In the matter of:

Solicitation for Public Comments on Provisions of Franchise Agreements

and Franchisor Business Practices

^{Response to the FTC concerning the Franchise Rule Regulatory Review}

^{Respectfully submitted via electronic submission:  Kim Perrotta, – Florida, USA}

^{Organization:  WorldWise Franchise Development}

^{Date:  May 29th, 2023}

^To:

^{Honorable April Tabor, Secretary, Office of the Secretary}

^{Federal Trade Commission}

^{The Honorable Chair – Lina M. Khan}

^{Honorable Commissioner – Alvaro Bedoya}

^{Honorable Commissioner – Rebecca Kelly Slaughter}

^{Honorable Elizabeth Wilkins, Chief of Staff to the Chair and Director, Office of Policy Planning} 

^{Dear Honorable Members,}

^{Good day and thank you for this opportunity to express myself publicly, as it is most appreciated.  Each comment I make will be of the color you see here throughout this submission.}

^{By way of background, my name is Kim Perrotta, and I have been involved in franchising for a career that has now spanned 30+ years.  As both Franchisor and Franchisee, I’ve been on both sides of the desk (and counter) for as long as I can remember.  I’ve developed, executed, and designed franchising programs, franchise documentation consistent with regulations, and “sold” franchises domestically and internationally.  My background consists of all things franchised, including franchise sales and development, franchisee support, operations, marketing, financial management, real estate, construction, legal review, and direction, franchise brand building, and brand acquisitions, with titles such as President, COO, Country Manager, Managing Director, Regional, Area, and District manager.}  

^{I am also honored to be a SCORE mentor and workshop presenter and a supporting delegate to the leadership council of the American Association of Franchisees and Dealers (AAFD). Today, I am a Franchisee Advocate, a Franchisee advisor, and what is commonly referred to as a franchise “broker, consultant, coach, referral agent, etc.  Via these comments, I will respond to the RFI in the order in which they were requested.} 

^{I am delighted that the Federal Trade Commission is revisiting the “rule” and will consider making the necessary changes to enhance and protect franchising through “Fair Franchising Standards” and “Total Quality Franchising ®.”}

1. The Franchise Relationship
2. The ability of franchisees to negotiate the terms of franchise agreements
3. To what extent are franchise agreements presented to prospective franchisees as take-it-or-leave-it contracts?

With no exceptions I am aware of, franchise agreements are “adhesion agreements” subject to minimal or no negotiation or compromise.  Cherished Franchisees are forever bound to the terms and conditions of an absolutely lopsided agreement until its term end and is entirely controlled by the franchisor.

1. What terms, if any, of franchise agreements are negotiated between the franchisee and franchisor?

Certain minor exceptions such as “territory size” (if applicable), opening schedules (if multi-unit/multi-area), some renewal rights, some guarantees, some post-term covenants, some transfer rights, and fees.  With few exceptions, agreements are indeed “take it or leave it.”

iii.            To the extent that franchise agreements are not meaningfully negotiated, what are the effects on franchisees?

Let me begin by requesting that the commission consider reviewing the body of franchise agreements generally.  These agreements favor the franchisor so much that they nearly shout out “joint employer” in their terms and conditions.  If you haven’t already, you’ll find that many franchisee and related agreements are mere “templates” and often copied for each client franchisor lawyers engage.  Exceptions, of course, for concept types and language specific to the same.

1. To the extent such agreements are non-negotiable, what are the justifications?

Franchisees are subject to and bound by terms, fees, and conditions that are often unjustified or accounted for.  A perfect example of this would be certain ad funds and what a franchisor might call “purchasing power,” neither typically accounted for nor disclosed.  Additionally, through respective “operating manuals,” changes are often made to original franchise agreements by fiat, a clear “let it be done” approach.

1. The ability of franchisors to make unilateral changes to the franchise system during the course of a franchise relationship
2. What types of changes to operating manuals are made unilaterally? How prevalent are such practices?

