The Federal Trade Commission (FTC) continues to examine the franchising industry. Since 2019, the FTC has been reviewing possible changes to its longstanding Franchise Rule. In January 2023, the FTC asked for comments about extending the scope of its proposed ban on employment agreement noncompetition covenants to cover franchise agreement noncompetition covenants, too.  Now, the FTC has issued a new and separate request for information (RFI) regarding franchise agreements and franchisor business practices, including franchisor involvement in franchisee employment issues.

With over 75 discrete subparts, the breadth of information sought by the RFI is substantial. Generally, the RFI’s questions seek information under four categories.

• First, they ask about franchise agreements, including how negotiable their terms are, the justification for certain provisions, and how often certain provisions are enforced.
• Second, they ask about the ongoing franchise relationship, including changes franchisors make to their systems, restrictions placed on suppliers, and franchisors’ response to franchisee associations.
• Third, they ask about franchisors’ involvement in employment matters, including franchisors’ control of franchisees’ employees’ working conditions, use of standards for employee performance, and indirect impact on franchisees’ labor costs.
• Fourth, the RFI asks a few questions about the franchise sales process, including whether franchisors market in languages other than English.

It is unclear at this early stage how the FTC may use this information to fashion additional, or modify existing, rules relating to franchising. But the FTC has stated that its goal—“amidst growing concern around unfair and deceptive practices in the franchise industry”—is to “unravel how the unequal bargaining power inherent in [franchise agreements] is impacting franchisees, workers and consumers.”

Although the public comment period expires on May 9, 2023, the International Franchise Association has sought a 60-day extension to provide the industry ample time to respond to an RFI of this magnitude. Cheng Cohen encourages all franchisors to submit comments to whatever extent possible. Comments do not need to respond to all questions.