WASHINGTON, DC — Revisions to the federal Franchise Rule took effect on July 1, but the changes won't become mandatory until July 1, 2008, according to the Federal Trade Commission (FTC). The rule has been in place since 1978 to offer potential franchisees the information they need to weigh the risks and benefits of investment in a franchise.
“Overall, I think for everyone it's a positive development,” says Susan Grueneberg, partner with the law firm Dreier Stein & Kahan in Santa Monica, CA. However, Grueneberg says the changes affect franchisees and franchisors differently.
The revisions were passed to bring the federal rule into closer alignment with state franchise disclosure laws, which are based on the Uniform Franchise Offering Circular (UFOC) guidelines.
Although the amended rule closely tracks the UFOC guidelines, in some instances it requires more extensive disclosures — mostly with respect to certain aspects of the franchisee-franchisor relationship.
The amended rule requires more extensive disclosures on lawsuits the franchisor has filed against franchisees, the franchisor's use of so-called “confidentiality clauses” in lawsuit settlements, a warning when there is no exclusive territory, an explanation of what the term “renewal” means for each franchise system, and trademark-specific franchisee associations. For more information, go to www.ftc.gov.