- Schlotzsky's wanted to retaliate against the Johnsons for refusing to participate in a new company expansion program, the "Turnkey Program." Schlotzsky's would build large, free-standing stores rather than smaller stores in strip malls.
The Johnsons refused to develop a larger store in Omaha, as the company requested, because of the expense. They said franchisees who had bought Turnkey stores had suffered financial losses and had declared bankruptcy. Schlotzsky's ended the Turnkey program in 2000.
Johnson said relations between him and the company became "intolerable," leading to the complaint filing.
In a prepared statement, Schlotzsky's said "it would not be appropriate" for it to discuss the "statement of claim."
"We enjoyed a mutually successful and beneficial relationship with the Johnsons for approximately 15 years, first as franchisees, then as area developers who provided services to franchisees on behalf of Schlotzsky's," the company said.
Although Johnson said franchising "works terrifically the vast majority of the time," he is so disillusioned that he has become active in an organization representing franchisee interests - the American Franchisee Association, based in Chicago.
"There is no mechanism in place to deal with and protect the little guy in that arrangement when things go south," he said.
Sam Crawford, director of public policy for the association, said some problems rest with the contracts that are drawn up by franchisors.
"If the franchisor determines that it wants you out, whatever the reason, it has 150 different ways to get rid of you, and they are all in the contract," he said.
A spokesman for the International Franchise Association, whose members include 800 franchisors and 34,000 franchisees, defended the contracts, saying they are written to protect the reputation and integrity of the franchise system.
"That means it's the franchisor's obligation to enforce standards to ensure that all franchisees operate according to the terms and conditions of the business plan," said Matthew Shay, executive vice president of the Washington, D.C.-based group.
One appeal of franchising, he said, is that the franchisee doesn't have to do everything because there is a plan created by the franchisor to follow.
"But there is also a trade-off," Shay said. "The trade-off is that a significant amount of control has to be relinquished to the franchisor."
Too much, in the minds of franchisee advocates, who took their case to a June hearing before a U.S. House subcommittee on Commerce, Trade and Consumer Protection.
The hearing was on a Federal Trade Commission proposal to make a few, mostly minor, changes in its Franchise Rule.
For franchisees, the hearing provided a chance to express pent-up concerns about what they perceive is weak federal oversight of franchising.
Jerry Rizer, president of the Dairy Queen Operators' Association, testified at the hearing that the FTC Franchise Rule gives franchisees no protection against abuse "by our own franchisor in our supply chains."
He was referring to a lawsuit his association - whose members own 3,900 Dairy Queen stores - filed in 1994 against International Dairy Queen Inc., the franchisor that is owned by Omaha-based Berkshire Hathaway Inc.
The lawsuit alleged that the franchisor, which approved products for use in Dairy Queens, bought the products and then resold them to a distributor at a markup. The franchisees then were required to buy the products.
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