IFA Urges FTC to Improve Disclosure to Protect Franchisees and Consumers, not Regulate the Franchise Relationship

Highlights how franchising is working and why a one-size-fits-all regulation would upend the franchise model and destroy franchisee equity

WASHINGTON, DC – The International Franchise Association (IFA) today submitted comments in response to the Federal Trade Commission’s (FTC) Request for Information (RFI) on franchise agreements and franchisor business practices. IFA stresses how franchising covers hundreds of lines of business and why the franchise relationship works as it is designed, while also suggesting workable updates to the Franchise Rule. IFA’s comments were echoed by franchise brands, franchisees and suppliers across industries.

In the comments, Haller writes,

“Uniform restrictions applied across hundreds of thousands of franchised businesses, operating across over three hundred industries, would make it impossible for those businesses to compete with non-franchised businesses that are not stifled by such restrictions. The fallout of broad sweeping regulation of franchise relationships threatens not only the livelihood of those franchisees but also the millions of workers they employ, the communities they support and the consumers they serve. We urge the Commission to focus its efforts in improving the Franchise Rule to provide prospective franchisees a better opportunity to conduct due diligence of franchise systems and compare franchise systems within an industry.”

Haller also highlighted how the Commission’s line of questioning was designed to elicit negative responses toward franchising instead of a true fact-finding exercise seeking objective data informing the Commission about the franchise model. For example, a number of questions ask “how” franchisors carry out certain behaviors, rather than “if” such behavior is even happening.

“We are troubled that the narrow focus of the questions posed in the RFI will yield incomplete and anecdotal accounts of franchise relationships rather than a holistic picture of franchising as it exists across the nearly 800,000 franchised businesses operating today…We are particularly troubled that the Commission might rely on those anecdotal accounts, including many made anonymously, to engage in a formal rulemaking process that would halt the growth of franchised businesses with overly restrictive regulation of franchise relationships, to the detriment of consumers, business owners and workers.”

Hundreds of IFA members from a variety of industries, including the restaurant, hotel, retail, and commercial, residential and business services industries, responded to the RFI sharing how franchising is working, detailing the opportunities franchising has given them to own and operate their own business, and why they are concerned about actions from the Commission that could destroy the equity in their business and their ability to remain independent.

An IFA working group of franchisors, franchisees, suppliers and franchise attorneys is in the process of developing model regulations to improve disclosure that it intends to present to the Commission as part of its ongoing review of the Franchise Rule this year. The model regulations are based upon IFA’s Statement of Guiding Principles which has been in place since 2013 and still helps guide the organization today.

In the comments, IFA previewed several potential reforms to the Franchise Rule. Examples of those proposed reforms include:

• Modernizing the format of the Franchise Disclosure Document – such as making it searchable and providing clarity to readers of the purpose of each required disclosure Item
• Updating the structure to prioritize information typically considered by entrepreneurs seeking to acquire or develop a business and allow comparison of franchise systems within industries
• Adding an executive summary to assist prospective franchisees in navigating the FDD
• Educating prospective franchisees about resources available to franchisees, including relationship management support like franchisee associations and franchise advisory councils

The comments also highlight that the scope of the RFI examining the effect of franchisor controls on franchisees brings into question the Commission’s ongoing relationship with the National Labor Relations Board as it pursues a final joint employer rule.

Read IFA’s full comments here.

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