A common practice by franchisors, to prevent expensive lawsuits from franchisees, is to put a clause in the franchise agreement that requires disputes be settled by arbitration. The Arbitration Fairness Act would put an end to this practice if passed into law, and support for this plan is gathering steam. Even groups like the North American Securities Administrators Association are now backing it. Don Sniegowski from Blue MauMau reports on the latest developments.
The North American Securities Administrators Association, NASAA, announced last week that it fully supports the Arbitration Fairness Act, which makes forced arbitration unenforceable. The Arbitration Fairness Act currently making its way through Congress, which will make binding arbitration agreements before an actual disagreement occurs unenforceable, has been given a boost by being endorsed by an organization of state securities regulators. The North American Securities Administrators Association, NASAA, announced last week that it fully supports the legislation, introduced as S. 931 by Senator Russ Feingold (D-WI) and H.R. 1020 by Representative Hank Johnson (D-GA).
The organization consists of securities administrators that oversee franchise registration in 15 states and investment protection in all 50 states. It announced in a press release that it “seeks to protect the right of Americans to have their day in court by making pre-dispute agreements requiring arbitration for any employment, consumer, franchise or civil rights disputes unenforceable.” It also stated that nearly every security broker-dealer nowadays forces arbitration.
NASAA President and Colorado Securities Commissioner Fred Joseph declared, “NASAA believes this ‘take-it-or-leave-it’ clause in brokerage contracts is inherently unfair to investors and that the Arbitration Fairness Act of 2009 is a positive step in the right direction.” Joseph continued, “As long as securities arbitration remains mandatory, investors will continue to face a system that is not fair and transparent to all. That is why NASAA included passage of the Arbitration Fairness Act as a key component of its Pro-Investor Legislative Agenda for the 111th Congress.”
However, the International Franchise Association, a Washington-based trade and lobbying group representing mainly franchising firms, opposes the Arbitration Fairness Act.
The IFA’s vice president of government relations, David French, thinks that NASAA, as an organization of securities regulators, are supportive of prohibiting mandatory arbitration agreements because of their concern with abuse with broker-dealer and consumer contracts.
French argues that when it comes to arbitration clauses that have been signed in franchise contracts before any dispute arises, there’s a difference. Franchise agreements are signed knowingly by two business entities. French explains, “Franchise contracts are business to business agreements, not business to consumer agreements.”
The IFA advocates that arbitration is one of several effective tools for resolving business disputes.
“There is simply no empirical data to support the notion that arbitration is fundamentally unfair to any party,” says French. “The only thing that is absolutely clear is that franchise disputes will be more costly and more protracted if this legislation is enacted.”
This article has been reposted from Blue Maumau. View the article on Blue Maumau’s small business and franchise news website here.