As we franchisee advocates work towards a better and more equitable franchise industry, we may look back on September 2020 as a starting point to positive change. Yes, 2020 has been the year that in many ways we would all like to forget. However, out of all the bad, may be a glimmer of hope for franchisees. In the final full week of September, there were three items that may signal important change.
First, on September 22, United States Representatives Jan Schakowsky, Mary Gay Scanlon, and Pramila Jayapal sent a letter to Federal Trade Commission Chairman Joseph Simons calling for an investigation into unfair and deceptive practices of food delivery platforms. Of importance to franchisees, the letter also calls attention to the “under-investigated” franchisor and franchisee relationship, remarking that numerous franchisee complaints have been filed with the FTC, yet commenting the FTC has not taken any franchisor-related enforcement action in years.
Mind you, this is not your average constituent letter from a member of Congress, Rep. Schakowsky is the Chairwoman of the Consumer Protection and Commerce Subcommittee within the House Energy & Commerce Committee. That subcommittee includes jurisdiction of the regulation of commercial practices which is the Federal Trade Commission. In addition, Rep. Scanlon and Rep. Jayapal both sit on the House Committee on the Judiciary, Antitrust, Commercial, and Administrative Law Subcommittee. This is the subcommittee where any fair franchising legislation would be assigned in the House.
Next, on September 25, FTC Commissioner Rohit Chopra appeared on CNBC for an interview on protecting franchisees. Commissioner Chopra is one of five FTC Commissioners nominated and confirmed by the United States Senate. Commissioner Chopra has become a vocal advocate on franchise issues, commenting that while franchising provides many opportunities, the industry also needs increased oversight to create “a fair playing field, both for the franchisor and the franchisee.” Chopra further states that franchising needs to be a model where “both can grow and succeed together.” And as he has mentioned in the past, the FTC needs to not just look at the presale disclosure spelled out in the Franchise Rule but needs to ensure the contracts are fair.
Finally, on September 27, Jonathan Maze at Restaurant Business Magazine wrote Calls Grow for Tighter Franchise Regulations. In the article, Jonathan references both the Schakowsky/Scanlon/Jayapal letter and the Chopra interview, and includes quotes from Caroline Bundy Fichter, a franchise attorney from Washington State, Matt Haller, Senior Vice President of Government Relations and Public Affairs for the International Franchise Association, and Keith Miller, AAFD’s Director of Public Affairs and Engagement. In talking about the Franchise Rule, Fichter commented that “It governs only the first three months of the 10-year franchise relationship.” Probably the most newsworthy part of the article were Haller’s comments that “We think there are opportunities to improve the rule, to give the FTC more teeth to go after bad actors.” As Maze points out, that is a significant change from a year ago from the IFA.
The key now is to take this visibility and build momentum for change in the industry, change that recognizes franchisees as the largest investment class, changes that protect franchisee equity in their business. Franchising need to be a business model where are stakeholders succeed.
Next up, on November 10, the FTC will hold a workshop on the Franchise Rule. This initial workshop will focus on three key areas, readability of the Franchise Disclosure Document, Item 19 and financial representations, and disclaimers. This also will include a comment period that last into December. We will be asking AAFD members to comment to the FTC on these issues as part of this review. More will follow soon with instructions and samples for comments.
We feel that these recent movements give franchisees not only some hope, but motivation to further engage, and AAFD will be here to lead the way in advocating for franchisees. Proof of further visibility can be found in a Restaurant Business Magazine, “A Deeper Dive” podcast by Jonathan Maze with special guest, AAFD Chairman Robert Purvin.