Holt: HB 2404 misunderstands the franchise business model

Franchising is often misunderstood. While generally thought of as only quick service restaurants, the franchise model boasts businesses from birdfeed to scrap metal stores and home healthcare to chiropractic and massage services.

Franchises are also small businesses, operated by local business owners and workers, who provide the products and services that Arizonans rely on every single day.

While an honest misunderstanding of the franchise business model is forgivable, onerous legislation resulting from this confusion could put Arizona’s economy in a precarious position. Unfortunately, harmful legislation is precisely what franchisees and franchisors in our state find themselves up against. HB 2404, currently being considered in the Arizona State Legislature, would have far-reaching and harmful ramifications for franchisors, franchisees, workers, and the Arizona economy.

I understand the breadth and depth of the franchise business model more than most. After a 35+ year career in franchising serving brands like UPS, Planet Smoothie, and now The Joint Chiropractic — the largest franchised network of chiropractic clinics in the world, based right here in Scottsdale — I know that Arizona’s economy doesn’t work without the essential goods and services provided through the franchise business model.

At The Joint, we help our franchisees succeed in every way possible, providing a proven playbook by which aspiring business owners can achieve their entrepreneurial dreams.

A critical aspect of this playbook is the contracts negotiated and entered into by entrepreneurs and brands. These contracts are foundational to the success of The Joint locations in Arizona — along with other local franchise brands — laying out brand standards for safety, quality, and operation so Arizona consumers can expect to receive the same products and service at every location they visit.

Often referred to as “franchise relationship legislation,” HB 2404 is modeled after problematic regulatory framework recently implemented in California. It seeks to allow the heavy hand of the government to interfere with and upend these critical private contracts, weakening the brand standards that make the more than 18,000 local franchises in Arizona we know and love great places to eat, shop, and work.

The collaborative relationship between a franchisor and a franchisee is remarkable — it allows for the symbiotic success of the franchisor, franchisee, and franchisees’ employees. Franchises in Arizona alone employ nearly 200,000 local residents and generate nearly $20 billion in economic output.

But HB 2404 seeks to solve a problem that doesn’t exist, interfering in the private right to contract.

Instead of improving the relationship between franchisor and franchisee, it creates greater friction and potentially more fruitless litigation that negatively affects every party involved, including Arizona’s consumers.

Additionally, Arizona law and the Federal Trade Commission already heavily regulate franchises. If the goal is to encourage entrepreneurship and new business development in Arizona, HB 2404 does the opposite. We know that government overreach and excessive regulation on private businesses have a chilling effect on new business investment — which could deplete our unprecedented budget surplus.

The Joint is headquartered in Scottsdale because, as a company, we believe that Arizona is a fantastic place to do business. To continue revolutionizing access to chiropractic care, we plan to expand our operations by creating win-win relationships with our franchisees over the next decade.

But if Arizona’s lawmakers choose to enact this misguided legislation, the ramifications would come as a detriment to our company and franchisees, as well as the Arizona economy we help support.

I hope that Arizona’s lawmakers choose to support local businesses, employees, and communities and vote no on HB 2404. Bad California policies have no place in Arizona.