Following is a partial list of “to-do” items in preparing to implement the amended FTC franchise rule.
Compliance guidelines and training
Review and revise your sales and marketing guidelines, instructions and materials.
Conduct comprehensive internal compliance training for all personnel involved.
Make sure any waivers, integration clauses, disclaimers and acknowledgments in franchise and franchise-related agreements specifically do not apply to the franchisor’s disclosure document representations.
Determine if franchise renewal practices require disclosure.
Personnel review and identification for disclosure
Identify franchisor’s “contact person” from whom a perspective franchisee can request disclosure documents and alternative medium to disclose on the cover page as.
Determine which of franchisor’s parent’s or affiliates’ officers, directors and management personnel have “management responsibility”, and prepare their biographical information for disclosure.
Revise the Item 23 Receipt setting forth the identity of the broker, or insert a blank if more than 1 broker is used.
Prepare a schedule of all trademarks specific franchisee organizations which the franchisor sponsors, supports or endorses.
Wait for request from independent franchisee associations (requests must be renewed annually within 90 days of effective date).
Information to obtain
Summarize the computer hardware and software requirements for Item 11 (versus current specificity).
Review all modes of product or service distribution for Item 12’s new territorial disclosures, including:
- nontraditional locations
- dual distribution and/or
- competitive networks or units operated under different names or marks.
Review any patent applications which have not been granted yet.
Litigation information and review
Obtain information from relevant counsel to prepare a schedule of all material litigation commenced by franchisor against any of its franchisees with the past fiscal year.
Obtain necessary information regarding any litigation, pending or concluded, which was commenced within the last 10 years against any of the franchisor parents or affiliates, which either:
- guaranty the franchisor’s performance or
- sold franchises in any line of business,.
and determine which litigation may need to be disclosed
Earning claims review
Review new requirements for Item 19, Earnings Claims.
Transfers, terminations and contact information
Review all franchise determination, transfer, reacquisition, non-renewal and “cease to do business” activities occurring within the prior 3 fiscal years. Where multiple events transpired for the same franchisee determine which is “last in time” and so controls the classification.
Revise the Item 20 contact information for franchisees who have left the system to eliminate home addresses and telephone numbers, and substitute instead, names, cities, states and business telephone numbers (or if unknown, their last known telephone number).
Analyze instances where the same unit was repeatedly franchised to more than one franchisee.
In-term franchisee confidentiality provisions
Analyze any instance in the prior fiscal year where 1 or more franchisees have been or will be contractually precluded from freely communicating with prospective franchisees about their franchise experiences.
Prepare to disclose financial statements of franchisor’s parent if it either guarantees:
- franchisor’s obligations or
- to perform post-sale obligations to franchisees on behalf of franchisor.