The FTC staff recently issued guidance on franchisors’ right to require franchisees to pay new or increased fees that were not disclosed in the FDD – see here.  For example, based on this guidance, franchisors should not use the operations manual to charge a fee that was not disclosed in the FDD or to unilaterally increase an existing fee for which increases hadn’t been contemplated in the Franchise Agreement and FDD.  Many states have already started challenging FDD fee disclosures that are described as “subject to change” – requiring franchisors to disclose the maximum that the fee could be in the future or a formula for how increases will be calculated going forward.  This often arises in the context of technology fees and training fees that were described with open-ended language specifying that the franchisor could change or increase these fees at any time and without limitation.

In light of this guidance, we thought we’d share a few of our take-aways:

• Franchisors should take a closer look at Item 6 and relevant provisions in the Franchise Agreement to ensure it appropriately reserves and discloses the right to: (1) increase existing fees and how and why increases might occur (for example, based on changing economic factors such as inflation and increased supplier costs and fees), and (2) require franchisees to purchase mandatory products and services from the franchisor and/or its affiliates.
• Consider adding language, if it doesn’t already exist, to pair potential increased fees with new products and services and their expected benefits to the franchisee and system (for example, by explaining that, as system standards evolve with new and improved technologies and other efficiencies, it will likely be necessary to spend money and pay related fees for those things).
• If a franchisor provides its franchisees with a new product or service in the future, it should consider charging a reasonable price for the product or service instead of charging a “fee” that may not be directly tied to the cost of the particular product or service.

While the Staff Guidance is not binding on the FTC, this guidance is generally consistent with the disclosure requirements under the FTC Rule.  It is a good reminder for franchisors to be diligent about information that needs to be disclosed in the FDD.