The FTC Releases Guidelines to Safeguard Franchisees.
In an effort to shield franchisees from costs and regulations imposed by franchisors, the Federal Trade Commission has released new guidelines. Recent years have seen debate about the use of non-disparagement provisions by major chains, which prevent franchisees from openly speaking with government regulators, and huge chains imposing hidden fees that reduce the profitability of independent franchises.
In reference to the fees, the Federal Trade Commission (FTC) stated in a press release that it is unlawful for franchisors to charge unreported junk fees, which increase expenses and have the potential to distinguish between a successful and unprofitable franchise.
In recent years, a growing number of firms have been charging technology or payment processing fees that were not mentioned in franchise disclosure agreements. Generally speaking, these fees are lower than more expensive costs like royalties and marketing costs.
However, brands may make it harder for independent franchisees to turn a profit by withholding these information from prospective franchisees at an early stage of the process, especially in sectors with narrow profit margins like food service.
The second part of the FTC’s latest advice basically states that it is illegal for brands to use non-disparagement clauses in franchise agreements to prevent their franchisees from speaking with authorities.
“Contractual terms prohibiting franchisees from reporting potential law violations to the government are unfair, unenforceable, and illegal,” stated FTC Chair Lina Khan in a statement.
In essence, these two modifications raise the transparency of franchisees. It makes the pricing structure more transparent so that franchisees may make better judgments all along the way. Additionally, if franchisees think their franchisor is disobeying the law, it enables them to communicate with federal agencies more openly.
These methods were already being used by several franchisors. Those that weren’t, however, will now have to modify their procedures moving ahead.
