The franchising industry is bracing to see whether the U.S. will change how it regulates a structure that fuels brands from McDonald’s to Marriott.
Last month, the Federal Trade Commission wrapped up a public comment period in response to its request for information on the sector and its business practices. The agency sought input from stakeholders, including franchise operators, workers and parent corporations, as it scrutinizes franchising practices.
The move suggested the FTC is potentially considering closer regulation of the sector — with big implications for some of the largest restaurant and hospitality companies in the U.S. and their employees. The FTC declined to comment about any possible changes or when these could happen.
Now, the industry is waiting for a result. The FTC informed CNBC that it had received over 5,500 comments regarding the investigation, which indicated “broad interest” in ensuring fairness of franchising. “
We are carefully reviewing each comment, and determining the next steps. In a press release, an FTC spokesperson stated that all options were on the table. In a statement released earlier this year, the agency said that its request for more information would “begin to unravel how unequal bargaining powers inherent in
contract impacts franchisees and workers as well as consumers.” “[franchise]Franchising contributes significantly to the U.S. economic system. The FTC is considering whether to apply the noncompete policy to agreements between franchisors, franchisees, and other corporate giants. FTC Chair Lina Khan has also targeted corporations like Microsoft, Activision and Amazon with her regulatory push. Industry watchers believe that the FTC could make a proposal on the franchise rule amendments as early as this year. IFA CEO Matt Haller says the group is worried about regulatory changes that are “one size fits all”. He said that customers want a consistent, yet evolving experience. In its submission, the Service Employees International Union and the Strategic Organizing Center had pointed words about franchising and worker relationships.
“The extractive franchise model, based on franchisors having meticulous control over – but virtually no responsibility for – numerous small businesses, results in lowmargin businesses under constant pressure to reduce costs and cut corners, in which labor costs are almost the only cost variable the franchisees control. Our evidence of worker harm demonstrates that workers ultimately bear the brunt of this exploitative system designed primarily to enrich the firm at the top – the franchisor,” the groups’ comments said.
Major brands that use the model including Marriott, Hilton
, Sport Clips and franchisees submitted comments highlighting the positives of franchising. Some urged the FTC not to make regulatory changes or treat the industry as one, as many concepts operate under the broader sector’s umbrella. McDonald’s was among the large restaurant brands that saw comments submitted to the FTC from both operators and the corporation. The National Owners Association, an advocacy group of over 1,000 McDonald’s franchisees, encouraged its membership to submit comments to the FTC on both franchising and noncompete clauses found in its contracts.
Some owners have clashed with the fast food giant
over changes its made over the last year to how restaurants are graded and how franchise contracts are renewed.
The NOA’s public submission said, “The McDonald’s system was, and could again be, the gold standard for the franchise business model. The comments and examples provided here by members of the NOA are meant to illustrate how time has not made the franchisee-franchisor model stronger, but sadly more adversarial, less cooperative, and severely fractured. McDonald’s made a statement on CNBC regarding the FTC’s call for public comments. In the statement, McDonald’s highlighted its franchise system’s role in creating jobs and boosting small businesses. McDonald’s shared the FTC’s belief that the franchise model should benefit everyone: “customers, franchisees and workers, suppliers, franchisers, local communities, and franchisors.” It added, “that’s exactly what our franchise system does for more than six decades.” The company stated that “Our franchise model is based on a set of common standards and requirements which ensures equitable treatment of franchisees and protects franchisee investment and secures value for the McDonald’s Brand.” “A regulation that is one size fits all threatens to undermine the investments made by these small business owners in their own businesses and communities. “
National Franchisee Leadership Alliance Chair Danielle Marasco reiterated this sentiment in a CNBC statement. Since McDonald’s was founded in 1955, the franchise model has served the brand, the franchisees, the employees, and the communities in which we operate. “