Are There Franchise Laws That Protect the Franchisee?

Many laws are in place to protect franchise owners.

However, as a franchisee, you need just as much protection. You are, after all, a business owner and investing a large sum of hard-earned money into a franchise.

Learn about the franchise laws put into place to protect you – the franchisee.

Franchise Laws Set Forth to Protect Franchisees

Franchise laws are a combination of state and federal franchise laws outlining franchisor obligations. The Federal Trade Commission (FTC) is the entity designated to uphold franchise laws.

Not every state has its own set of franchise laws. If you’re a franchisor in such a state, you’re still obligated by federal laws and regulations.

The FTC Franchise Rule

The Franchise Rule requires that franchisors provide potential franchisees with a document containing information about the:

  • Franchise that’s for sale
  • Other franchises
  • Officers of the franchise

The goal is to provide each potential franchisee with the opportunity to make an informed decision prior to the sale of the franchise.

However, the rule doesn’t regulate the relationship between franchisees and franchisors. The rule was adopted in 1978 and underwent a substantial revision in 2007.

Uniform Franchise Offering Circular (UFOC)

The Uniform Franchise Offering Circular is the disclosure agreement provided by the franchisor. It’s regulated by the North American Securities Administrators Association (NASAA).

In 1995, the FTC required that the UFOC be written in plain English in terms that a layperson can understand, as opposed to legal jargon.

The information contained in this agreement will not only allow potential franchisees the opportunity to make an informed decision, but they’ll also have the information needed to compile a business plan to secure business financing. The information therein must also be sufficient to forecast future business expenses.

Franchise Relationship Laws – Protection or Hindrance?

Though the name suggests legislation that would protect the relationship between the franchisee and franchisor, franchise relationship laws can actually do more harm than good.

Relationship laws would take away some of the control that franchisors have regarding their brand, safety, cleanliness, and standards of operation. They also reduce the accountability of franchisees, allowing them to get away with substandard operations and non-compliance with their franchise contract.

Make Sure Your Company is Legally Compliant

A franchisor’s legal obligations don’t just protect the franchisee. They also protect the franchisor, employees, and customers.

Though it takes time and effort to ensure that both parties are adhering to state and federal franchise laws, it’s in everyone’s best interests to comply with them.

The best way to guarantee compliance is to talk to a franchise law attorney. Your attorney will help you make sense of the FTC’s Franchise Rule and other franchise laws, as well as their amendments. In doing so, they’ll help you build a legally sound relationship with your franchisor and help you protect your interests.

Interested in buying a franchise? Contact our team to discuss the best ways to take action while protecting yourself and your investment.