The FTC and Franchises – AAF

AAF’s Isabella Hindley lately submitted feedback in reaction to a Federal Trade Commission (FTC) Ask for for Facts (RFI) on provisions of franchise agreements and franchisor small business methods, such as how franchisors may possibly exert handle more than franchisees and their workers. The RFI was fascinating (at least to Eakinomics) for two good reasons.

To start with, it is a continuation of a sample of “regulation by harassment” – RFIs, weblog posts, sub-regulatory steering, etcetera. – by the administration’s company heads. The Purchaser Money Protection Bureau has raised this to a high-quality art, but others are close powering. Second, the effort and hard work is approximately fully redundant considering that the the latest proposed modifications to the Joint Employer Common and the Staff or Independent Contractor Classification rules have previously set the franchise business enterprise model in a state of siege.

As portion of the analysis for the remarks, Hindley current her exploration on the impression of the latter two procedures, noting that “under the proposed regulations, franchisors would experience elevated employment expenditures of at the very least $5.7 million for every hour throughout all franchisors and invest far more time negotiating unfair labor and collective bargaining promises. These additional burdens will disincentivize participation in the franchise small business product, major to a important impact on the economy and labor marketplace, as franchising at the moment accounts for around $825 billion (3 percent) of the United States gross domestic products and employs 8.4 million workers.”

Supplied this, it is unsurprising that her essential steering to the FTC is: Go gradual. She notes, “The success of the franchise company model lies in the unique and mutually beneficial romantic relationship among franchisees and franchisors. Franchisees are far more probably to keep on being in business enterprise following two years than independent companies because of to franchisor-furnished support this sort of as model recognition, common company format, and a variety of other assistances. The franchisor rewards from immediate expansion and elevated brand name recognition thanks to the franchisee-equipped funds that is necessary for organization growth.”

This connection is a fragile balance. She warns that restricting franchisor involvement would undercut their support and endanger the achievement of franchises. At the exact time, providing the franchisor far more authority would nearly promise reclassification of franchisors as joint companies and direct to a distinctive demise of the franchises. The FTC would be greatest advised to hold its fingers off the franchise business enterprise model.