Hours and Days of operation, how payments are to be made via ACH, operating “standards,” employee “coverage” (number of employees on duty), equipment add-ons and ongoing upcharges, additional fees associated with software and related programs, remodel terms and conditions, menu changes, service changes, pricing (services, products).  It is a “controlling” document, subject to change and amendment by the franchisor at any time, and repeatedly referenced in the franchise contract. Permit me to demonstrate to you some of the language found in typical “Operating Manuals,” as follows *:

*Examples of Operations Manual references are as follows (Example – Restaurant):

*Aspects of the System are described in the Disclosure Document and the Confidential Operations Manual (the “Operations Manual”), which you should expect to evolve over time and provided to you as a franchisee.

 *You must purchase or lease and install all fixtures, furnishings, equipment (including point of sales system), décor items, signs, and related items we require, all of which must conform to the standards and specifications stated in our Operations Manual or otherwise in writing unless you have first obtained our written consent to do otherwise.

 *You may not install or permit to be installed on the Franchise premises any fixtures, furnishings, equipment, décor items, signs, games, vending machines, or other items without our written consent or that do not comply with our specifications.

*To ensure that the highest degree of quality and service is maintained, you must operate the Franchise in strict conformity with the methods, standards, and specifications described in the Operations Manual or otherwise in writing.

 *You must maintain sufficient supply and use and sell only food and beverage items, ingredients, products, materials, supplies, and paper goods that meet our standards and specifications.

 *All menu items must be prepared by the recipes and procedures specified in the Operations Manual or other written materials. Without obtaining our written consent first, you must not deviate from these standards and specifications by using or offering non-conforming items or differing amounts of any items.

 *We can and expect to modify our standards and specifications as we deem necessary. We will notify you in the Operations Manual or otherwise in writing (such as via e-mail) of any changes in our standards and specifications.

 *A complete list of our approved products and suppliers will be included in the Operations Manual and is subject to change over time.

*We will provide you notice in the Operations Manual or otherwise in writing (such as via e-mail) of any changes to the lists of approved products and approved suppliers.

*In addition, all your advertising and promotion in any medium must be conducted in a dignified manner. They must conform to the standards and requirements in the Operations Manual or otherwise.

*Confidential Operations Manual: You must operate the Franchise following the standards and procedures specified in the Operations Manual.

 *We may revise the contents of the Operations Manual, and you must comply with each new or changed standard. You must also ensure that the Operations Manual is kept current at all times.

 *If there is a dispute regarding the contents of the Operations Manual, the terms of the master copy maintained by us at our home office will be controlling.

 *You must comply with Operations Manual as amended.

1. Aside from changes to the operating manual, how do franchisors make unilateral changes?

Other than those indicated via the “Operating Manual,” franchisors are positioned to announce wholesale changes in Franchisee operations and enforcement assessments. Although not as prevalent, Management Training and Employee Guides and Handbooks distributed have had an effect on franchise operations.  Behaviors such as these are meant to subject Franchisees to undo pressure and compliance when the franchisor is attempting to “sell in” an advertising program, upcharges on services, or an outright demonstration of “We mean business” when dealing with their Franchisees. 

iii.            Do franchisors disclose prior to the initiation of the franchise relationship that such unilateral changes may be made, and if so, where and how?

Because “Operating Manuals” are considered “Confidential and Proprietary,” a Franchisee Investor does not see the manual before executing and paying the fees associated with a franchise agreement.  As indicated above, this is the primary and ultimate way franchisors can make unilateral changes by utilizing the “Operating Manual.”  Additionally, upon renewal, Franchisee Investors are asked to sign the “Then Current Form Franchise Agreement (in the renewal term date),” which may significantly change the terms and conditions of the original agreement executed, usually a “requirement” to have the franchise term renewed and extended.

1. What restrictions are there on franchisors’ ability to make unilateral changes to the franchise system?

Nearly none.  As the Commission is well aware, the franchise agreement is a contract with which terms and conditions must be complied.  The most egregious method by which franchisors make unilateral changes to agreements and systems is using the Operating Manual as indicated or terms of renewal of “then current form” franchise agreements. This is also true, whereas a Franchisee Investor may enter into multiple area or “unit” agreements (store or area development agreements).  Again, the franchisor may require a “then current form franchise agreement” to be executed with each additional area or location developed with each subsequent opening. Terms and conditions may significantly differ from the first agreement for each additional area or location.

