National Coalition calls on FTC to Investigate Franchising

Petition Seeks Expanded Regulation to protect Franchise Owners against ‘predatory and opportunistic’ behavior

September 28, 2021

San Antonio, TX – The National Coalition of Associations of 7-Eleven Franchisees (NCASEF), in cooperation with Keith Miller of Franchisee Advocacy Consulting, has filed a petition with the U.S. Federal Trade Commission (FTC) requesting an investigation of the franchise industry. The petition asks the FTC to compel nine major franchise chains to respond to 115 requests for information in 14 categories, among them: supply chain, advertising funds and financial performance representations.

The petition has the endorsement of 11 independent franchisee associations.

Petitioners are hoping the investigation will prompt the Commission to extend federal regulation of the industry beyond the presale financial disclosures franchise companies are already required to make.

“This petition provides the opportunity for the FTC to take a proactive role in assessing the franchise industry,” said Miller. “We are requesting the FTC look broadly at the imbalance of power in our industry today.”

In April, Nevada Senator Catherine Cortez Masto released a comprehensive report on franchising, which highlighted problematic areas in the industry and asked for increased oversight from the FTC.  In June, Illinois Rep. Jan Schakowsky sent a letter to the Government Accountability Office (GAO) requesting a study of inadequacies in the current FTC’s Franchise Rule.

Thomas Ayres, a senior attorney with NCASEF law firm Witmer Karp Warner & Ryan, who co-wrote the FTC petition, said, “Franchisors often engage in predatory behavior after franchisees sign their contracts, but the FTC rarely investigates post-sale activities when franchisees are more vulnerable and captive to their franchisors.”

Recently, the FTC has launched antitrust investigations of the technology and pharmaceutical sectors. FTC Commissioner Rohit Chopra has been outspoken about the need to “stop unfair, deceptive and discriminatory practices that target franchisees and their employees,” telling CNBC, “We ultimately want to make sure there is a fair playing field for both the franchisor and the franchisee.”

A 2019 report by the Australia Parliamentary Joint Committee on Corporations and Financial Services detailed abuse by several franchisors, including 7-Eleven. “An important takeaway from the Australian report is that presale disclosure is an insufficient regulatory response to power imbalances, because it does not curb opportunistic and exploitative practices by some franchisors,” said Eric H. Karp, partner of Witmer Karp Warner & Ryan and former chair of the American Bar Association Forum on Franchising.

Vimal Patel, a franchise owner of Q Hotels in Louisiana who has filed suit against hotel franchisor IHG, expressed his support for the NCASEF/Franchisee Advocacy Consulting petition. “It’s time the FTC used its authority to look at the fairness and transparency in the franchise industry.”

Attorney Ayres said current business conditions, exacerbated by the global pandemic, further highlight the need for closer examination of franchising. “The additional strains the pandemic has put on franchisees across all industries has brought into sharper focus the need for further investigation and action.”

The petition recommends the FTC send requests for information to 7-Eleven, Inc.; Subway; The UPS Store, Inc.; IHG Hotels and Resorts; Choice Hotels; Experimax/Experimac; Supercuts; Massage Envy; and Dickey’s Barbecue Pit.

 A copy of the Petition is available here.