The FTC is contemplating altering the principles on franchising for firms like McDonald’s

The franchising industry is excited to see if the US will change regulation of a structure that drives brands MC Donalds To Marriott.

Last month, the Federal Trade Commission completed a public comment period in response to its request for information about the sector and its business practices. The agency sought input from stakeholders, including franchises Operators, employees and parent companies as it scrutinizes franchising practices.

The move suggests the FTC may be considering tighter regulation of the sector — with major implications for some of the largest restaurant and hospitality companies in the US and their employees. The agency declined to comment on possible changes or the timing of those changes.

Now the industry is waiting for a result.

The FTC told CNBC that it received more than 5,500 comments on the investigation, suggesting “there is a keen interest in ensuring fairness in franchising.”

“We thoroughly review each comment and consider next steps. All options are on the table,” an FTC spokesman said in a statement. The agency’s statement on its request for information earlier this year said it would “begin to clarify how unequal bargaining power is inherent [franchise] Contracts affect franchisees, employees and consumers.”

Franchising makes an important contribution to the US economy. The International Franchise Association, the industry’s leading advocate, states that its members cover more than 300 business format categories and approximately 800,000 businesses in the country employing millions of workers.

A possible change to the franchise rules fits into the FTC’s broader oversight agenda as the agency proposes a ban on non-compete clauses and is considering whether the policy should apply to clauses between franchisors and franchisees. FTC Chairwoman Lina Khan’s regulatory push has begun also targeted corporate giants like Microsoft and Activision, Twitter and Amazon.

Aside from possible rule changes at the FTC, the industry is also watching for changes in common employer rules and local regulations such as AB 1228 in California, both of which will place greater liability on franchise parent companies.

Industry observers assume that the FTC’s first proposal to change the franchise rules could be available by the end of the year. In its submission to the FTC, the IFA raised concerns about how the FTC might use the public comments to formulate new rules.

“We are particularly concerned that the Commission could be relying on these anecdotal reports, many of which were produced anonymously, to initiate a formal rulemaking process that is detrimental to the growth of franchisees through overly restrictive regulation of franchise relationships by consumers and businesses.”Owners and workers”, said the advocacy group.

IFA President and CEO Matt Haller said the group was concerned about “uniform” regulatory changes. Customers want a consistent experience, but one that also adapts to their needs, he said.

“If the FTC restricts franchisors from evolving their systems to meet customer needs, it will negatively impact franchisees because customers will stop supporting those businesses when they are unable to.” to get the products and services they want.” “Consistent and convenient fashion,” Haller said in an interview, citing successful operational changes franchisors have made during the pandemic as an example.

Some labor advocates hope that possible changes in oversight will improve working conditions for franchise employees. In their application, the Service Employees International Union and the Strategic Organizing Center made strong statements about franchising and employee relations.

“The extractive franchise model, which relies on franchisors having careful control over many small businesses but taking virtually no responsibility for them, leaves low-margin businesses under constant pressure to cut costs and cut corners , with labor costs being almost the only cost variable for franchisees.” “Our evidence on worker harm shows that workers ultimately bear the brunt of this exploitative system, designed primarily to capture the company at the top – the franchisor – to enrich,” says the comments of the groups.

Big brands using the model including Marriott, hilton, Yummy! Brands and Sport Clips, along with franchisees, submitted comments highlighting the positive aspects of franchising. Some have urged the FTC not to make regulatory changes or treat the industry as a single entity, as many concepts operate under the broader sector umbrella.

McDonald’s was among the major restaurant brands with comments submitted to the FTC by both the operators and the company. The National Owners Association, an advocacy group for more than 1,000 McDonald’s franchisees, encouraged its members to submit comments to the FTC on the franchising and non-compete clauses contained in their contracts.

Some owners have clashed with the fast-food giant about changes made to restaurant grading and franchise renewals over the past year.

The NOA’s public statement stated, “The McDonald’s system has been, and may yet again be, the gold standard for the franchise business model.” The comments and examples provided here by members of the NOA are intended to illustrate that time does not make the franchisee the franchisor has broken model stronger but unfortunately more controversial, less cooperative and badly.”

In a statement to CNBC in response to the FTC’s request for public comment, McDonald’s emphasized the role of its franchise system in promoting small business owners and job creation. McDonald’s shared the agency’s view that the model “should benefit everyone: customers, franchisees, employees, suppliers, franchisors and local communities,” adding, “That’s exactly what our franchise system has done for over six decades.”

“Our franchise model thrives on a common set of standards and requirements that ensure equal treatment of franchisees, protection of franchisee investments, and assured value for the McDonald’s brand,” the company said. “One rule jeopardizes the successful investments these small business owners have made in themselves and their communities.”

National Franchisee Leadership Alliance chair Danielle Marasco echoed this sentiment in a statement shared with CNBC.

“The NFLA, the only elected representative voice of McDonald’s franchisee organizations in the United States, opposes any regulation that would undermine our franchise system and jeopardize our independent ownership rights,” Marasco said. “Since McDonald’s was founded in 1955, our franchising model has successfully served the brand, franchisees, employees and the local communities in which we operate.”

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