Excerpt from CoStar
AHLA Opposes the Bill, While AAHOA Hopes It Passes
A bill making its way through the New Jersey state legislature could rework the hotel franchise model in the state, and two industry organizations have taken opposing views on the bill.
Even though it has potentially wider implications across the hotel industry, it’s not necessarily well-known by all U.S. hoteliers.
“The language of the bill would seem to introduce a series of protections for franchisees and limit the power of franchisors to change or enforce brand standards without the direct consent and involvement of the franchisees,” said Jane Bokunewicz, faculty director of the Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism in Stockton University’s School of Business, in an email interview.
The bill would affect the sourcing of goods and services, brand standards as set in an operations manual and the logistics of brand-wide loyalty programs, among other aspects of the hotel franchise model, Bokunewicz said.
If passed by both houses of the state legislature and signed by the governor, the bill would make it a violation for a hotel franchisor to receive any direct or indirect consideration from a vendor or affiliate unless it is disclosed to the franchisee and then given to the franchisee, she said.
It would also allow a franchisee to purchase goods or services from suppliers besides those designated by the franchisor if those goods and services meet the franchisor’s reasonable specifications and standards, she said. It also requires franchisors to license a third-party supplier to use its trademarks for franchise supplies if those supplies are supposed to use the trademark.
It would not allow the franchisor to compete with the franchisee in an exclusive or protected territory under a different name or market without the franchisee’s approval.
The bill also prohibits the franchisor from unilaterally changing the material terms of the franchise agreement by making changes to the operations manual, Bokunewicz said. There are exceptions, however, for matters concerning the health, safety and welfare of guests and employees.
Franchisors would not be able to impose new fees on franchisees unless they are disclosed in a franchise disclosure document and unless approved by the franchisee advisory committee or franchisee.
They also couldn’t impose a fee or charge on the franchisee for not enrolling a minimum number of guests, she said. They also would not be allowed to sell points in a loyalty program to guests to use at a franchisee’s hotel without compensating the franchisee.
Any violations of these provisions or in section 7 of the Franchise Practices Act would not constitute a good cause for a franchisee’s termination.
“While such protections could be perceived as beneficial to franchisees — especially in industries other than hospitality — the industry fears that these changes would have unintended consequences that would damage brand image and shake consumer confidence,” Bokunewicz said.
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