1. What are the effects of franchisors’ ability to make unilateral changes to the franchise system on franchisees, consumers, workers, and competition? How prevalent are such effects?

While change over time is expected from a competitive perspective, the changes often fly in the face of what was initially mutually agreed to.  Generally, franchisees feel the effects of poorly managed distribution channels manifest in increased cost of goods, price increases to consumers, decreased scheduled hours for and compensation for workers, and panic management as franchisors attempt to compete with other franchisors.

1. What justifications are there for franchisors making unilateral changes to the franchise system, including to the operating manual?

There can be and is no justification for changing the “rules” in the middle of the game.  The franchisor’s very nature of “unilateral change” violates appropriate contract law and the tenets initially agreed to when executing the original terms and conditions of the initial franchise agreement. 

2. Provisions of the Franchise Agreement
3. For any of the provisions identified below, discuss (1) the prevalence of such provision in franchise agreements; (2) how the provision affects franchisees, consumers, workers, and competition, or (3) any justifications for such provision.
4. Provisions that restrict a franchisee from hiring employees of the franchisor or other franchisees (often described as “no-poach” provisions)

Whether at the most basic of levels of employment or “upper management” levels, “no-poach” provisions unfairly subject and restrict the employment of those seeking change.  When enforced, a franchisor can prevent an employee from transferring from one location to another of the same brand regardless of the reason, e.g., poor management, working conditions, cultural environment, relocation, etc.  While I have seen this occur, I do not believe it is prevalent at basic employment levels.

1. Provisions that require that the franchisee provide employee training, and whether costs are borne by the franchisor or the franchisee

Every franchisor provides and enforces guidelines for the training of employees.  Typically, most of this training will occur before, during, and to some degree after a location or area is being developed by a Franchisee.  Franchise agreements indicate the extent that the franchisor is responsible for training and the number of individuals they will train, the cost of which is “included” in the franchise fee.  Beyond the number indicated in the franchise agreement, franchisors often indicate monetary charges for any additional training the franchisor requires.

Example follows:

“We will train up to four people at no additional charge. If you request that we provide our initial training program to any additional employees, or to new or replacement employees during the term of your Franchise Agreement, you must pay our training fee as well as the trainees’ expenses, including travel, lodging, meals and wages”.

Most every franchisor provides and enforces guidelines for the training of employees.  Typically, most of this training will occur before, during, and to some degree after a location or area is being or has been developed by a Franchisee.  Franchise agreements indicate the extent that the franchisor is responsible for training and the number of individuals they will train, the cost of which is “included” in the franchise fee.  Beyond the number indicated in the franchise agreement, franchisors often indicate monetary charges for any additional training the franchisor requires.

One example follows:

“We will train up to four people at no additional charge. If you request that we provide our initial training program to any additional employees, or to new or replacement employees during the term of your Franchise Agreement, you must pay our training fee as well as the trainees’ expenses, including travel, lodging, meals and wages”.

“Current training fee = $500 per day, per person”

“The entire training program is subject to change due to updates in materials, methods, manuals and personnel without notice to you. The subjects and time periods allocated to the subjects actually taught to a specific franchisee and its personnel may vary based on the individual needs and/or experience of those persons being trained”.

“We may choose to hold refresher training courses, and we may designate that attendance at refresher training is mandatory for you, your General Manager and/or other Restaurant personnel. You must pay our then-current per diem fee for refresher training, which will vary depending on whether training is conducted at our headquarters or at your location and the level of expertise of the trainer, and you will pay for all of the expenses incurred by your trainees, including travel, lodging, meals and wages if the trainees travel to our headquarters for refresher training. If we send trainers to your location to provide refresher training, you must reimburse our trainers’ expenses “.

This is one example of franchise agreement language taken from the actual agreement within the FDD (Item 6, “Other Fees”).

While language concerning the above may differ from agreement to agreement, it is prevalent in typical franchise agreements and impacts ongoing operations, profitability, and consumer pricing.

iii.            Provisions that require franchisees to purchase or lease goods, services, real estate, or other items related to establishing or operating a franchised business, either from the franchisor, its designee, or suppliers approved by the franchisor or under the franchisor’s specifications

Very prevalent in nearly all franchise agreements I’ve ever worked with, where supplies, build-outs, software, POS systems, etc., are mandatory.  This is regardless of whether or not “some” of these items can be purchased for less, locally, while still meeting the franchisor’s specifications.  Also true that Franchisees must often comply with deep discounting that may provide for increased top-line sales where the franchisor collects royalties but where Franchisee profit is impacted or diminished.

