Public Comment – Franchisee Questionnaires

North American Securities Administrators Association, Inc. (NASAA)

Ms. Andrea Seidt

Ohio Securities Commissioner

Ohio Department of Commerce

Dale Cantone

Chair. Office of the Attorney General. Division of Securities

Good day, Happy New Year, and thank you for this opportunity to express myself publicly as it is most appreciated.

My name is Kim Perrotta and I have been involved in franchising for a career that has now spanned 30+ years.  As both Franchisor and Franchisee, I’ve been on both sides of the desk (and counter) for as long as I can remember.  I’ve developed, executed, and designed franchising programs, franchise documentation consistent with regulations, and “sold” franchises both domestically and internationally.  My background consists of all things franchised including franchise sales and development, franchisee support, operations, marketing, financial management, real estate, construction, franchise brand building, and brand acquisitions, with titles such as President, C.O.O., Country Manager, Managing Director, Regional, Area, and District Manager.

I am passionate about working with the American Diabetes Association and the Congressional Diabetes Caucus for Diabetes Advocacy with Police Departments, First Responder EMTs, and in particular in conjunction with the Cleveland Clinic / Martin County Health for ongoing education and refresher courses.  I am honored to also be a SCORE mentor and workshop presenter and an associate member with the American Association of Franchisees and Dealers (AAFD). Today, I am a Franchisee advocate and advisor, and what is commonly referred to as a franchise “broker, consultant, coach,” etc.

As you’re aware, franchise agreements are “adhesion” agreements by their very nature.  Typically and considerably one-sided on behalf of the franchisor for the express purpose of maintaining the “strength” of their respective systems and marks.  These agreements are replete with protections for the franchisor consisting of default provisions, termination provisions, integration clauses, non-disclosure provisions, binding arbitration in their chosen jurisdictions, post-term covenants, and the inability of Franchisees to sue or bring class-action suits against them.

Moreover, many of these provisions and protections are all too often used against the Franchisee to place egregious pressure and force should the Franchisee “get out of line” with the franchisor.  Threats by franchisors are routine in franchising and used to bring Franchisee’s “inline”.  It becomes their ultimate “hammer” if you will.

With all of the aforementioned protective provisions on the franchisor’s behalf, notwithstanding the many more than I’ve not mentioned, the “questionnaires” that are made part of contract exhibits to be executed only serve to add even more onerous and wholly unnecessary protections on the behalf of the franchisor.  Some franchisors go far beyond what might be standard in these questionnaires with the addition of ridiculously outrageous added terms that do not belong. See example –  Exhibit H to the Franchise Disclosure Document.

Due to highly publicized misinformation concerning franchises by way of endorsements, columns, publications, franchise grading, vetting, profit and loss information, and reviews,  potential Franchisees are fed a seemingly endless stream of “positive press” that often flies in the face of information provided in the Franchise Disclosure Document.  By the time a prospective Franchisee is prepared to execute agreements with a franchisor they are fully invested with time, effort, energy, research, and all the misinformation they will have come across.

Unfortunately, in many instances, they are making their final decisions with their hearts and not their heads.  They will often not understand the ramifications and “releases” they’re providing when, in the final hours, asked to sign the questionnaire that adds another layer of the Franchisor covering themselves even though they may have been provided with several “double winks” along the way to signing agreements.  Imagine the pressure one might feel when again, in the final hours, they could be told if you do not sign this, we may not sell you the franchise.

While it is true that these over-the-top questionnaires are part of the FDD it is rare to have a Franchisee that fully understands these 200+ page disclosures and attachments when even if reviewed by a competent franchisee attorney they’ll be no negotiating nor carving out on the questionnaires.  Again, the franchisor has been provided this document by franchise-centric attorneys who simply add them, with some modification, to the contract template they will often use.

In summary, I fully endorse the elimination of these egregious and arbitrary questionnaires knowing that on their face they are nothing more than anti-Franchisee tools to utilize in the event of a problem going forward that might even be supported by truth and evidence on behalf of the prospective Franchisee.  It is but another example of the inequity in franchising by ethically absent franchisors.

Once again, I wish to thank you for the opportunity to express my opinion, and frankly, the opinion of many others who desire fairness, franchise equity, and standards that serve to preserve and equalize the rights of Franchisees.

Sincerely and respectfully,

Kim G. Perrotta