current and former franchise owners - you now have a voice with no repercussions!
The time has finally come!
The FTC issued a policy that a franchise agreement CANNOT restrict franchisees’ communication with the FTC or any other state or federal law enforcer or regulator about potential violations.
REPORT ANY VIOLATIONS NOW! ReportFraud.ftc.gov
This can include items such as:
Unfair or Unreasonable Contract Terms: For example, one franchise requires their owners to spend $6000 per month on marketing! Excessive Termination Penalties and broad indemnity clauses (franchisee must cover all liabilities even those caused by the franchisor’s actions) are also considered unreasonable.
Misleading Statements During the Sale Process: Examples include inflated earnings claims, misleading market comparisons, overstated success rate without acknowledging failures, false promises of support, and understated start-up costs.
Misrepresentation of Earnings: Providing false or misleading information about potential earnings or financial performance.
Failure to Disclose Fees: Imposing undisclosed fees, such as marketing or technology fees, that were not included in the franchise agreement.
Non-Disparagement Clauses: Using contract provisions that prevent franchisees from reporting potential law violations to the government.
False Advertising: Making untrue claims about the franchise opportunity or its benefits.
Retaliation Against Franchisees: Threatening or penalizing franchisees for reporting issues or cooperating with investigations.
Incomplete Disclosure: Omitting required information in the Franchise Disclosure Document (FDD), such as litigation history or bankruptcy filings.
The complete policy can be found here: *Policy Statement of the Federal Trade Commission on Franchisors' Use of Contract Provisions, Including Non-Disparagement, Goodwill, and Confidentiality Clauses
Another article you should read covers concerns brought to the FTC regarding franchise models: ISSUE SPOTLIGHT: Risks to Small Business Success in Franchising