Franchising Community Stresses Importance of Protecting Business Model at FTC Open Hearing

Cautions against broad, sweeping regulations that would fundamentally change franchising

WASHINGTON – Speaking at the Federal Trade Commission’s (FTC) July 20 Open Hearing, Planet Fitness franchisee and IFA Board Chair David Humphrey and IFA General Counsel Sarah Bush urged support for the franchise business model as the Commission considers regulatory changes following its March 10 Request for Information.

Humphrey spoke out against any regulation that would fundamentally alter the franchise model, highlighting his experience as both franchisee and a franchisor and stressing the importance of brand standards in preserving the equity franchisees have built in their business, which regulations in consideration could erode. He urged the Commission to instead focus on updating and strengthening disclosure requirements, “so prospective franchisees considering investing in a system know exactly what they're buying into,” as well as examine the role of brokers and third-party sellers in the franchise sales process.

Bush highlighted the distinct advantages, benefits, and diversity of the franchise model and stressed the importance of the Commission reviewing the entirety of submissions to its RFI before considering “broad, sweeping regulations” of the franchise relationship which covers over 300 distinct industries. She said in issuing a one-size-fits-all franchise relationship regulation, “The Commission will strengthen big business at the expense of thousands of small business owners, the people the Commission aims to protect.”

Humphrey’s full statement is below:

Commissioner Khan, everyone, thank you for the opportunity to speak as a franchisee in support of the franchise business model and against any new regulation that would fundamentally change the franchise model. For the past nine years, I've been a franchisee in the Planet Fitness gym system, but prior to that I was a franchisor, serving as CEO of the Massage Envy spa chain from 2008-2011. I have a balanced view of franchising from both sides.

As a franchisee, my team and I have a great degree of operational control in our business. We build our facilities. We hire, train, and supervise our team members. We market and sell to our customers.  But we act within brand standards established by our franchisor, and having strong standards is absolutely in our interests as franchisees to protect the equity we have built from being devalued by non-compliant franchisees. 

If new regulation prevents franchisors from requiring all their franchisees to periodically spend money to launch new products or services, we'll fall behind our non-franchised competitors, hurting every franchisee. If regulation prevents brands from requiring franchisees to regularly re-invest to keep their facilities fresh and updated, the image of the entire chain will suffer, hurting every franchisee.

What could help franchisees is for the Commission to focus on updating and strengthening disclosure requirements so prospective franchisees considering investing in a system know exactly what they're buying into. And please examine the increasing and largely unregulated role brokers and other third-party sellers now play in the franchise sales process.

On May 7, I submitted written comments that expand on my brief remarks today, and I would greatly appreciate you reading them, or I would be delighted to answer questions now. Thank you for protecting the franchise business model.  

Bush’s full statement is below:

Chair Khan, Commissioners and FTC staff, thank you for allowing me to speak with you today. I am the General Counsel of the International Franchise Association, the world’s largest organization representing franchising. Our members include franchisors and franchisees. Franchising is thriving in the U.S., with nearly 800,000 franchised businesses operating across over 300 distinct industries and employing approximately 8.4 million people. Franchisee satisfaction remains at an all-time high. Based on a study of 30,000 franchisees, 85% report satisfaction with their franchise system. Franchising is diverse and robust, providing a pathway to entrepreneurship for first time business owners, women and people of color at a disproportionately higher rate than non-franchised businesses.

The statistics I cite are based on empirical data and are included in our response to this Commission’s March 10th RFI. The Commission is uniquely positioned to gather empirical data about the issues raised in the RFI, and we urge the Commission to do so rather than rely anecdotal stories and incomplete surveys by special interests to inform its understanding of relationship practices.

Franchise relationship practices exist to protect franchisee equity in their businesses from harm by other franchisees, provide safe environments for workers and maintain consumer trust in the brand. A one-size-fits-all relationship rule will restrict franchise systems from exercising the same flexibility to respond to changes in consumer preferences and market conditions as their non-franchised counterparts, squeezing them out of their industries. In doing so, this Commission will strengthen big business at the expense of thousands of small business owners, the people the Commission aims to protect.

IFA supports enforcement of the Franchise Rule and improved pre-sale disclosures, which will cure many of the issues raised in the public comments responding to the RFI. We look forward to working with the FTC to make necessary changes to the Franchise Rule to improve transparency and accountability. But, we urge the Commission not to upend franchising in America with broad-sweeping regulation of franchise relationships.  

The remarks follow the FTC’s Request for Information (RFI), issued on March 10, targeting the franchisor-franchisee relationship. IFA’s comments in response to the RFI can be viewed here. The FTC received thousands of comments from the entirety of the franchising community and its stakeholders in support of the franchise business model, many of which can be viewed here.

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