Compliance » Franchise Business Model Under FTC Scrutiny

Franchise Business Model Under FTC Scrutiny

April 5, 2023

Stylized illustration: small model of an iconic snack stand held in the cupped hand extending into the picture. The stand is connected to some kind of network diagram.
Business hand and store icon with branches and blank circle, template for franchise or store on e commerce concept in flat style

A Request for Information from the Federal Trade Commission may presage significant changes in the more than $800 billion U.S. franchise industry. Rarely does the FTC initiate rulemaking about franchising, according to a post from law firm Davis Wright Tremain, and this particular information request is “exceptionally broad in scope.”

The FTC says it wants to hear from franchisors, franchisees and current and past employees, as well as government entities, attorneys, academics and other interested parties. Among the issues on the table are terms of negotiations, ability of franchisors to make unilateral changes to agreements, franchisor control over wages and working conditions, and payments by franchisors to third parties “related to franchisees’ purchases of goods or services from those third parties.”

Separately, the FTC says it is seeking comment on a proposed rule that would ban non-compete clauses, and specifically whether that rule should apply to noncompete clauses between franchisors and franchisees.

The franchise industry in the U.S. employs nearly 8.5 million people in about 790,000 establishments, and has economic output of $827 billion, according to 2022 figures from Statista.)  -Today’s General Counsel/DR

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