The FTC has spoken. This development marks a significant achievement for franchisee organizations, including the AAFD, and their members who have courageously responded to the FTC’s Request for Information and submitted an unprecedented wave of comments and complaints.
In recent years, under the leadership of Lina Khan, the Federal Trade Commission (FTC) has taken a renewed interest in franchising practices for the first time in many years. This shift has been clear through various outreach efforts aimed at franchisees, including statements, podcasts, and last year’s Request for Information. On July 12, 2024, this dialogue transitioned into action when the FTC issued a press release that encompassed a policy statement, staff guidance, and an issue spotlight addressing the primary concerns of franchisees. Additionally, the FTC launched a dedicated web page focused on franchising and reopened the previous years Request for Information.
It’s noteworthy that many concerns raised by the FTC strongly align with the AAFD’s Franchisee Bill of Rights, established in 1996. This alignment highlights that problematic practices within the franchise industry have persisted for over 30 years and the time that has taken to capture the FTC’s attention. Now that we have it, it is crucial for all of us to keep the pressure on.
Policy Statement
The Policy Statement issued by the FTC warned franchisors that the use of contract provisions that prohibit franchisees from communication with the government, “violate the law”. These provisions are most often in the form of non-disparagement of confidentiality clauses. The Policy Statement further stated that any threats against franchisees for reporting potential law violations to the government “are unlawful.” We often see these threats of retaliation when franchisees form a chapter or association, corresponding to the FBOR under “The right to associate with other franchisees”.
Staff Guidance
As stated in the July 12, 2024, Press Release, the FTC stated the “staff guidance makes it clear that it is illegal for franchisors to impose undisclosed junk fee – fees that raise costs and which may make the difference between a profitable franchise and an unsustainable one.” The staff guidance discusses the requirement of the franchisor to disclose fees in the Franchise Disclosure Document so that prospective franchisees understand their obligations. They further discuss that “if a franchisor imposes a new fee, through its operating manual or otherwise, that was not disclosed in the FDD and included in the franchise agreement, the franchisor may be engaging in an unfair act or practice in violation of Section 5 of the FTC Act.” This is addressed in the FBOR under “The right to reasonable constraints upon the franchisor’s ability to require changes within the franchise system.”
Issue Spotlight
The FTC has published an Issue Spotlight highlighting the top 12 concerns raised by franchisees in the 2023 Request for Information. In the coming weeks, we will explore each of these concerns in more detail and how the AAFD’s Franchisee Bill of Rights addresses them.
- Unilateral changes to franchise operating manuals.
- Franchisor misrepresentation and deception.
- Fees and royalties.
- Franchise supply restrictions and vendor kickbacks.
- Actual and feared retaliation.
- Non-competes and no-poach clauses.
- Franchise renewal problems.
- Franchisor refusal to negotiate contract terms.
- Franchise Disclosure Document issues.
- Private equity takeovers.
- Marketing fund transparency.
- Liquidated damages clauses and early termination fees.
Stay informed, stay empowered, and join the AAFD community today! Together, we are working towards a more fair and transparent franchise industry for all stakeholders involved.
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Keith is the AAFD preeminent voice for political action in support of franchisee rights at both the Federal and State level. Keith has been an active leader and voice for franchisee causes over the past twenty plus years, with a growing track record of bringing franchisee friendly legislation introduced and adopted throughout the USA. Keith is also a multi-unit Subway franchisee, and understands the challenges and opportunities that come with being in business for oneself. He is passionate about protecting the interests of franchisee business owners, and will work tirelessly to ensure that they are treated fairly under the law.