Nobody Asked Me, But… No. 107: Are Franchisees Agents of Franchisors?
August 12, 2013 8:46pm
Manhattan's New Water Source; Brand USA Needs Our Help; Quote of the Month
By Stanley Turkel, CMHS, ISHC
1. Are Franchisees Agents of Franchisors?
Did you read that a federal district court in Utah recently found evidence that a Best Western franchisee was actually the "agent" of the franchisor? The evidence was based on the fact that Best Western had strict requirements for its franchisees, showing its ultimate authority.
The evidence described that Best Western had control over the buildings, grounds and public areas and how they should be kept. And it showed how the hotel chain ruled over the housekeeping department and how guest rooms and bathrooms should be maintained. The franchisor's right to conduct regular inspections was also cited in evidence.
The court decided in Licari v. Best Western International, Inc. et al., that those facts were enough to support a potential jury- finding of "control" at trial, that the franchisor was at fault.
As you know, there are no federal laws requiring franchisors to abide by the common law duty of good faith in their dealings with franchisees; no fiduciary duty when the franchisor handles its franchisees' money in pooled advertising funds; and no duty of due care that the franchisor must show to its franchisees. It is the absence of national minimum standards of fair dealing that is responsible for most franchise litigation.
In other words, the only rules that apply in franchising are those the franchisor's attorneys include in their one-sided license agreements, which are presented to franchisees on a take it-or-leave-it basis.
It is also astounding to consider that the only regulatory body overseeing the franchise industry, the Federal Trade Commission (FTC), says that it "does not have the resources to follow up on all meritorious complaints". Remember that franchise industries employ more than eight million workers in over half a million small businesses. Combined annual sales in these franchised businesses total more than $1 trillion in retail sales in the United States.
After 33 years of inadequate FTC enforcement, the major problem facing franchisees today is still the franchisor/franchisee relationship, which comprise 92% of the current franchise complaints before the FTC.
Corporate lawyers have managed to draft contracts to eliminate the implied covenant of good faith and fair dealing in franchise agreements. Furthermore, they have lobbied successfully in every state legislature to eliminate the fiduciary duty that franchisors should owe to their franchisees.
Let's keep an eye on this case and see if it establishes a principal/agent relationship between franchisors and franchisees.
2. Manhattan's New Water Source
What makes a great city great? Among many qualities, one that is often overlooked: the quality and quantity of its water supply. New York City drinking water is world renowned for its quality. Each day more than 1 billion gallons of fresh, clean water is delivered from large upstate reservoirs some more than 125 miles from the City to the taps of nine million customers throughout New York.
New York City's water comes from the Catskills Mountains and is kept safe and clean by an innovative cooperative agreement that benefits both the city and rural communities. This complex system relies on a combination of tunnels, aqueducts and reservoirs to meet the daily needs of million residents and many visitors. One advantage of the system is that 95% of the total water supply is supplied by gravity.
Now, the system is about to be enhanced by a remarkable $5 billion infrastructure project that no one has ever heard of, and if all goes well, no one will even notice.
It is the city's Water Tunnel No. 3, begun in 1969, when Richard Nixon was President, worked on in fits and starts ever since, and about to deliver its first 350 million-gallon daily supply of fresh water to an area stretching all the way from West 79th Street to lower Manhattan.
The current unique water system began operation in 1917 when Tunnel No. 1 first delivered water from upstate reservoirs. No. 2 was added in 1936 to serve Brooklyn, Queens and Staten Island. Until now, the water supply for Manhattan has depended on a single, increasingly leaky, 96-year old conduit.
"The new tunnel is being built to create redundancy, increase capacity and be a backup so that aging water tunnels can be brought offline so that they can be inspected and repaired," said Thomas Foley, assistant commissioner at the Department of Design and Construction.
In comparison to other public water systems, New York's is both economical and flexible. It may be one major reason that New York stands a better chance to thrive in the foreseeable future.
3. Brand USA Needs Our Help
On July 23, 2013, Ed Watkins, Editor-at-Large, HotelNewsNow, hit the nail on the head when he wrote that "It's time to take action to ensure Congress renews authorization for the country's promotion agency."
Brand USA was established by the Travel Promotion Act in 2010 to spearhead the nation's first global marketing effort to promote the United States as a premier travel destination and to communicate U.S. entry/exit policies and procedures to worldwide travelers. Formed as the Corporation for Travel Promotion, the public private entity began operations in May 2011 and does business as Brand USA. It authorizes a $10 fee on global travelers entering the U.S. from countries in the Visa Waiver program.
Ed Watkins wrote,
"Those funds, together with matching cash and in-kind donations from the private sector, create a pool of up to $100 million per year that Brand USA can spend on tourism promotion. It's the first such scheme in the U.S., and it was long overdue, considering what other countries spend to lure tourists to their shores. And, perhaps more important, the operation of Brand USA doesn't cost U.S. taxpayers a dime."
Some Republican members of Congress have criticized Brand USA as a waste of taxpayer dollars that benefits mainly wealthy companies in the travel business. Republican Senator Tom Coburn (Oklahoma) and former Senator Jim DeMint (South Carolina) called Brand USA "a history of waste, abuse, patronage and lax oversight." But supporters say that promoting tourism benefits the U.S. economy as a whole.
Ed Watkins summed up the importance of Brand USA:
It's important that Brand USA be able to continue its work without the threat of a death penalty from Congress. And there is a way for you to help the cause. Patricia Rojas-Ungár, VP of government affairs for U.S. Travel urges everyone in the industry to talk with their elected officials about the economic power of tourism. "Congress is finally getting that message, not only from what we're saying, but they hear it when they go back home, and they're seeing it in the economic data that shows one of the first industries to rebound from the recession has been travel," she said.
4. Quote of the Month
"Architecture is too serious a matter to be left to the experts. Although good architecture is occasionally conceived on the drafting board, it is truly born in the conscience of the community. Since a town is not just a sum total of buildings but is also the breathing space between them the streets and alleys and squares; above all those elements not made by man but given in trust to him; trees, water, sky and air those elements essential to a human environment have to be jealously guarded by the inhabitants."
Museum of Modern Art
Tags: stanley turkel,
quote of the month,
nobody asked me
Prior to forming his hotel consulting firm, Turkel was the Product Line Manager for Hotel/Motel Operations at the International Telephone & Telegraph Co. overseeing the Sheraton Corporation of America. Before joining IT&T, he was the General Manager of the Summit Hotel (762 Rooms), General Manager of the Drake Hotel (680 Rooms) and Resident Manager of the Americana Hotel (1842 Rooms), all in New York City.
Turkel serves as a Friend of the Tisch Center and lectures at the NYU Tisch Center for Hospitality, Tourism, and Sports Management. He is a member of the prestigious International Society of Hospitality Consultants and is certified as a Master Hotel Supplier by the Educational Institute of the American Hotel and Lodging Association. He served for eleven years as Chairman of the Board of the Trustees of the City Club of New York.
Stanley Turkel is one of the most widely-published authors in the hospitality field. His insightful articles on various hotel subjects have been published in the Cornell Hotel and Restaurant Administration Quarterly, Lodging Hospitality, Hotel & Motel Management, AAHOA Lodging Business, and posted on the Hotel-Online, BlueMauMau, HotelNewsResource, eTurboNews websites.
Stanley Turkel brings many talents and accomplishments to his clients including his broad-based experience, his informed knowledge in his many published articles, his frequent appearances as guest speaker at national hotel industry conferences and his sterling reputation for integrity and honesty.
Contact: Stanley Turkel
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