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On Friday, July 19, 2024, the Federal Trade Commission (FTC) took significant actions targeting franchisors, addressing concerns about hidden fees and non-disparagement clauses in franchise agreements. These recent announcements include:

New FTC Guidance for Franchisors

1. Ban on Hidden Fees: The FTC has issued guidance stating that it is illegal for franchisors to charge and collect undisclosed fees. This new rule aims to promote transparency and ensure that franchisees are fully informed about all costs before entering into agreements.
2. Non-Disparagement Clauses: The FTC has warned franchisors against using non-disparagement clauses and other restrictive policies that prevent franchisees from communicating openly with government regulators. This move is intended to safeguard franchisees’ rights to report concerns and provide feedback without fear of retribution.
3. Issue Spotlight on Franchisee Concerns: The FTC has released an “Issue Spotlight” summarizing issues raised by franchisees, often anonymously, in response to the FTC’s 2023 Request for Information (RFI). This summary highlights common grievances and concerns within the franchise industry.
4. Reopened Comment Period for RFI: The FTC has reopened the comment period for their 2023 RFI on franchise agreements and practices. The new deadline for submitting comments is October 10, 2024. This extension allows stakeholders more time to provide input on potential regulatory changes.

National Restaurant Association’s Response

In June 2023, the National Restaurant Association and the Restaurant Law Center submitted comments to the FTC's RFI. The Association urged the FTC to avoid implementing broad, sweeping regulations that could negatively impact the franchise model. They also expressed concerns about the RFI process, particularly the reliance on anonymous anecdotal evidence for formal rulemaking.

Current Status of the Franchise Rule

It is important to note that the FTC did not revise or update the existing Franchise Rule, which outlines the disclosure requirements for franchisors. However, these latest actions underscore the FTC’s ongoing scrutiny of franchise practices.

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