Days of milk and honey over

2010-04-03 10:42

THE franchise industry is set to undergo major changes that will

see franchisees begin to enjoy more protection from the arm of law.

This was revealed in a study conducted by law firm Bowman Gilfillan

on the impact the Consumer Protection Act will have on franchise systems.

The act is expected to come into effect on October 24 and will

apply on franchise agreements that are renewed thereafter.

The act will give them the right to sue, if they have a reasonable

belief that they are subjected to unfair treatment.

According to Bowman Gilfillan director Eugene Honey, who did the

research, a franchisor will not be allowed to supply goods and services at

manifestly unreasonable prices, or require a franchisee to waive any rights

including terms that are unjust.

“The franchisor should draw the attention of the franchisee to any

limitation of liability of the franchise,” said Honey.

The act makes unlawful for a franchisor to employ misleading

representation concerning a material fact or fail to correct an apparent

misunderstanding.

The act will come as a relief for entrepreneurs like Ophelia

Biyela, for instance, who felt the support she got from a franchisor was

inadequate to make her business survive.

She used to used to run two Fontana Chicken outlets, a grilled fast

food franchise eatery, in Soweto.

Biyela, who late last year closed down the units, is suing Fontana

for R15 million.

She alleges that the franchisor did not assist her to market the

enterprises, despite having had promised her to publicise the outlets.

“The R15 million is the money I lost when I bought the businesses

and marketed them on my own,” she said.

Biyela has since opened a butchery.

She says the new law will not restore her faith in

franchises.

Honey added that the act will give franchisees more options.

“With regard to the right of choice, Section 13 of the act states

that a franchisor must not compel an entrepreneur who wants to buy into a

franchise business to enter into agreements as a condition of selling a

franchise,” said Honey.

“Franchisees will no longer be forced to purchase any other goods

or services from that franchisor, or even enter into any additional agreements

with the same or another supplier,” said Honey.

Franchisors, however, could break these rules if they prove their

goods or services will bring an economic benefit to their franchisees.

It will also be unlawful for a franchisor to force a franchisee to

purchase any goods or services from a designated third party.

Honey projected that the act will have a devastating impact on

poorly run franchise systems.

“The act will apply to all franchise agreements and is likely to

pose significant challenges to many weaker franchisors, including those which do

not abide by the best franchise practices or fail to provide reasonable value to

their franchisees,” said Honey.

“If franchisors do not take the opportunity to refine their

franchise business models and become competent by providing quality products and

services promptly at reasonable prices, and generally deal with franchisees in a

fair, reasonable and equitable manner, difficulties are likely to arise,” he

said.

An analyst from Franchize Directions, Eric Parker, was upbeat about

the act.

“I think the intentions of the act are not bad because franchisees

will finally be recognised as customers who should be given good service by

franchisors.”

“This means franchisors are going to be forced to treat the

franchisees in the right way and generally improve how the franchise business in

South Africa is run.”

Though some franchisors offered their franchisees reasonable amount

support service to help them survive, some franchisors let their outlets operate

only with little support.

“In SA there are lot of franchisors who do trade names instead of

business format system,” said Parker.

Business format system refers to a franchisor that fully supports

its franchisees by providing services like training and marketing, while a trade

name system offers minimal support.



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