On Friday, March 10, 2023, the Federal Trade Commission issued a Request for Information (“RFI”) soliciting public comments on various issues pertaining to the franchisor-franchisee relationship, including franchisor supply chain and other business practices; negotiation of, restrictions in, and unilateral changes to franchise agreements and the franchise system; and how franchisors may exert control over franchisees and their workers. The FTC’s announcement of the RFI expresses hostility to franchisors and franchising, alleging a “growing concern around unfair and deceptive practices in the franchise industry.” The FTC further contends the “RFI will begin to unravel how the unequal bargaining power inherent in these contracts is impacting franchisees, workers, and consumers.” The RFI seeks information regarding a wide range of topics and questions, including,:

• The ability of franchisees to negotiate terms of franchise agreements;

• Whether franchisors can unilaterally make changes to the franchise system;

• The prevalence and enforcement of various types of contract provisions and restrictions in franchise agreements, such as no-poach, maximum or minimum prices restrictions, non-disparagement, and goodwill provisions;

• Whether and how franchisors restrict franchisee purchases of goods and services, and how common it is for franchisors to receive payments from third-party vendors based on franchisee purchases from the vendors;

• Whether and how franchisors control wages and working conditions of franchisee employees;

• The effects of franchisor business practices on franchisee labor costs; and

• Whether franchisors market their franchises using other languages than English.

Comments to the RFI, including written data, empirical research, views, facts and opinions, are due to the FTC by May 9, 2023. 

The new RFI continues a busy year for the FTC. In January 2023, the FTC proposed a new rule that would ban non-compete agreements between nearly all employers and their workers. As drafted, the term “worker” in the proposed rule excludes a franchisee in the context of a franchisee-franchisor relationship. However, the FTC also requested comments on whether the proposed rule should be revised and expanded to cover franchisor-franchisee non-compete clauses. Specifically, the FTC requested public comments on the following regarding franchisor-franchisee non-competes:

• Whether the proposed rule should cover franchisor-franchisee non-compete clauses and why;

• Whether franchisor-franchisee non-compete clauses should be categorically banned or subject to a rebuttable presumption of unlawfulness; and

• Whether the rule should apply uniformly to all such non-compete clauses or whether certain categories of franchisor-franchisee non-compete clauses should be exempt or subject to different standards.

Comments regarding the FTC’s proposed non-compete rule, and its potential expansion to non-compete provisions in franchise agreements, are due by April 19, 2023.

The FTC is also conducting its decennial review of the FTC’s Franchise Rule, 16 C.F.R. § 436, which imposes pre-sale disclosure obligations upon franchisors. In issuing the new RFI, the FTC emphasized it was separate from both the non-compete rulemaking proceeding and the Franchise Rule regulatory review. Comments submitted in response to the RFI will not automatically become part of either the non-compete rulemaking proceeding or the Franchise Rule regulatory review record.

Franchisors are strongly encouraged to respond to both the FTC’s proposed non-compete rule and RFI regarding franchise relationships.