Franchisees play a critical role in Arizona’s economy, and it is important to protect their interests. That is why HB2404, which seeks to provide franchisees with greater protections against abuses by franchisors, is so important. The bill has faced opposition from out-of-state private equity firms and billionaire-backed lobby groups from California and D.C., who are more concerned with their bottom line than the well-being of Arizona franchisees.
Franchise businesses contribute significantly to the Arizona economy, providing employment and tax revenue. A study shows there were over 19,000 franchise establishments in Arizona in 2019, which provided more than 220,000 jobs and generated over $22 billion in economic output. Franchisees are often small business owners who have invested significant time and resources into their businesses, and they are an important part of the fabric of Arizona’s communities.
However, the franchise business model is often heavily tilted in favor of franchisors, who can use their power to exploit franchisees. Franchisors have been known to charge excessive fees and require franchisees to purchase supplies and equipment from them at inflated prices. They may also impose strict requirements on franchisees, limiting their ability to make decisions that are in their best interest. When franchisees try to push back against these abuses, they may face retaliation from the franchisor, including threats of termination or non-renewal of their franchise agreement.
This is where HB2404 comes in. It seeks to provide franchisees with greater protections against these types of abuses. It would require franchisors to act in good faith and deal fairly with their franchisees, and it would prohibit franchisors from retaliating against franchisees who form a franchise association to address concerns or complaints as a group. It would also allow franchisees to sue franchisors for damages resulting from federal law violations, which would provide a powerful deterrent against abusive, fraudulent behaviors.
Opponents of the bill argue that it would interfere with the free market and harm franchisors’ ability to operate their businesses. However, the reality is that the free market cannot respond to what it can’t see. Franchise disputes are almost entirely locked into secret arbitrations, as evidenced by the more than 100 sealed arbitrations filed against Arizona-based Massage Envy in the last few years alone, each alleging misrepresentation, retaliation, and unfair practices. The recent rise of private equity acquisitions has led to a significant increase in these types of claims.
There is a clear power imbalance between franchisors and franchisees, something most states have addressed to protect their small businesses. Arizona is one of the only states in the U.S. without a single mention of the word franchise in any codified statute or regulation. HB2404 would simply ensure that franchisees are not unfairly exploited with a set of common-sense safeguards already in place in 19 other states, including Iowa, Indiana, Wisconsin and Arkansas.
Moreover, opposition to the bill is entirely driven by out-of-state private equity firms and billionaire-backed lobby groups more concerned with their own bottom line than the well-being of Arizona franchisees. These groups have poured millions of dollars into campaigns to defeat it and bills like it across the U.S., and they have been working hard behind the scenes to influence Arizona lawmakers. While these lobbyists are flying in from California and D.C. with big budgets, the entire effort of support has come from local franchisees and their associations. This was clearly demonstrated the night testimony was given at the Commerce Committee, when the owners of more than 40 Arizona franchisees signed in to speak in support of the bill, while not one single Arizona small business has opposed it. In addition, some legislators have expressed support regardless of party.
If HB2404 is not passed, it will send a message that Arizona is not committed to protecting small business owners and that it is willing to allow out-of-state interests to interfere in its affairs. It will also risk alienating franchisees as a voting bloc, who may feel that their interests are not being represented in the Legislature. This seems a risky approach for legislators, given more than 42% of Arizona franchisees are registered Republicans, another 31% are registered as independent, and 26% are registered as Democrats, with the remainder unaffiliated.
HB2404 is a critical piece of legislation that would protect franchisees from abuses and ensure that they are able to operate their businesses fairly and on a more even playing field with their franchisors. It is important for Arizona lawmakers to pass the bill, despite the opposition from out-of-state private equity firms and billionaire-backed lobby groups. Arizona’s economy and its small business owners depend on it.
Tiffany Cianci is president of the Happy Handstands Franchisee Association.