Vendor Exclusivity and Anti Competitive Clauses

When a franchisee joins a franchise system they are often sold on the fact that they will benefit from group purchasing discounts. Unfortunately, the truth is that vendor exclusivity and anti-competitive clauses often result in franchisee paying higher costs for goods and services than they would for similar or same products outside the brand. 

Early Terminations and Liquidated Damages Issues

Franchisors exercising an early termination and collecting liquidated damages is a potential conflict of interest where a franchisor can profit from terminating a franchisee. FFI’s position is that liquidated damages clause should not be enforceable when a franchisor terminates a franchisee and should be limited in all other cases of termination.

Points selling and Low Reimbursement Rates for Reward Nights

We understand that the industry is extremely competitive, however, rewards/loyalty programs should benefit all stakeholders in the brand. FFI’s position is that reimbursement rates to franchisees should be at a reasonable rate to cover costs of operations, and the selling of points should not profit franchisor. All proceeds from point selling used for a transaction promptly transferred to franchisee. The basis of franchising is franchisor collection only royalties and not the revenue .

Reward Club Enrollments Mandates and Related Fees

Generating brand awareness and guest loyalty is essential for brands to prosper. However, mandatory quotas and enrollment fees often impact the bottom line of the franchisee, with little to no contribution by the franchisor. FFI’s position is that any enrollment quotas and related fees must be eliminated, and enrollments not negatively impact the bottom line. There shall never be any mandates for franchisee to enroll minimum number of guests at its own cost.

Choice of Venue Clauses

FFI’s position is that the venue of any disputes should reside where the franchised business is located since that is where the investments has been made, employment is created, and taxes are being paid. Local governments have stake in success of small business and they are entitled to jurisdiction in franchising.

Marketing Fund Fiduciary / Cost of Booking

Marketing funds which are primarily funded by franchisees, and FFI’s position is that they should be levied, utilized, and distributed in an equitable manner and to the benefit of the franchisees funding it. There should be full transparency with periodic audits to validate this.

Exclusive Credit Card Merchant Mandates and Fees

Credit card related fees are a large expense of franchisees, especially with hoteliers. FFI’s position is that providers should not be mandated which can reduce competition and increase costs. All stakeholders should work to develop programs that most benefit franchisees. 

Unilateral Material Changes of Franchise Agreement Via Brand Standards

Unilateral Material Change of Franchise Agreement Via Brand Standards is now a days a common practice . If contracts are to be of any value one party may not have a right to change the contract without mutual agreement. If franchisors should have these abilities franchisee should have the same authority . This ability of franchisors to make post signing changes make the FDD irrelevant.

Arbitrary Guest Feedback Systems and Related Defaults

While guest feedback systems provide valuable information to help a franchisee improve their business, the fact remains that these systems are not scientific, and in most cases arbitrary. FFI’s position is that they should not be used as a default mechanism and there shall never be a financial penalty associated with such feedback systems. 

Unilateral Guest Relation/ Contact Fees without fair resolution process

We all agree that guest satisfaction is key to maintaining a viable business. However, in the hospitality industry, the franchisor is controlling the process, often charging fees to the franchisee without any due process afforded to that franchisee. FFI’s position is that any grievance resolution must be effective, fair, transparent, and balanced, with the franchisee as an integral part of the process.