WASHINGTON – The Federal Trade Commission (FTC) took a step towards protecting franchisees and ensuring transparency in the franchising industry on Friday. In a policy statement and accompanying guidance, the FTC addressed two key concerns: undisclosed fees and limitations on franchisee communication with the government.
The policy statement warns franchisors that using non-disparagement clauses to prevent franchisees from reporting potential violations to the government is illegal. These clauses can stifle investigations and mask unfair practices.
“Contractual terms prohibiting franchisees from reporting potential law violations to the government are unfair, unenforceable and illegal,” said FTC Chair Lina M. Khan.
The FTC also issued guidance clarifying that franchisors cannot impose undisclosed fees, often referred to as “junk fees,” on franchisees. These unexpected costs can significantly impact a franchisee’s profitability and sustainability.
The policy statement, however, was not unanimous. Commissioners Melissa Holyoak and Andrew N. Ferguson dissented, indicating potential future debate or actions on this issue.
Furthermore, the FTC is reopening the comment period for public input on franchise agreements and practices. This move highlights the agency’s commitment to ongoing engagement with stakeholders and the potential for further regulatory adjustments.
“Today’s commission is making clear that franchisees have a right to be heard,” said Khan. “These actions aim to ensure fairness in the franchise business model and protect small business owners from unfair practices that can hinder their entrepreneurial opportunities.”
The FTC’s actions aim to create a more transparent and accountable environment within the franchising industry, potentially benefiting both franchisees and consumers.