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NCASEF NCASEF Petitions The FTC To Investigate Franchising And Protect Franchisees Franchisees in the 7-Eleven system have known for a long time that franchisors don’t always act in their operators’ best interest. That was clear in the recent National Coalition survey, which showed a tremendous lack of trust between franchisees and franchisor. Now, NCASEF, with the support of other franchisee groups, has petitioned the U.S. Federal Trade Commission (FTC) to investigate 7-Eleven and other top chains in the industry. This petition, which we prepared with the help of with Keith Miller of Franchisee Advocacy Consulting, has been endorsed by 10 other independent franchise associations. It asks the FTC to compel 9 major franchise chains to respond to a staggering 115 requests for information in 14 categories, including supply chain, advertising funds and financial performance representations. We are pleased to say the petition has received the attention of members of the political, trade and local news media, including the Dallas Morning News, Yahoo! Finance, Convenience Store News, and The Hill. It is our hope our petition will prompt the FTC to extend federal regulation of franchising beyond the presale financial disclosures companies are already required “It is our hope to make. “This petition proour petition will prompt vides the opportunity for the FTC to take a proactive role the FTC to extend federal reguin assessing the franchise lation of franchising beyond the industry,” said Miller, a Subpresale financial disclosures way franchisee who was also part of the team that companies are already lobbied for fair franchising required to make.” legislation in California in 2016. “We are requesting the FTC look broadly at the imbalance of power in our industry today.” We are not alone in asking the FTC to step up. In April, Nevada Sen. Catherine Cortez Masto released a comprehensive report on franchising, which highlighted problematic areas in the industry and asked for increased Federal Trade 12
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HIGHLIGHTS Commission oversight. In “ THE PETITION ASKS June, Illinois Rep. Jan SchaTHE FTC TO COMPEL kowsky sent a letter to the Government Accountability Office (GAO) requesting 9 MAJOR FRANCHISE a study of inadequacies in the current CHAINS TO RESPOND TO FTC’s Franchise Rule. A STAGGERING 115 RE Thomas Ayres, a senior attorney QUESTS FOR INFORMAwith NCASEF law firm Witmer Karp TION IN 14 CATEGORIES, Warner & Ryan, who co-wrote the FTC petition, said, “Franchisors often engage INCLUDING SUPPLY in predatory behavior after franchisees CHAIN, ADVERTISING sign their contracts, but the FTC FUNDS AND FINANCIAL rarely investigates post-sale PERFORMANCE activities when franchisees are REPRESENTATIONS.” more vulnerable and captive to their franchisors.” It is encouraging that the FTC recently launched antitrust investigations of the technology and pharmaceutical sectors. In addition, former FTC Commissioner Rohit Chopra, who was recently sworn in as director of the U.S. Consumer Financial Protection Bureau, has been outspoken about the need to “stop unfair, deceptive and discriminatory practices that target franchisees and their employees.” He made the point as a keynote speaker at this year’s National Coalition convention and previously on CNBC, saying, “We ultimately want to make sure there is a fair playing field for both the franchisor and the franchisee.” The lack of fairness in franchising was also highlighted in a 2019 report by the Australia Parliamentary Joint Committee on Corporations and Financial Services, which detailed bad behavior by several franchisors—7-Eleven among them. “An important takeaway from the Australian report is that presale disclosure is an insufficient regulatory response to power imbalances, because it does not curb opportunistic and exploitative practices by some franchisors,” said Eric H. Karp, partner of Witmer Karp Warner & Ryan and former chair of the American Bar Association Forum on Franchising. Vimal Patel, a franchise owner of Q Hotels in Louisiana, who has filed suit against hotel franchisor IHG, expressed his support for the NCASEF/Franchisee Advocacy Consulting petition. “It’s time the FTC used its authority to look at the fairness and transparency in the franchise industry.” Attorney Ayres said current business conditions, which continued on next page