1. Prohibitions on the sale or purchase of unapproved products or services

Made part of all franchise agreements and subject to change “after” franchise agreements are executed via “operating manuals.”

1. Provisions that impose maximum or minimum prices or otherwise limit franchisee discretion to price products and services

Example as follows (Restaurant):

7.13 Pricing

Where permitted by applicable law, we may provide you written advice regarding the minimum and/or maximum prices which you may charge your customers for menu items, products and services provided or sold under the System. Any such advice, if given at all, will be binding on you and you agree to comply with our pricing guidelines. Nothing contained herein shall be deemed a representation by us that if you follow such guidelines you will, in fact, generate a profit.

You are obligated to inform us of all prices charged for products sold by you and to inform us of any modifications of your prices. We may exercise rights with respect to pricing programs and products to the fullest extent permitted by then applicable law. These rights may include (without limitation) establishing the maximum and/or minimum retail prices which you may charge customers for the programs or products offered and sold at your Restaurant; recommending retail prices; advertising specific retail prices for some or all programs, products or sold by your Restaurant, which prices you agree to observe (sometimes known as “price point advertising campaigns”); engaging in advertising, promotional and related programs which you must participate in and which may directly or indirectly impact your retail prices (such as “buy one, get one free”); and otherwise mandating, directly or indirectly, the maximum and/or minimum retail prices which your Restaurant may charge the public for the programs, products and services it offers.

We may engage in any such activity at any time throughout the term of this Agreement. Further, we may engage in such activity only in certain geographic areas (towns, cities, states, regions) and not others, or with regard to certain subsets of franchisees and not others. You acknowledge and agree that any maximum, minimum or other prices we establish or suggest may or may not optimize the revenues or profitability of your Restaurant. You entirely waive any and all claims related to our establishment of prices charged at your Restaurant.

1. Provisions that determine wages, hours or working conditions of employees of the franchise

Unless otherwise indicated in Employee handbooks, guides, or operating manuals, this has, in my experience, not been an issue.

vii.      Provisions that mandate franchisees to maintain certain hours of operation

Contingent on the type of franchise, required hours of operation do indeed exist.  Sometimes, these hours make no provision for seasonality or day part sales (late evening or early morning) but are generally not enforced unless made part of inspections or a retaliatory effort against the Franchisee(s).

viii.     Provisions that restrict or do not restrict the territory or sites where the franchisee may operate its business

Territory restrictions are prevalent where territories are clearly defined without ambiguity.  Franchisors who operate multiple concepts may define a territory as non-exclusive for their other brands, even if in the same category (food, service, otherwise). Territory “rights” may be subject to change upon franchise renewal if a territory is “re-assessed” and determined to have more “white space” than was initially agreed to. This will often impact the equity built by the existing Franchisee who originally signed on for an assigned and delineated territory. 

1. Provisions that restrict or do not restrict a franchisor or its successors-in-interest from competing with a franchisee by one or more means within a designated area

There are multiple instances where a Franchisor will make clear that they may compete with a Franchisee in a given territory through national accounts or company-operated locations within a given geography/territory.

Example as follows:

Competition from franchisor. Even if the franchise agreement grants you a territory, the franchisor may have the right to compete with you in your territory.

ITEM 12 TERRITORY Franchise Agreement: Your Franchise Agreement will specify the site that will be the Accepted Location for your Restaurant. Your Franchise Agreement may also specify a Designated Area.

If your Restaurant is located in a suburban market, your Designated Area will be a one-mile radius around your Restaurant. If your Accepted Location is a Non-Traditional Site (as described below) or in a downtown location, you will not receive a Designated Area.

In addition, because we reserve the right to establish Restaurants at Non-Traditional Sites (which may be within your Designated Area), your Designated Area is not exclusive to you. You will not receive an exclusive territory.

You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control.

