On Friday, March 10, 2023, the FTC announced a "Request for Information" seeking public comments on several questions regarding franchise agreements, certain franchisor business practices, the franchisors' involvement in certain franchisee employment matters, and the franchisor's relationship with third-party suppliers to franchisees.
For example, the FTC is asking about:
- Whether franchisors negotiate franchise agreements, and if so, what terms are negotiated.
- Whether franchisors can make unilateral changes to the franchise relationship, for example, through their operations manuals.
- How franchisors restrict franchisee purchases of goods and services, as well as how common it is for franchisors to receive payments from third-party vendors based on franchisee purchases from vendors.
- How franchisors control wages and working conditions of franchisee employees.
- Whether franchisors market their franchises using languages besides English.
Franchisors, franchisees, and members of the public at large are encouraged to respond by May 9, 2023, by submitting written data, empirical research, views, facts, and opinions.
The FTC rarely initiates rulemaking specifically about franchising. While the FTC has broad authority to regulate unfair methods of competition and unfair or deceptive acts and practices in or affecting commerce, to date, federal regulation of franchising has been confined to franchise sales.
The March 10 Request for Information is exceptionally broad in scope, scrutinizing everyday franchisor practices commonly found across all types of franchises in all industry sectors. The FTC’s efforts signal the possibility of greater regulation of the franchise business model. If this concerns you, this is your chance to get your opinions on the public record.
In January, the FTC opened a 60-day public comment period on a proposed rule to ban noncompete clauses in employment contracts but specifically excluded from the proposed rule's coverage noncompete agreements in franchise agreements. Because many commentors objected to this exclusion, the FTC is now asking for public comments on the use of noncompete agreements in franchise agreements.
If you have questions about the FTC's Request for Information or would like assistance with preparing a response, please contact us.