A closer look at AAHOA’s involvement in advocating for franchisees
That’s why AAHOA is relentlessly supporting Assembly Bill 1958 (A1958) introduced in the New Jersey legislature earlier this year. If passed, A1958 changes the New Jersey Franchise Practices Act specifically for the hospitality industry. These legislative changes can bring balance, awareness, and education to the franchisee-franchisor relationship. A fair relationship with mutual understanding contributes to financial success on both sides.
MOVING THE NEEDLE IN THE RIGHT DIRECTION
Fairness. Accountability. Improved disclosure. Reasoned response and dialogue. This is how so many of our AAHOA Franchisees want to work with franchisors.
A1958 moves the needle in the right direction for nearly AAHOA Members, who directly or indirectly contribute to and employ 72,000 employees in New Jersey, and own nearly 500 hotels with more than 46,000 rooms.
However, whether you own a property in New Jersey, or elsewhere, it’s important to note that the passage of legislation such as A1958 creates a ripple effect related to the work we’re doing to advocate on behalf of AAHOA Member franchisees, drawing attention to these issues on a national level. The passage of such legislation could create a new blueprint for franchisee protection and rights across the U.S.
A CLOSER LOOK AT THE KEY ELEMENTS OF A1958
This bipartisan bill contains key elements to protect the franchisee investor in NJ well into the future.
1. REBATES / KICKBACKS
When hoteliers buy a franchise, they embark on this entrepreneur journey thinking they will benefit from the group purchasing power. Unfortunately, that is not always the case. Many franchisors have turned mandated purchases into profit centers, by limiting suppliers and demanding rebates from suppliers on franchisee purchases. A1958 requires a franchisor to fully disclose any rebates or kickbacks to the franchisee and promptly turn over such monies to their franchisees.
2. CHANGES SHOULD BE MUTUALLY AGREED UPON
Brands and franchisees sign a franchise agreement, representing the contract both sides agreed to, and usually includes a clause that the franchisee must follow the then-current operations manual. Many franchisors make unilateral changes to the terms of the franchise agreement via the operations manual to keep up with the changing business climate. A1958 prohibits material changes to the franchise agreement through unilateral operations manual changes.
3. FEES BASED ON GUEST REVIEWS OR ENROLLMENT QUOTAS
Although any type of customer feedback is healthy for hotel businesses, online reviews can often be unfair and not verifiable. Most of the time, the review only tells one side of the story, leaving hotel owners navigating their reputation for future travelers. A1958 clarifies that franchisees will not incur fees based on an arbitrary quota system the franchisee cannot control.
4. UNDISCLOSED FEES
When thinking about buying a franchise, the Franchise Disclosure Document (FDD) is the number one document to read. It is meant to disclose all relevant fees to run the franchise business. A1958 prohibits fees not previously disclosed in the FDD. Before any new fee is added, the franchisor should provide the franchisee with a business case to show the value and the need.
5. VENDOR EXCLUSIVITY
Currently, NJ franchisees experience mandatory sourcing of goods or resources, and these restrictions are simply anticompetitive. Unless there is truly a proprietary product, franchisors should provide required specifications and ensure suppliers meet those specifications. A1958 puts various restrictions on the exclusive and mandatory sourcing of goods or resources, opening competition and reducing costs.
6. SELLING OF POINTS OR CREDITS IN THE FRANCHISOR’S LOYALTY PROGRAM
Rewarding customers who are most loyal is a major way to get people to book another hotel stay. That’s where the loyalty program comes into play. It rewards the guest by giving points for their paid stays in the form of free or discounted stays after earning a set level of points. The franchisee is charged when a guest earns points and reimbursed a nominal amount when the points are redeemed. But, the program is not without its challenges. When a franchisor sells these points, franchisees only receive the nominal reimbursement, which often does not cover costs. A1958 prohibits selling loyalty points without properly compensating the franchisee for the stay.
FOR ALL OF AMERICA’S HOTEL OWNERS
The next hearing for A1958 is scheduled in September. We will continue to follow this bill closely as it continues through the legislative process. These types of laws and regulations could have a ripple effect in other parts of the U.S. So, the advocacy work we are doing in New Jersey is a proactive way to raise awareness of franchise concerns and protect the business interests of America’s hotel owners.