1. Provisions that require franchisees to make non-recoverable capital investments at the franchisor’s direction (often described as “mandatory capital investment provisions”)

Prevalent with required remodels, software or POS upgrades, new service or new item introductions, and specifications otherwise indicated in the operating manual.  Prospective Franchisee Investors do not see these possible non-recoverable capital investments in Item Number 7 of the FDD.

1. Non-disparagement and goodwill clauses
2. To what extent do franchisors enforce non-disparagement, goodwill or similar clauses and how do they enforce them?

See response to b.ii next.

1. To what extent do non-disparagement, goodwill or similar clauses inhibit franchisees from filing complaints with state, local, or federal agencies related to unfair or deceptive conduct by franchisors?

As you review the request for information comments, please note how a majority, at the time of this writing, are published as “anonymous.”  This is not a coincidence.

Cherished Franchisees fear retaliation and/or a “violation” of any NDAs or “non-disparagement” documents they may have signed. 

Franchisors, however, have no such restrictions and have been provided with template “kits” by a significant trade organization to respond.  In some instances, they’ve even been assisted in composing these responses.

Cherished Franchisee, “freedom of speech,” has been stifled and, in many cases, is made part of documents signed, whereas they are unaware these aspects were even made part of the agreement.  Retribution and/or retaliation come in many forms, the most serious being a “violation” of the franchise agreement and a notice of same.  Restraining orders, cease and desist orders, or civil actions are within the scope of what a franchisor might utilize.

Last, monitoring, surveillance, and compliance with other elements of the franchise agreement may be used to intimidate or influence Franchisees from speaking out.

iii.       To what extent do non-disparagement, goodwill, or similar clauses inhibit franchisees from providing information to prospective or current franchisees or third parties about the franchise and their experience as a franchisee?

Same as above and even more alarming regarding prospective Franchisee Investors engaged in the due diligence of pursuing a franchise investment. This particular aspect of agreements is very prevalent. It stifles transparency, honesty, and the apparent ability to speak to existing Franchisees and Franchisees who have either left systems voluntarily, were terminated, or went out of business due to bankruptcy.

1. What effects do non-disparagement, goodwill or similar clauses have on franchisees, consumers, workers, and competition? How prevalent are such effects?

The effects are chilling. They infringe upon the rights of Franchisees, Past Franchisees, Employees, and Consumers to the extent that any of the above seek honest information.  This is not to say that biased and non-factual slander or libel is acceptable as it is not; however, where honest facts are suppressed in attempts to convey truthful and accurate information, this flies directly in the face of rights granted to all under the terms of our Constitution.

1. What justifications are there for non-disparagement, goodwill, or similar clauses?

None and should be entirely removed from any agreements.  If the information provided to anyone is non-factual, Franchisors have legal remedies available.

3. Franchisor Business Practices

 Retaliation for participation in franchisee associations

 Do franchisors retaliate against franchisees for participating in non- franchisor endorsed or sponsored franchisee associations? If so, how prevalent is such retaliation, and what form does it take, including possibly audits or on-site inspections?

Several states require amendments to FDDs prohibiting the franchisor from interfering or opposing the formation of Franchisee Managed Franchisee Associations.  Here you will find one example from the State of Michigan:

DISCLOSURE REQUIRED BY THE STATE OF MICHIGAN

THE STATE OF MICHIGAN PROHIBITS CERTAIN UNFAIR PROVISIONS THAT ARE SOMETIMES IN FRANCHISE DOCUMENTS. IF ANY OF THE FOLLOWING PROVISIONS ARE IN THESE FRANCHISE DOCUMENTS, THE PROVISIONS ARE VOID AND CANNOT BE ENFORCED AGAINST YOU:

(a)  A prohibition on the right of a franchisee to join an association of franchises

Franchisors are initially concerned and will often oppose the formulation of a Franchisee Managed Franchisee Associations (as opposed to franchisor-managed “advisory councils.”

In an article written by Attorney Julie Lusthaus, she writes:

Goals of the Independent Franchisee Association

“Independent franchisee associations are formed to pursue a number of goals on behalf of the franchisees in the system. These goals include: enhancing leverage in negotiations with the franchisor; potentially negotiating more favorable terms with outside vendors and contractors; educating franchisees on the state of the franchise system; and creating opportunities for franchisees to share information about best practices in their businesses.

