Franchising & Distribution Law Blog

The FTC on March 10 posted a solicitation for public comments on several questions relating to the relationship between franchisors and franchisees, as well as to franchisors’ involvement in certain franchisee employment matters and the relationship with third-party suppliers to franchisees. 

Electric vehicle (EV) charging is now available at traditional motor fuel stations, as well as restaurants, parking garages, grocery chains, and banks.  With the increase of fully electric vehicles apparent in the news and on the streets and poised to grow exponentially, some franchisors are assessing incorporating EVs into their franchise systems.

As noted in Restaurant Dive, many restaurant chains have spent the last few years pushing for growth through multi-unit franchisees, but challenges could lie ahead, as franchisees will likely face challenges due to high costs and pressure to use new technologies.

New policy effective as of January 1, 2023

Franchisors routinely require prospective franchisees to answer questions about the franchise sales process and the franchisee’s understanding of the franchise agreement in writing by marking “yes” or “no” in a questionnaire. Likewise, franchise agreements often include statements similar to those in the questionnaire. These take the form of acknowledgments the franchisee agrees to when signing the franchise agreement.

One of the frequent services my colleagues and I provide to franchisors is franchise sales compliance training. It is often an eye-opening experience for new franchisors, and even experienced franchisors can find it to be a stark reminder of how heavily regulated the business of selling franchises is.

No brand can be successful, or frankly, exist, without some form of advertising and marketing.  However, the myriad of regulations that apply to advertising and marketing can make that vital activity seem fraught with peril.

New amendments to California franchising law broaden its regulations on franchisors. California Assembly Bill 676, signed by Governor Newsom on September 29, 2022, amends the California Franchise Relations Act (“CFRA”) and the California Franchise Investment Law (“CFIL”), which apply to the termination, nonrenewal, and transfer of franchises. The law’s sponsor, Assembly-member Chris Holden, claims the amendments to California franchise law will “rectify the unbalanced relationship between franchisee and franchisors.”

Illinois is joining the online filing platform of the North American Securities Administrators Association (NASAA), allowing for franchise filings to be done online, as opposed to in hard copy, according to a Sept. 1, 2022, announcement. 

Franchisors beware: The Federal Trade Commission is making it very easy for franchisees to file fraud complaints against you. In publicizing its fraud reporting tool – aptly named ReportFraud.FTC.gov – the FTC has fired another warning shot that it is ramping up enforcement efforts against you.

The Federal Trade Commission has recently been sending “Notices of Penalty Offenses Concerning Money-Making Opportunities and Endorsements and Testimonials” to franchisors and companies selling other types of business opportunities. These notices from the federal consumer protection agency are seemingly coming from out of the blue and being served on registered agents similar to a lawsuit, causing recipients a fair amount of concern. Although the FTC tells the recipient that it is not being singled out (see this list of businesses who received the notice in October), it warns in bold letters on the first page that the recipient is now on notice that engaging in certain conduct could subject the company to civil penalties up to $43,792 per violation. A sample of the letters being sent to businesses can be viewed here.