Massachusetts Mulls Franchise Regs

Lawmakers in Massachusetts are considering two bills that would regulate franchise agreements and more clearly define the relationship between local franchise owners and their franchisors. One bill would clarify the employment status of franchise owners and protect franchisors from having to pay them overtime and the costs of certain benefits.

The second bill would give local franchise owners greater legal protections in their dealings with franchise companies. They include requiring franchisors to prove a legitimate business reason for terminating or failing to renew a contract and ensuring that franchise owners are paid for the value of businesses upon termination. The bill also would grant franchisees monetary damages if a new outlet opened nearby hurt sales and give them the right to take franchisors to court, instead of arbitration, to which many contracts limit them.

The Bay State has nearly 14,000 franchise businesses employing an estimated 150,000 people. Currently, a local owner could lose all of his or her investment in the store if a franchise company ended the contract.

Both bills have raised protests. Lawyers and employees argue that allowing companies to classify workers as franchise owners lets them avoid state wage, overtime, and benefit laws. The second bill has prompted arguments from franchise companies that the proposed regulations impose burdensome government oversight on private contracts.

The International Franchise Association favors the bill that would prevent franchise owners from being classified as employees. A strict interpretation of existing law could mean that owners would be treated as workers, instead of independent business people, the group said. The group’s president, Steve Caldeira, says redefining franchisees as employees of the franchisors instead of as business owners “threatens the viability of franchising as a business model in Massachusetts and will likely lead to the closing of franchise establishments and a reduced rate of job creation in the state."