The Small Business Franchise Act (SBFA) was proposed in 1999 by the U.S. House of Representatives as an attempt to ensure more consistent and fair interactions between franchisors and franchisees.
Supporters of SBFA
Although the bill was not passed by the Senate, there are many groups of small business franchisees who support the bill, in addition to the American Franchise Association (AFA).The AFA states that in many instances franchisors have been in the practice of initiating agreements that were in their favor and not in the best interest of the franchisee. Franchisees have had few legal options available to bring justice to the forefront if they felt that they had been unfairly treated by a franchisor. The AFA claims that the components of the Act can level the playing field for both franchisors and franchisees.
Protection and Appropriate Behavior on Both Sides
The SBFA stresses that it is illegal for a franchisor to commit fraud against any potential franchisee. The bill also commands that both franchisors and franchisees act truthfully and in good faith in all of their dealings. For example, if a franchisor asserts that he/she will train a potential franchisee, he/she must adhere to this promise.Franchisors must be diligent in providing information to franchisees. When franchisees are required to put their money into the corporation's general advertising fund, the franchisor must provide an accounting of how the money is being spent.
Additionally, the Small Business Franchise Act offers protection to the franchisee concerning the placement of the franchise. Sometimes franchisors will just be interested in opening another location rather than making sure the placement of the franchise is the most advantageous for both the franchisor and the franchisee.
Also, under the SBFA, a franchisor may not require anything from the franchisee that would violate the bill. The franchisor may not insist that a franchisee waive his/her rights either.
If the SBFA is violated, the state's Attorney General may step in and take appropriate action. This demonstrates the cooperation between federal and state governments in enforcing correct franchise practices.
