FTC Seeks Public Comment on Franchisors Exerting Control Over Franchisees and Workers

The Federal Trade Commission requests remark on franchise agreements and franchisor organization procedures, together with how franchisors could exert management above franchisees and their workers.

In a franchise romantic relationship, franchisees normally pay back a price in trade for a organization structure or procedure developed by a franchisor, the proper to use the franchisor’s trademark for a specific amount of several years, and aid. Possessing a franchise, on the other hand, arrives with described prices, franchisor controls, and contract conditions.

The FTC would like to know far more about how franchisors may exert command more than franchisees and their personnel. Exclusively, the FTC is fascinated in how franchisors disclose sure elements and contractual phrases of the franchise relationship, as very well as the scope, software, and impact of these facets and contractual conditions. 

“Amidst escalating problem all over unfair and misleading methods in the franchise industry, the FTC hopes to hear from a broad variety of stakeholders about how the franchise partnership is functioning, and how it is not,” reported Samuel Levine, Director of the FTC’s Bureau of Client Defense. “This cross-company work will notify our plan and enforcement attempts as we perform to make certain a reasonable marketplace for franchisees.”  

“It’s apparent that, at the very least in some occasions, the promise of franchise agreements as engines of economic mobility and gainful work is not currently being entirely recognized,” mentioned Elizabeth Wilkins, Director of the FTC’s Office environment of Plan Preparing. “This RFI will commence to unravel how the unequal bargaining energy inherent in these contracts is impacting franchisees, workers, and people.”

As portion of the Request for Data, the FTC is asking franchisors, franchisees, present-day and earlier personnel of franchisors and franchisees, govt entities, economists, lawyers, academics, customers, and other interested get-togethers to weigh in on a huge array of challenges that have an impact on franchisees and their workers, these types of as:

  • franchisees’ skill to negotiate the phrases of franchise agreements ahead of signing, and the means of franchisors to unilaterally make adjustments to the franchise procedure right after franchisees be part of
  • franchisors’ enforcement of non-disparagement, goodwill or very similar clauses
  • the prevalence and justification for selected contract terms in franchise agreements
  • franchisors’ handle around the wages and working problems in franchised entities, other than through the phrases of franchise agreements
  • payments or other thing to consider franchisors get from 3rd functions (e.g., suppliers, suppliers) connected to franchisees’ purchases of merchandise or companies from those people third events
  • indirect effects on franchisee labor charges related to franchisor company tactics and
  • the pervasiveness and rationale for franchisors marketing and advertising their franchises utilizing languages other than English.

The general public will have 60 times to post comments at Polices.gov. As soon as submitted, reviews will be posted to Rules.gov.

Apart from this Request for Details, the FTC is in search of general public remark on a proposed rule to ban noncompete clauses for workers in some situations. As part of that proposed rulemaking, the FTC is fascinated in community feedback on the query of no matter whether that proposed rule need to also utilize to noncompete clauses between franchisors and franchisees. Opinions relevant to the use of noncompete limits in franchise agreements need to be submitted as part of the noncompete rulemaking as a result of April 19, 2023. This Ask for for Data is different from the noncompete rulemaking continuing. Similarly, this Request for Information and facts is individual from the Franchise Rule regulatory review. Any responses submitted in reaction to this Request for Facts will not automatically turn into part of both the noncompete rulemaking proceeding or the Franchise Rule regulatory overview record. 

The direct personnel lawyers on this make a difference are Christine M. Todaro and Josh Doan from the FTC’s Bureau of Customer Security and Alex Petros from the FTC’s Office of Policy Scheduling.