Responsible Franchising

IFA believes responsible franchising should be practiced intentionally and consistently among franchisors, franchisees, and suppliers to protect the integrity of the franchise model and the community of small business owners that are part of franchising, the workers franchising supports and the consumers franchised businesses serve.

IFA’s core practices of responsible franchising include: 

• Setting clear goals and expectations during the pre-sale period so that franchisors and franchisees are aligned as to terms of their long-term relationship
• Connecting prospective franchisees with the right opportunity through due diligence and validation of all parties in the franchise sales process
• Ensuring that franchisors and franchisees commit to their respective operational obligations to  protect both the brand and the franchisee’s equity in their business
• Focusing collectively on driving unit economics and profitability for all parties
• Embracing collaboration among the franchisor and franchisees through open communications with franchise advisory councils and independent franchisee associations when modifying standards to respond to changing market forces and consumer preferences.

POSITION:

IFA supports responsible franchising, beginning with greater transparency during the franchise sales process through improved presale disclosures to allow prospective franchisees to conduct thorough due diligence before making an investment decision, thereby setting the stage for a strong franchisor-franchisee relationship with all parties fully informed.

IFA opposes broad sweeping, one-size-fits-all regulation of all industries in which franchise systems operate that stifles innovation and restricts the ability of franchised businesses to pivot in response to changing consumer preferences and market demands at the same pace as their non-franchised counterparts, thereby squeezing those franchised businesses out of their respective markets and reducing competition.

BACKGROUND:

The sale of a franchise in the U.S. is governed by the Franchise Rule, a federal regulation enforced by the Federal Trade Commission (FTC) that requires a franchisor to provide disclosures to a prospective franchisee containing information about the franchisor (including the franchisor’s corporate structure and leadership, litigation and bankruptcy history), the franchise being offered (including the fees and costs to develop and operate the franchised business, a franchisee’s obligations to the franchisor, and the franchisor’s obligations to the franchisee), how much the franchised business may potentially earn, and other information about the franchise system, including existing franchisees and franchisees that recently left the system.  The FTC provides information to prospective franchisees about purchasing a franchise, including its Consumer's Guide to Buying a Franchise and “Franchise Fundamentals” series through the FTC Business Blog.

The Franchise Rule is currently under review by the FTC, and IFA is working with its franchisor, franchisee and supplier members to develop recommended improvements to the Franchise Rule rooted in Article 11 of IFA’s Statement of Guiding Principles. IFA continues to work with Congress to ensure the Franchise Rule is reviewed and renewed:

• In 2022, a bipartisan letter was sent by 14 U.S. Senators to the FTC in support of preserving the Franchise Rule. A similar letter was sent from a bipartisan group of 67 members of the U.S. House.
• In July 2023, a group of bipartisan members of the U.S. House of Representatives sent a letter to the FTC with concerns about the agency’s activity threatening the franchise model.
• In November 2023, a bipartisan coalition of 15 members of the U.S. Senate urged the FTC to strengthen and improve the Franchise Rule. In the letter, the lawmakers outline three specific areas of improvement for the franchise model, including:

1. Provide greater visibility and transparency of key franchise terms and conditions; 
2. Modernize franchise disclosures, including executive summaries to FDD’s; and
3. Encourage added dialogue through the promotion of independent franchisee associations and franchise advisory councils.

A similar letter was sent by more than 80 members of the U.S. House.

The sale of franchises also is regulated by certain states, including California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin.