IFA: New Franchise Legislation Would Hamper Franchisee Rights, Not Protect Them

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Matthew Haller, 202-662-0770

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IFA: NEW FRANCHISE LEGISLATION WOULD HAMPER FRANCHISEE RIGHTS, NOT PROTECT THEM


WASHINGTON, D.C., July 24, 2015 – The International Franchise Association, the world’s largest organization representing franchise owners, has condemned new legislation purporting to be pro-franchisee as anti-opportunity and unnecessary considering the many franchisee protections already in place. The new legislation, which was introduced by Representative Keith Ellison (D-Minn.), seeks to enhance the rights of franchisees but in fact would hurt them and their businesses.


“For five years running, franchising continues to outpace growth of the overall U.S. economy,” said IFA President & CEO Steve Caldeira,CFE. “Representative Ellison’s new legislation is a misguided attempt to ‘protect’ franchisees by burdening them with new regulations and restrictions on how they run their businesses. Franchising creates millions of jobs and small business ownership opportunities for Americans, including tens of thousands of veterans, minorities and women. This is clearly a solution in search of a problem that doesn’t exist. Congressman Ellison should focus on promoting policies that actually create jobs, instead of focusing on policies that stifle job growth.”


Through a new series of restrictions on the franchisee/franchisor relationship, Ellison’s new bill would result in several negative impacts on franchisees including weakened equity in their businesses, damaged brands, reduced product quality and limited franchisor assistance. Additionally, it would increase costs by incentivizing litigation and jeopardizing constitutionally guaranteed contract rights.


What’s more, the legislation is superfluous because there are several layers of protection for franchisees already in place. The Federal Trade Commission’s Franchise Rule, which has been in place for nearly four decades, provides a strong defense against any abuses that may occur in pre-contractual disclosure to prospective franchisees. Extensive pre-sale disclosure mandated by the FTC in the 1970s and reexamined in 2007 ensures franchisees have ample time to review a franchisor’s financial statements and leadership. The rule also covers over twenty other areas of disclosure information that must be disclosed before a contractual agreement is put in place to purchase a franchise. Many states provide additional protections for franchisees. At least 15 states maintain requirements regarding franchise disclosure beyond the FTC Rule. Additionally, 23 states maintain protections for franchisees and franchisors over the relationship between each party.


Despite claims to the contrary, the vast majority of franchisees are highly satisfied with their experience in franchising. A recent independent survey of franchisees by Franchise Business Review found that nearly 80 percent would recommend their franchise brand to others and nearly 75 percent would “do it all over again” knowing what they know today about the business model. And, more than 80 percent of franchisees said they would rate their franchisor highly, enjoy being part of their franchise network, and believe their franchisor acts with honesty and integrity.


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About the International Franchise Association

Celebrating 55 years of excellence, education and advocacy, the International Franchise Association is the world’s oldest and largest organization representing franchising worldwide. IFA works through its government relations and public policy, media relations and educational programs to protect, enhance and promote franchising and the more than 780,000 franchise establishments that support nearly 8.9 million direct jobs, $890 billion of economic output for the U.S. economy and 3 percent of the Gross Domestic Product (GDP). IFA members include franchise companies in over 300 different business format categories, individual franchisees and companies that support the industry in marketing, law, technology and business development.


1900 K St., N.W., Suite 700 Washington, DC 20006 USA


Phone: +1 202/628-8000 Fax: +1 202/628-0812 www.franchise.org

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