Will the FTC Franchise Rule Soon Include a Private Right of Action?

By Kristen M. Harvilla

U.S. Representative Janice Danoff Schakowsky of Illinois’s 9th congressional district recently announced at a leadership summit for the American Association of Franchisees & Dealers that she intends to put forth a bill that would create a private right of action for franchisees under the FTC Franchise Rule.

This is not the first time Rep. Schakowsky has voiced her opinion regarding the need for reform of U.S. franchise laws and regulations.  Notably, in December, she partnered with U.S. Senator Catherine Cortez-Masto and others to file a public comment with the Federal Trade Commission, calling for reform of the FTC Franchise Rule – specifically, amendments to include increased financial disclosure, a ban on unfair contract terms, and protections for franchisees with limited English proficiency.  To date, such amendments have not been enacted.

This announcement from Rep. Schakowsky also comes two months after the April 2021 publication of a report by Sen. Cortez Masto regarding systemic issues in franchising.  The report highlighted what Sen. Cortez Masto regards as unfair and deceptive franchise practices and serves as a call to action to reform certain franchise laws and regulations.

In summary, the report concluded that the “four areas where franchise complaints are most problematic, (1) unfair and deceptive contracts that give nearly all control to the franchise corporation; (2) a lack of honesty and transparency in the financial disclosure documents; (3) costly kickbacks and overpriced goods; and (4) fees charged for limited or no actual benefit” … “were the hallmarks of a franchise model that operates to strip small business owners of their wealth.”

This report set the scene for the legislation Rep. Schakowsky is now seeking to have enacted.

So far, a bill to create a private right of action has not been introduced.  We will continue to monitor and report updates on this topic.  If you have any questions about how legislation in this area may affect your business, please contact us.