New policies and guidance address illegal contract clauses and undisclosed fees to ensure transparency and fairness in the franchise industry.
The Federal Trade Commission (FTC) has initiated actions to address unfair and deceptive practices by franchisors, intending to preserve the franchise model as a viable path to business ownership for small business owners. Key measures included a policy statement declaring that franchisors’ use of non-disparagement clauses, which prevent franchisees from communicating with the government, is illegal. The statement highlighted the importance of franchisee reports and voluntary interviews in FTC investigations, noting that retaliation against franchisees for reporting potential law violations is unlawful.
“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 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.”
The commission also released guidance clarifying that franchisors cannot impose undisclosed fees on franchisees. This response follows complaints regarding rising fees for services like payment processing, technology, training, and marketing, which can render franchises unprofitable.
As the Lord Leads, Pray with Us…
- For the chair and commissioners of the FTC as they seek to ensure fairness and justice in the franchise industry.
- For wisdom and discernment for officials in federal regulatory agencies as they seek to support small businesses and enhance competition and opportunities.
Sources: Federal Trade Commission
