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FTC Requests Public Comment Regarding Franchisee-Franchisor Relationships
In an effort to combat deceptive practices within the franchise industry, the FTC is looking for feedback from franchisors, franchisees, government entities, economists, attorneys, academics and franchise employees.?
The U.S. Federal Trade Commission (FTC) recently made a second request for feedback regarding franchise agreements and franchisor business practices, specifically how franchisors exert control over franchisees and their employees.
“Amidst growing concern around unfair and deceptive practices in the franchise industry, the FTC hopes to hear from a broad range of stakeholders about how the franchise relationship is working, and how it is not,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a statement. “This cross-agency effort will inform our policy and enforcement efforts as we work to ensure a fair marketplace for franchisees.”
The commission aims to investigate the methods franchisors use to disclose certain elements and contractual conditions in franchise agreements. Within a franchise arrangement, franchisees usually pay a fee to gain access to a business model or system created by the franchisor, the privilege of utilizing the franchisor's trademark for a set duration, and support. Nonetheless, owning a franchise involves predetermined expenses, franchisor-imposed regulations, and contractual stipulations.
“It’s clear that, at least in some instances, the promise of franchise agreements as engines of economic mobility and gainful employment is not being fully realized,” said Elizabeth Wilkins, Director of the FTC’s Office of Policy Planning. “This RFI will begin to unravel how the unequal bargaining power inherent in these contracts is impacting franchisees, workers, and consumers.”
As part of the Request for Information, the FTC invites input from franchisors, franchisees, present and former staff members of franchisors and franchisees, government agencies, economists, lawyers, scholars, consumers, and other relevant parties to share their perspectives on a broad range of topics impacting franchisees and their employees, including:
- Franchisees’ ability to negotiate the terms of franchise agreements before signing, and the ability of franchisors to unilaterally make changes to the franchise system after franchisees join;
- Franchisors’ enforcement of non-disparagement, goodwill or similar clauses;
- the prevalence and justification for certain contract terms in franchise agreements;
- Franchisors’ control over the wages and working conditions in franchised entities, other than through the terms of franchise agreements;
- Payments or other consideration franchisors receive from third parties (e.g., suppliers, vendors) related to franchisees’ purchases of goods or services from those third parties;
- Indirect effects on franchisee labor costs related to franchisor business practices; and
- The pervasiveness and rationale for franchisors marketing their franchises using languages other than English.
Moreover, the FTC is also soliciting feedback until April 19 on a suggested regulation to prohibit non-compete provisions for employees under specific circumstances. In particular, the FTC is inquiring about the potential applicability of the proposed rule to non-compete clauses involving franchisors and franchisees.
Those interested in submitting comments can do so at Regulations.gov for the next 60 days. Once submitted, comments will be posted to the website.
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