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The Federal Trade Commission is warning franchisors to avoid “unfair and deceptive practices” against franchisees in an effort to ensure the franchise business model is a ladder of opportunity for honest small business owners.
On July 12, the FTC issued a policy statement warning franchisors that using contract provisions, including those that prevent franchisees from communicating with government regulators, violate the law. This communication allows the commission to protect franchisees.
Public comment on the topic voiced concerns that franchisors may retaliate for franchisees speaking with regulators or filing reports on potential problems they find.
The public comment period has been extended to October 10.
The FTC also issued guidance explaining that it’s illegal for franchisors to impose and collect fees not previously disclosed. Franchisees said franchisors have imposed increasing payment processing and technology fees as well as undisclosed fees for training and marketing.
“Franchising is a chance for Americans to build a business, but the FTC has heard concerns about how unfair franchisor practices, like a failure to fully disclose fees upfront, go unreported thanks to a fear of retaliation,” said FTC Chair Lina M. Khan. “Today the Commission is making clear that contractual terms prohibiting franchisees from reporting potential law violations to the government are unfair, unenforceable, and illegal.”
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