“Connection with their suppliers and provide the franchisees with the ability to create purchasing power. Franchisee associations also serve to educate the franchisees on the state of their franchise system as well as legal and legislative developments which may affect their rights and responsibilities as franchisees. The association provides a forum for sharing the benefits of this knowledge through a variety of means.”

As is with the comment concerning item b. ii, retaliation for forming a Franchisee Managed Association could come in many forms should a franchisor wish not to collaborate with its Franchisees that have joined or are planning to join an independent Franchisee Association managed by Franchisees.

1. How do these practices affect franchisees, consumers, workers, and competition?

The potential for retaliation exists, the impact on the Franchisee/franchisor relationship becomes strained, consumers and employees fail to benefit from any positive and agreed-upon revisions that enhance brands, and competition that doesn’t impose stifling provisions benefits from those that do.

1. Wages and Working Conditions
2. How do franchisors exercise control over the wages and working conditions in franchised entities other than through the terms of franchise agreements?

Franchisors will often provide minimum standards of positional coverage, productivity analysis, payroll % of costs, and other standards through the Operating Manual, employee guides, training materials, and onboarding documentation.

1. What service-based quality control measures, whether imposed through licensing or other agreements, depend on franchisee employee performance?

Generally, shop and area assessments by regional, area, and district leadership company employees.  Periodic inspections of either site serviced, facilities if brick and mortar, “ride alongs” in service areas, and consumer intercept surveys.

iii.       What data do franchisors collect and retain regarding franchisees’ employees, labor and employment law compliance, and labor costs?

Profit and Loss submission where required, Labor Law, OSHA, and required posted materials, licenses, permits, and certifications.

1. How do these practices affect franchisees, consumers, workers, and competition?

Franchisees are affected by ensuring they comply with applicable laws and governance; consumers are protected by safety and compliance standards as employees.  Competition is and should be held to the same universal standards under applicable law.

1. How prevalent are these practices?

These practices should be very prevalent upon inspections, assessments, reviews, and training and always seen as opportunities to enforce best practices. 

1. What justifications exist for these practices?

As indicated in items b.i, b.ii, b.iii, b.iv, b.v.

4. Payments to Franchisors from Third Parties
5. Do franchisors receive payment or other consideration from third parties (e.g., suppliers, vendors) related to the purchase of goods or services from those third parties by franchisees.

Yes. Example follows:

We have the right to collect and retain any and all allowances, rebates, credits, incentives, or benefits (collectively, “Allowances”) offered by manufacturers, suppliers, and distributors to you, to us, or to our Affiliate based upon your purchases of products and services from manufacturers, suppliers, and distributors.

We or our Affiliate will have all of your right, title, and interest in and to any and all of these Allowances.

We or our Affiliate may collect and retain any or all of these Allowances without restriction (unless otherwise instructed by the manufacturer, supplier, or distributor).

We may also choose to contribute these Allowances to the Brand Management Fund, but if we do so it does not reduce or eliminate your requirement to pay the Brand Management Fund Fee.

Currently we receive a 1% rebate from an approved supplier based on their sales of food products to franchisees. During the fiscal year ending December 31, 2019, we had total revenues of $2,106,943 which $292,158.31 (or 13.8%) was from Allowances.

1. If so, do franchisors provide any services that justify the payments?

In the example above and in most agreements, the only justification would be a required distribution to a “brand fund” or rebates that or distributed pro-rata to each franchisor’s Franchisees.  When the above doesn’t occur, “rebates” should be considered another fee to the franchisor, who thinks it is just another revenue stream contributing to the franchisor’s benefit.

1. Do franchisors facilitate, encourage, or require franchisees to purchase goods and services from the third party?

Yes, absolutely.

iii.       Are franchisees able to source goods or services independently from third parties other than those approved by the franchisor?

Except for proprietary items required to facilitate the brand’s specifications, some franchise agreements make a provision for the submission of alternate items from different suppliers where costs for review, testing, visits to alternate facilities, and approvals (if granted) are all born by the Franchisee who has submitted the request.

