jury trial as well.

Almost all franchisors prefer arbitration to litigation.  The word, ‘arbitration,’ sounds friendlier and less antagonistic than the word, ‘litigation.’

However, franchisees who sign contracts mandating arbitration eventually find a number of disadvantages.  The list of disadvantages starts with the fact that having a dispute resolved by a jury of your peers is a valuable constitutional right which should not be routinely signed away simply because you want to purchase a franchise. 

(Via Blue MauMau - The Web's #1 Franchisee Community.)

In Ontario, unionized employees are very familiar with arbitration and the labour board.

Each grievance is handled by the union, who appears before a specialized tribunal - the Labour Board.

These arbitrations are handled quickly, sometimes with only union representatives and not lawyers, and there is very little jurisprudence which is published - the grievances are simply not that important to anyone other than the employee and company.

Now the are crazy examples of the misuse of arbitration, such as this franchisee who posted:

"ARBITRATION NOTICE

By entering these premises you hereby agree to refer any and all disputes or claims of any kind whatsoever, which arise from the products, services or permises, by way of binding arbitration, not litigation. No suit or action may be filed in any state or federal court. Any arbitration shall be governed by the FEDERAL ARBITRATION ACT, and administered by the American Mediation Association."

Uh, can you say unenforceable adhesion contract.

But would franchisees be better of with no compulsory arbitration clauses in their franchise contracts?

Currently, the problem for franchisees is that their Independent Franchisee Association does not provide the same legal representation for its members as a Union does.

It is well known that franchisees resent the power that field reps wield on a franchise inspection -but what do they do about it?

Nothing. Despite having their member's assets at risk, the independent franchisee associations are not there in the franchisee's corner when the field rep visits.

Not a wise course of action- why don't the large independent franchisee associations act more like unions and protect their members?

Full post as published by Misleading Advertising Law on February 07, 2008 (boomark / email).