“Your Comments Here”: the FTC Seeks Public Comment on the Nature of Franchise Relationships

On March 10, 2023, the Federal Trade Commission (FTC) notified the public it is seeking comments from franchisors, franchisees, and other related parties about franchise agreements, franchisor business practices, and how franchisors may exert control over franchisees and their workers. The FTC claims to want to “ensure a fair marketplace for franchisees.” Specifically, the FTC is inviting comments on things like negotiating power in franchise agreements, franchisors’ ability to change franchise systems unilaterally during the terms of franchise agreements, common franchise agreement provisions and business practices, and how a franchisor’s control of non-labor operating costs may impact labor costs for franchisees. This new request also follows a recent FTC request for public comments on a proposed rule that might extend a ban on non-compete clauses in certain business relationships to franchising.

The proposed rule and requests for comment follow a trend in which the FTC is seeking to regulate business relationships in an area where states have traditionally been the sole regulators. These efforts include relatively novel litigation against at least one franchisor the FTC has accused of misleading franchisees along with well-publicized interest in possible amendment of the Franchise Rule itself.

It is evident that the FTC is interested in possibly reshaping the legal constraints around franchise relationships. This could result in more burdens on franchisors in negotiating and executing contracts and could elevate the bargaining power of franchisees. It will be important for all parties and potential parties to franchise agreements to follow these developments with the FTC because they could dramatically change the business and legal landscape in which they do business.