Amended Franchise Rule Affects Franchisee Associations

Independent Franchisee Associations Must Be Disclosed

On January 23, 2007, the Federal Trade Commission (FTC) issued amendments to its Franchise Rule, which had been in place since 1978.  The Amended Franchise Rule is mandatory as of July 1, 2008. One of the provisions of the Amended Franchise Rule is the requirement to disclose independent franchisee associations and organizations. 

Many franchisee advocates including the American Association of Franchisees and Dealers (AAFD) submitted comments to the FTC as the FTC went through its rule-making process.   The AAFD participated in round table conferences regarding franchisee associations, and filed lengthy commentary on a number of occasions (AAFD Comments to FTC).

The AAFD was instrumental in securing the new obligation for franchisors to disclose independent franchisee associations in the Franchise Disclosure Document (FDD). The FTC report makes specific reference in a footnote confirming that AAFD chapters qualify as independent franchise associations that are entitled to disclosure under the FTC Rule.

The Amended Franchise Rule should result in prospective franchisees receiving more useful information than they had been receiving under the previous UFOC guidelines.  Further, the Amended Franchise Rule’s requirement to disclose associations will give associations more power to play a positive role in working with the franchisor.

Since prospective franchisees will learn about the association in the FDD, and will be given contact information, prospective franchisees are very likely to call the franchisee association for comments.

For an independent franchisee association to qualify, it must meet two requirements.  First, it must be “incorporated or otherwise organized under state law.”  Second, on an annual basis, associations must, request the franchisor to include the independent franchisee association in the franchise disclosure document by submitting a request no later than 60 days after the close of the franchisor’s fiscal year. 

For more information on how create a franchisee association that quailies under the FTC Amended Franchise Rule visit the website of the AAFD.