On November 10, 2020, the US Federal Trade Commission (FTC) broadcast a live ‘Virtual Workshop: Reviewing the Franchise Rule.’ We are providing this link to AAFD Members and Subscribers to view the recording of the live event.
The Workshop was presented in three separate sections, with each section focused on one of three aspects of the FTC Franchise Disclosure Rule that have been particularly controversial:
- The FTC requirements regarding ‘financial performance disclosures’ by franchisors.
- The FTC position and requirements regarding the use of disclaimers, contractual integration clauses, and the use of franchisee questionnaires to limit franchisor liability,
- The growing length and readability of franchise disclosure documents as impacting the purpose of the FTC Franchise Rule.
Perhaps predictively, franchisor representatives generally praised the Rule and current practice as fulfilling the purpose of the law to disclose material information to aid franchisees to make wise investment decisions with respect to franchise opportunities, while franchisee advocates raised the alarm that the Rule is being used by the franchising community to deny, or at least frustrate, franchisees from access to redress from the very wrongful behavior the Rule was purportedly designed to address.
Keith Miller, the AAFD’s Director of Public Affairs and Engagement, represented the AAFD and franchisee interests on the first panel deal with financial disclosures. Said Keith, “I encourage all AAFD Members and Subscribers to view the FTC Workshop video. The event showcases the stark reality of how franchisors and franchisees view the FTC Rule.” During the workshop, Miller specifically stated that, “Let’s not forget the intent of the Franchise Rule, it’s to protect the consumer, the prospective franchisee. Yet, discussions on the Rule seem to often be steered towards protecting the franchisor, the one with all the resources and leverage.”
AAFD Chairman, Robert Purvin agreed that the FTC Workshop reaffirmed that the FTC Rule exists more as a shield for franchisors than its stated purpose to protect franchisees. “The theme of my book, “The Franchise Fraud” was that the franchising industry has falsely represented that franchising is a safe and secure path to business ownership, and that the FTC Rule on Franchising was then (in 1993) and now the epitome of a ‘wolf in sheep’s clothing’ – a Rule advertised to protect investors but in fact works to shield franchisors from liability for abusive as well as fraudulent conduct and practices.”
The FTC has invited public comment with respect to the Workshop and the FTC Franchise Rule, and we encourage our members to use this link to post comments. To submit comments, go to https://beta.regulations.gov/commenton/FTC-2020-0064-0001.
The AAFD will soon publish a detailed report concerning the Franchise Rule Review, and the Franchise Review Workshop, as well as our own comments to the FTC. Please stay tuned.