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Let the battle begin.

The First of at Least Five Restaurant Franchisee Rights Bills Is Introduced in the Legislature

SENATE BILL 227 HAD AN INAUSPICious beginning when it was brought before the state Senate Judiciary Committee last week.

Observers in a smoke-filled legislative committee room had just witnessed a heated discussion concerning other unrelated but provocative legislation.

By the time SB 227 came up, most of those who were jammed in the back of the room had returned to their reserved chatting.

In fact, SB 227 hasn't received much attention in Arkansas since it was introduced Jan. 27. But it is part of a package of restaurant franchisee rights legislation that, if passed, could have national significance.

It boils down to this: Franchise owners want more rights to protect their small market share, fearing that large corporations that own restaurants are looking for more ways to expand regardless of franchisees.

"So far, I think it's an open question as to what's going to happen across the country," says Steve Provost of Kentucky Fried Chicken Corp. in Louisville, Ky.

The only recent franchisee rights legislation passed was last year in Iowa. This year, there's a move in that state to have the legislation repealed.

That makes what happens in Arkansas even more important for setting a possible precedent. The only other states with franchisee legislation pending are Texas and Florida.

SB 227 would assure proper venue for restaurant franchisees in Arkansas. That means if a franchisee wants to sue its franchisor, it can bring a civil suit in Arkansas under state laws. Currently, such a suit must be filed in the franchisor's home state.

Amendments are being made because of problems with legal terminology, but lobbyists for both sides expect SB 227 to pass.

The other four potential bills should generate the controversy.

One concerns the right of franchisees to participate in franchisee associations.

Another defines rights and sets up collective bargaining for franchisees.

Still another concerns transfer of ownership, an issue most likely to inspire a tussle.

But it's the possible bill on territorial rights that promises to be a showdown.

A sixth potential bill wound up as an act included in SB 227. The act says a "restaurant franchise" does not include a business deriving more than 60 percent of its gross revenues from the sale of dairy products, including yogurt.

That's because supporters of the legislation realized they would have a better chance of passing it without the powerful lobbying efforts of TCBY Enterprises Inc., the only Arkansas-based franchisor.

The Good Old Days

Longtime franchisees like to tell stories of the good old days in the business.

In the 1950s and '60s, the Ray Krocs of the world did not have the capital to put into chains of restaurants. They needed franchisees to expand their concepts.

The partnerships grew tremendously through the 1970s. But by the 1980s, franchisors started gaining their own capital as major conglomerates such as PepsiCo Inc. took over the companies.

Points of distribution became the buzzwords of the business. Franchisors looked at airports, shopping malls and other nontraditional locations to sell their products.

The franchisees did not like it.

They still don't.

That's why the territory rights bill about to be introduced to the Arkansas Legislature is such a hot issue.

If the franchisors can contract with, for instance, major hotel chains across the country, they can immediately have 2,000 or more new points of distribution.

"But here we put a lifetime into developing these," says one Arkansas franchisee of his well-established restaurants. He has excellent relations with his franchisor but doesn't want his business to be undermined by someone selling the same product.

Some franchisees are satisfied with the current setup and don't care to see the legislation passed.

A majority of franchisees are behind it, but many won't talk about the legislation on the record.

"People are afraid to speak out and show their support of this because of what could happen to them," says another franchisee. "Punishment is not a threat. It's a promise."

But Steve Provost says, "It's very easy to paint this as David vs. Goliath. I don't think that's accurate."

Yet in Iowa, franchisors reportedly are pressuring their franchisees to help repeal last year's bill by telling them they cannot expand with more locations if they support it.

"It's more of a scare tactic than anything, we think," says Lester Davis, executive director of the Iowa Restaurant & Beverage Association.

Still, Davis says, if the franchisors get the Iowa measure repealed, "they'll have a chance to get it defeated in other states."

Similarly, he adds, if the measure remains on the books, "it will be a good leverage for other franchisee associations."

Richie Jackson, executive vice president of the Texas Restaurant Association, says, "The franchisees have gone beyond the point that they could expect to resolve their problems short of legislation."

Maurice Lewis, president of the Arkansas Hospitality Association Inc., agrees.

"We don't want to make a war out of this," Lewis says. "We just want a level playing field.

"If this franchisee legislation passes, then the franchisors and the franchisees will both continue to be in business. If it does not pass, there is every likelihood that many franchisees won't be in business in ... two to five years."

Sen. Jerry Bookout of Jonesboro introduced SB 227. He says chances are good the first bill along with the others will pass.

But Provost cautions that Arkansas and other states may not have even the initial successes that Iowa did.

"There are some who will tell you it smells like a trend," Provost says. "There are others who say Iowa is an isolated case."

Provost's Kentucky Fried Chicken and parent company PepsiCo have hired Rose Law Firm attorney Allen Bird to lobby their side.

"We look at this as an issue," Provost says of the legislation. "But we're not going to let it get in the way."
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Title Annotation:proposed legislation on restaurant franchisee rights in Arkansas
Author:Rengers, Carrie
Publication:Arkansas Business
Date:Feb 8, 1993
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