1. Do franchisors direct or steer franchisees to purchase goods or services from third parties that are owned, in whole or in part, by an entity that has an ownership stake in the franchisor?

Yes.

1. Do franchisors direct or steer franchisees to refrain from selling goods or services that compete with third parties that are owned, in whole or in part, by an entity that has an ownership stake in the franchisor?

Yes.

1. How prevalent are the following forms of payment or consideration to franchisors from third parties for franchisee purchases?
2. Direct cash payments
3. Rebates

iii.       Signing bonuses

1. Access fees
2. Exclusivity fees
3. Preferential wholesale pricing

vii.      Most-Favored-Nation (MFN) clauses

viii.     Other discounts

Very prevalent are rebates, exclusivity fees, preferential wholesale pricing, and other discounts.

1. Other forms of consideration, including consideration deriving from co- ownership of the third party and the franchisor.

Insufficient data to respond.

1. To what extent do franchisors fail to disclose, or seek to conceal, the receipt of payments from third parties based on purchases made by franchisees?

Although required to do so, rebate amounts may be understated, sold off (as is the case with Hotel consumer advantage points, and various equipment supplied to “the company operated” locations only.

1. What justifications exist for these third party-franchisor payments?

Only those that might benefit Franchisees through re-distribution or utilization for brand funds or advertising.  Otherwise, none.

5. Indirect Effects on Franchisee Labor Costs Related to Franchisor Business Practices

1. What portion of a franchisee’s nonlabor operating costs are determined by the franchisor?

Insufficient data to respond

1. What effect, if any, does the franchisor’s control over nonlabor operating costs have on labor costs, and what is the effect on franchisees, consumers, workers and competition?

Insufficient data to respond

6. Language Barriers
7. To what extent, if any, are franchisors marketing their franchises using languages other than English?

To some extent where marketing and advertising to certain ethnicities make sense.  Very true, where alternate languages are required internationally.

1. How prevalent are these practices?

As above.

1. Is this more common in particular franchise industries? If so, which ones?

Food-related and or domestic franchisors doing business internationally regardless of franchise type.

iii.       In such instances, is the franchisor providing disclosures, contracts, operating manuals, and other documents to prospective and existing franchisees in the language in which they market the franchise? If not, what is the justification?

To the best of my knowledge, most require doing business in English unless a domestically originated franchisor is doing business Internationally.  Even then, unless required by the province or country, the franchisor may mandate that all business be conducted in English regarding disclosures, agreements, and contractual documents.

In Conclusion:

Once again, thank you for permitting these comments to be added to the “Request for Information” public record by the governing body for franchising and its “Rule.”

It is important to note that I am a fierce proponent of franchising, having been successful personally and assisting the many who remain successful today.  I enjoy a remarkable career in franchising and am thankful for having done so.

It is said that the “franchise model” is under attack when quite the opposite is true. If indeed the desire is to “protect, enhance, and promote” the franchise model, then why is any attempt to improve the “rule” to benefit Cherished Franchisees a “pebble in the shoe” of organizations that lobby on behalf of their “motto” and purpose for existing? 

It is the ultimate contradiction when a not-for-profit organization spends close to 50% of its revenue on salaries and benefits for its employees while demonstrating little concern for the Franchisees that support it.  This is true because a primary lobbying organization isn’t a Franchisee organization at all but rather extremely “franchisor centric.”  

It is nearly impossible to have a fair, transparent, and valid discussion concerning the FTC “Rule” and the much-required changes to enhance and make fair the franchise model for Cherished Franchisees.

When not discussed openly from perspectives that include Franchisees, you get innuendo, tropes, invalid “signature” talking points, and not much more from International Lobbying organizations.

Last, I have included and made part of these comments the following:

“The Cortez-Masto-2021-Franchise-Report”

“Proposed Bill by Congresswoman Jan Schakowsky” – “Private Right of Action”

“Franchise Disclosure Document – Russo” (from which any parts of a franchise agreement or FDD of this RFI are quoted as examples)”

“AAFD Franchisee Bill of Rights” – Promulgated in the year 1996

“Independent-Franchisee-Associations-and-Franchisee-Groups – Attorney Julie

Lusthaus”

Respectfully submitted,

Kim Perrotta

WorldWise Franchise Development.