As a franchise law firm, we are accustomed to having busy starts to the spring season. This year, the franchising world seems to have been even busier than usual. Below are some recent updates that didn’t make it into this month’s newsletter:

SBA’s New Rule Eliminates Franchise Directory

Recently, the Small Business Administration (“SBA”) approved and published a rule change eliminating the federal franchise directory and changing how affiliation is determined with regards to SBA lending program eligibility. In October 2022, the SBA released the proposed rule for public comments, which, according to Franchise Times, was met with mixed reviews. The IFA submitted their comments on the proposed rule in December 2022 and recently released their statement on the SBA’s final rule. The final rule, published to the Federal Registrar on April 10, 2023, will go into effect on May 11, 2023.

Cheng Cohen Submits Comments on FTC’s Proposed Non-Compete Clause Rule

Back in January, we informed you about the FTC’s proposed “Non-Compete Clause Rule”. The comment period for that proposed rule has now ended after an extended, several-month long period. Although the text of the Proposed Rule exempted the franchise relationship from the otherwise widespread non-compete ban, the FTC specifically solicited questions as to whether the final rule should include franchisees as well as employees. At the close of the public forum on the topic, FTC Commissioner Alvaro Bedoya noted that he was “particularly keen to understand how noncompetes affect franchisees” in the comments.

Cheng Cohen’s filed comment states our position against the rule broadly, and particularly against any application to the franchisor-franchisee relationship. We explained that system-wide noncompetes protect franchisees from unfair competition, are crucial for system stability, and are more analogous to a sale-of-a-business contract than an employment contract, an important stated distinction for the FTC. We will continue to provide further updates as we hear more information from the FTC on this important topic.

FTC Extends Deadline on New RFI

Earlier this month, we told you about the FTC’s new RFI. Recently, the FTC extended the deadline for public comments.  As a reminder, this RFI seeks broad information regarding the negotiability of franchise agreements, the ongoing relationship between franchisors and franchisees, franchisors’ involvement in and control over franchisees’ business operations, and certain information pertaining to the franchise sales process.  While it remains unclear how the FTC will use the comments submitted, the RFI signals the FTC’s increasing focus on the franchise industry. We encourage franchisors to respond to all or portions of the RFI prior to the new deadline of June 8, 2023. Please contact us if you have any questions regarding the RFI or need assistance with your response.