The FTC is considering changing franchising rules for companies like McDonald’s

The franchise industry is poised to see if the US changes how it regulates the structure that further strengthens brands. McDonald’s for Marriott.

Last month, the Federal Trade Commission ended a public comment period in response to a request for information about the sector and its business practices. The agency sought input from interested parties, including franchisees operators, employees and parent corporations as it examines franchising practices.

The move suggested the FTC is considering potentially closer regulation of the sector — with major implications for some of the largest restaurant and hospitality companies in the United States and their employees. The agency declined to comment on potential changes or when they might come.

Now the industry is waiting for its result.

The FTC told CNBC that it received more than 5,500 comments on the survey, indicating “broad interest in ensuring fairness in franchising.”

“We thoroughly review each comment and evaluate next steps. All options are on the table,” an FTC spokesperson said in a statement. The agency said in a statement earlier this year that it would “begin to clarify how the unequal bargaining power inherent in (franchise) agreements affects franchisees, employees and consumers.”

Franchising is a major contributor to the US economy. The International Franchise Association, the industry’s leading advocate, says its membership covers more than 300 business format categories and nearly 800,000 businesses nationwide, employing millions of workers.

The potential change to franchising rules fits the FTC’s broader oversight agenda, as the agency proposes to ban non-compete clauses and considers whether the policy applies to provisions between franchisors and franchisees. FTC Chairwoman Lina Khan has a regulatory push Microsoft and Activision have also targeted corporate giants such as Twitter and Amazon.

In addition to potential regulatory changes at the FTC, the industry is also watching changes to joint employer regulations and local regulations, such as AB 1228 in California, both of which would place more responsibility on parent companies of franchise businesses.

Industry observers say a preliminary proposal from the FTC on changes to franchise rules could come by the end of the year. In its submission to the FTC, IFA raised concerns about how the FTC could use public comments to shape new rules.

“We are particularly concerned that the Commission may rely on these anecdotal accounts, including many anonymously, to engage in a formal rulemaking process that will stifle the growth of franchise businesses through overly restrictive regulation of franchise relationships, harming consumers and businesses. owners and employees” the advocacy group said.

IFA president and chief executive Matt Haller said the group was concerned about “one-size-fits-all” regulatory changes. Customers want an experience that is consistent but also evolves to meet their needs, he said.

“If the FTC limits franchisors’ ability to improve their systems to meet customer demands, it will have a negative impact on franchisees because customers will stop patronizing those businesses if they cannot get the products and services they want. consistent and comfortable fashion,” he said.

Some labor advocates hope the potential regulatory changes will improve working conditions for franchised workers. In their presentation, the Service Employees International Union and the Center for Strategic Organization mentioned franchising and labor relations.

“The production franchising model, based on franchisors having close control over numerous small businesses but with virtually no accountability, results in low-margin businesses being under constant pressure to cut costs and cut jobs, where labor costs are almost the only cost to franchisees. is a cost variable. control. “Our evidence of worker harm shows that workers ultimately bear the brunt of this exploitative system designed primarily to enrich the upstream firm — the franchisor,” the groups said in a statement.

Major brands using the model include Marriott, Hilton, Yum! Brands and Sport Clips, along with franchise owners, provided commentary highlighting the positive aspects of franchising. Some urged the FTC not to make regulatory changes or treat the industry as one because many concepts operate under the umbrella of the broader sector.

McDonald’s was among the major restaurant brands to see comments filed with the FTC by both operators and the corporation. The National Association of McDonald’s, which consists of more than 1,000 McDonald’s franchisees, encouraged its membership to submit comments to the FTC regarding both the franchising and non-compete clauses in its agreements.

Some owners clashed with the fast food giant Over the past year, changes have been made to how restaurants are rated and how franchise agreements are renewed.

NOA’s public presentation stated: “McDonald’s system was, and may still be, the gold standard for the franchise business model. The comments and examples provided here by NOA members are meant to show how the franchise-franchisor model is stronger, but unfortunately more competitive, less cooperative and severely fragmented.”

In a statement to CNBC regarding the FTC’s public comment request, McDonald’s highlighted the role the franchise system plays in growing small business owners and creating jobs. McDonald’s said it shared the agency’s view that the model should benefit “everyone: customers, franchisees, employees, suppliers, franchisees and local communities,” adding: “That’s what our franchise system has done for more than six decades.”

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

Danielle Marasco, president of the National Franchise Leadership Alliance, echoed that sentiment in a statement shared with CNBC.

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

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