This is why New Jersey’s fair franchising bill will strengthen small businesses

New Jersey hotel owners navigating industry changes wrought by the pandemic face no dearth of challenges: the decline in business travel, competition from home rental apps and ongoing labor shortages are just a few.

Yet too often, hotel owners are figuring out how to adapt to this new hospitality landscape with added complications from the brands that should be their partners. Franchising is supposed to be a two-way system where aspiring entrepreneurs open a business under a known brand name in exchange for part of the revenue.

That is why we must create a more equitable relationship between franchisors and franchisees. And New Jersey can set an example for the nation.

New Jersey’s legislature has an opportunity to ensure greater fairness in the system and strengthen protections for franchise businesses with Assembly Bill 1958, which the State Assembly passed in May and is now before the state Senate with the support of many small business hotel owners.

As a state whose 937,000 small businesses employ nearly half of the population, New Jersey recognizes the value of entrepreneurship. And as home to the second-largest immigrant population in the country by percentage, New Jersey has a special obligation to immigrant small business owners like many of the hoteliers we represent in the Asian American Hotel Owners Association. A petition from Reform Lodging, which includes key New Jersey-based AAHOA leaders, has nearly 18,000 signatures.

Entities in favor of large corporate franchisors, like the American Hotel & Lodging Association, are working hard against this legislation to protect the brands at the expense of the hardworking men and women on the front lines of the hospitality industry. But make no mistake: they are afraid of this bill because it would ensure greater fairness for the franchisees actually managing the day-to-day hotel operations.

We believe this legislation supports our four core pillars of franchise advocacy to reform rules for mandated vendors, rebates, loyalty programs and new fees.

Free and fair franchising starts with transparency. One of the key provisions in the legislation would prohibit franchisors from imposing any fees that were not previously disclosed in a signed agreement.

Unexpected costs can also take the form of undisclosed kickbacks. Many hotel owners are required to pay double or more of the prices for products and services from mandated vendors, like cleaning and beverages, because of undisclosed kickbacks paid to franchisors. The significantly higher prices for these necessary products and services diminish hotel owners’ return on investment, while resulting in more costly room rates for guests.

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Assembly Bill 1958 would address this problem by prohibiting franchisors from receiving any rebate, commission or kickback from a vendor that sells services to a franchisee unless it is fully disclosed.

Reforming loyalty programs is another important first step to ensure fairness in franchising.

This bill would specifically prohibit the sale of points or credits in a franchisor’s loyalty program without compensating the franchisee for at least the lowest publicly advertised rate for that hotel stay.

Selling loyalty points at a discounted price online does nothing to build loyalty to the brand. And it reimburses hotels for only a fraction of the cost of guest stays. That results in higher costs for everyone else. It is fundamentally unfair to hard-working hotel owners and to guests who do not take advantage of these artificial redemption incentives.

Multiple major hotel franchises are helping to pave the way for fair franchising that is both fair and free — free from arbitrary and undisclosed fees, free from one-sided terms and conditions, and free from anti-competitive procurement rules.

But to ensure fairness across the franchising industry, our laws warrant more protections for the true investors: the franchisees.

The hotel owners that we represent are the embodiment of the American dream. They or their families immigrated here from the other side of the globe in the hopes of securing better lives. For them, and for scores of Americans, the franchising model has proved to be a successful ladder to their piece of the American dream.

That’s why we must strengthen the franchising model in New Jersey with this legislation to ensure that every aspiring entrepreneur has the same opportunity.

Mahendra “MZ” Patel is a founder of MHO Hotels based in Bordentown, New Jersey and the Mid-Atlantic Regional Director for the Asian American Hotel Owners Association. Bharat Patel is the chairman of the Asian American Hotel Owners Association.

This article originally appeared on Asbury Park Press: New Jersey’s fair franchising bill will strengthen small businesses