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Committee considers legislation to regulate franchise agreements


Wednesday, the Alabama House Commerce and Small Business Committee held a public hearing on a bill that would regulate the franchisor and franchisee agreements between large corporations and their Alabama franchisees.

House bill 352, titled the Protect Alabama Small Business Act, is sponsored by state Rep. Connie Rowe, R-Jasper.

The Senate companion bill is being sponsored by Senator Chris Elliott, R-Fairhope.

State Representative Jim Carns, R-Vestavia, is the Chairman of the House Commerce and Small Business Committee.

Rep. Rowe said that the bill would regular franchisors

“The goal of this legislation is to promote small Alabama owned businesses,” Rowe said. Under existing franchise agreements if there is any litigation the agreements call for the cases to be heard in the state where the franchisor is located. This bill would bring in to the state of Alabama rather than where the franchisor operates or is headquartered.

Rowe said that under this bill franchisors “must act in good faith and a commercially responsible manner.”
There were business leaders on both sides of the debate in the public hearing.

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Daniel Morgan is the owner of two franchises, and he opposes the bill,

“We employ 275 people in the Birmingham area,” Morgan said. The customers of his temporary service are 375 small businesses in the Birmingham area.

“As a franchisee I am very concerned about this bill,” Morgan said, This is “A one size fits all bill that makes it hard for brand standards to be enforced.”

“When the national trend is less regulation why does Alabama want more regulation?” Morgan said. “I urge you to consider the impact this would have on the locally owned small businesses that play by the roles.

Sen. Elliott said, “This has passed out of the Senate government affairs committee.”

“I am a former franchisee,” Elliott said. The business people here speaking against the bill, “They probably have not had an experience with a franchisor like I have.”

Elliott claimed that this bill would protect franchisee from unjust actions by franchisors. “I was lucky to be able to sell my business. My franchisor could have prevented me from selling my business.”

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Elliott said that the franchise, “Ended up becoming a terrible relationship for the both of us.”

“This bill requires that if there is a dispute it be settled in Alabama,” Sen. Elliott said. “Most small businesses can not afford to litigate in Memphis, California or New York.”

Tina McCutcheon is a Home Helpers franchisee and the owner of Jacksonville Senior Health Services.

“I read the agreement and knew the terms of the agreement between Home Helpers and me before I signed it,” McCutcheon said. “I do not see the benefit of the state of Alabama becoming involved in the franchise agreement.”
McCutcheon warned that the bill, “Makes it harder to enforce those brand standards.”

McCutcheon said that when a rogue owner of a franchise chooses not to live up to the brand standards “It hurts all of us.”

McCutcheon said that it is important, “For my franchisor to protect my brand by making my neighboring owners apply standards to their franchise.”

“It is a one size fits all bill, vote no on HB352,” McCutcheon said.

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The owner of a Service Master franchise in Mobile said that he had a great relationship with my franchisor until they hired a new CEO. They put a new franchise on top of me. Service Master franchises are a non-exclusive territory and if there is a disagreement over the contract it is settled by “binding arbitration in the state of Tennessee. They can break me in legal fees. My contract is vastly different than what I signed 24 years ago and it renews every two years and includes a non-compete clause. They can do anything they want to us and there is no way that we can fight back.”

Robert Brown is the director of operations for Huddle House.

“When we look at the franchise agreement, it is in place to protect the brand and the community as well,” Brown said. “For Huddle House, we use the franchise agreement to hold the franchisee accountable so they conduct themselves just like our corporate restaurants.”

Brown said that when a Huddle House runs into trouble, we send a team of operators that go out and turn it around,
Brown warned that if Alabama were to pass HB352 it will hurt our ability to expand and we would be less likely to site new locations in Alabama.

Bill King represents a company with over 200 Burger Kings and Popeyes locations

King said that franchisors, “Will often threaten to terminate or non-renew unless we do expensive remodels to our stores and the franchise agreements renew every two years.”

“Even at our size, we struggle to negotiate with the franchisor,” King said. The franchise agreement is take it or leave it.

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“I do believe that we would be likely to do more brands in Alabama if this were to pass,” King said.
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Tom Dekle is the CEO of Milos Hamburgers and one of the owners.

“As a small business, we don’t think we need any more regulation,” Dekle said. “We have 20 restaurants today and 15 more pins on the map…..all in Alabama.”

“We have faith in the current contract law,” Dekle said. “Fifteen more stores would generate $20 million in revenue, but we won’t go forward under this proposal….in the state of Alabama.”

Dekle said that HB352 “Is prohibitive” and “Puts handcuffs on us.”

Heather Wilson is the Executive Director of the Alabama Franchisee Association and she supports the legislation
Heather read a letter from Darryl Bush who was a Huddle House franchisee for over two decades. Bush claimed that they were prematurely forced out of business by Huddle House Inc. Now that they have broken away from Huddle House, the company has acquired property just a half mile from our location and are planning on building a company store there.

Dom Gentile has two Jan Pro Cleaning franchises in Alabama and is a former GOP U.S. Senate candidate.
Gentile said that this was liberal legislation that had been introduced in the California legislature but was too far out even for them. Gentile said that he could not believe that a Republican legislature in a deep red state like Alabama was even considering this.

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The House Commerce and Small Business Committee is expected to make their decision on HB352 on Wednesday.

Brandon Moseley is a former reporter at the Alabama Political Reporter.

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