The Franchise Conflict: Federal Government Steps In

In the ongoing conflict between franchisers and franchisees, the federal government has intervened to support the interests of the smaller business owners.

Franchisers such as McDonald’s and Jiffy Lube grant individual entrepreneurs the license to operate their business concept, with franchisees providing the necessary capital and managing one or multiple locations.

FTC Policy Statement and Guidance

Last Friday, the Federal Trade Commission (FTC) issued a policy statement and staff guidance cautioning franchisers against limiting franchisees’ communication with government officials and adding undisclosed fees.

The FTC emphasized the need to address concerns about unfair practices in the franchising industry and uphold the franchise business model as a pathway for honest small business owners.

Industry Scrutiny and Government Action

The FTC initiated investigations into the franchise industry, consisting of 800,000 establishments, following a request for information issued last year. This request aimed to assess the franchisee-franchiser relationship and its impact on small business owners.

Additionally, the Government Accountability Office’s report highlighted the lack of control franchisees have over critical business decisions and their limited understanding of associated risks before purchasing a franchise license.

Stakeholder Responses

With over 2,200 comments submitted in response to the FTC’s inquiry, a prevailing sentiment emerged. The majority of franchisees advocated for regulatory changes to better protect their interests, while a significant portion of franchisers opposed such modifications.