Underneath the Golden Boy - Robson Hall Faculty of Law
Underneath the Golden Boy - Robson Hall Faculty of Law Underneath the Golden Boy - Robson Hall Faculty of Law
362 Underneath the Golden Boy services and benefits to its members that elevate their standards of quality and reduce costs, by means of participation in diverse governmental and private forums, as well as the organization and development of events of interest for the sector. 43 The Association’s objectives include the establishment of norms that promote the professionalism of Franchisor Companies as well as developing a franchise sector statistics bank. 44 The AMF has yet to adopt a Code of Ethics. 5. United States of America On 21 October 1979, the Federal Trade Commission (“FTC”) Trade Regulation Rule entitled Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures (the FTC Rule) came into effect. The Rule applies to all commercial relationships that meet the definition of a “Franchise,” unless an enumerated exclusion or exemption is available. 45 The main requirement of the FTC Rule – also a requirement in several states – is the production of a disclosure document to prospective franchisees. The document is intended to provide prospective franchisees with all the necessary information to make fully informed decisions about purchasing a franchise. Consequently, the FTC Rule provides basic regulations for the franchising industry throughout all 50 states. In addition, many states have increased the disclosure onus by adding their own requirements. 46 The Uniform Franchise Offering Circular (“UFOC”), a new disclosure document, was introduced in 1986, providing franchisors an alternative means of disclosure to that established by the FTC. 47 The Commission has always permitted franchisors to comply with disclosure requirements either by following the provisions in the Franchise Rule itself, or by following the UFOC guidelines. 48 This is in part due to the UFOC and the FTC requiring similar disclosure items, including a description of (1) the franchisor and its business; (2) prior litigation and bankruptcies relating to the franchisor; (3) initial and ongoing fees; (4) obligations of the parties and other terms of the contract; (5) 43 Mexican Association of Franchises, “Objectives,” online: Association . 44 Ibid. 45 Frank Zaid and John Sotos, supra note 28. 46 Daniel F. So, Canadian Franchise Law Handbook, (Markham: LexisNexis Canada Inc., 2005) at 92. 47 Ibid. at 95. 48 Federal Trade Commission, “Frequently Asked Questions, Amended Franchise Rule” online: .
Franchise Legislation and Associations Around the World 363 restrictions on sales; and (6) rights to renew and terminate the franchise. 49 However, following an amendment to the FTC Rule, franchisors will eventually no longer be permitted to use the UFOC. As of 1 July 2007, franchisors may follow the amended Rule, or they may continue their current practice of complying with the original Rule or individual state franchise disclosure laws that require a UFOC; but by 1 July 2008, they will be required to follow the amended Rule only. 50 The new franchise Rule requires franchisors to provide all potential franchisees with a disclosure document containing 23 specific items of information about the offered franchise, its officers, and other franchisees. Required disclosure topics include: the franchise’s litigation history, past and current franchisees and their contact information, any exclusive territory that comes with the franchise, assistance the franchisor provides franchisees, and the cost of purchasing and starting up a franchise. If a franchisor makes representations about the financial performance of the franchise, this topic also must be covered, as well as the material basis backing up those representations. 51 Although the amended Rule closely tracks the UFOC guidelines, in some instances it requires more extensive disclosures, such as with regards to franchisee-franchisor relationships. For instance, the amended Rule requires more extensive disclosure on lawsuits the franchisor has filed against the 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 trademarkspecific franchisee associations. In a few instances, the amended Rule requires less than the UFOC guidelines. For instance, it does not require disclosure of so called “risk factors,” franchise broker information, or extensive information about every component of any computer system that a franchisee must purchase. 52 The International Franchise Association (“IFA”), founded in 1960, was established to build and maintain a favorable economic and regulatory climate 49 Manitoba Law Reform Commission, “Consultation Paper on Franchise Legislation,” online: Current Projects at 36. 50 Federal Trade Commission, “FTC Issues Update Franchise Rule,” online: . 51 Ibid. 52 Ibid.
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362 <strong>Underneath</strong> <strong>the</strong> <strong>Golden</strong> <strong>Boy</strong><br />
services and benefits to its members that elevate <strong>the</strong>ir standards <strong>of</strong> quality and<br />
reduce costs, by means <strong>of</strong> participation in diverse governmental and private<br />
forums, as well as <strong>the</strong> organization and development <strong>of</strong> events <strong>of</strong> interest for <strong>the</strong><br />
sector. 43 The Association’s objectives include <strong>the</strong> establishment <strong>of</strong> norms that<br />
promote <strong>the</strong> pr<strong>of</strong>essionalism <strong>of</strong> Franchisor Companies as well as developing a<br />
franchise sector statistics bank. 44 The AMF has yet to adopt a Code <strong>of</strong> Ethics.<br />
5. United States <strong>of</strong> America<br />
On 21 October 1979, <strong>the</strong> Federal Trade Commission (“FTC”) Trade Regulation<br />
Rule entitled Disclosure Requirements and Prohibitions Concerning Franchising<br />
and Business Opportunity Ventures (<strong>the</strong> FTC Rule) came into effect. The Rule<br />
applies to all commercial relationships that meet <strong>the</strong> definition <strong>of</strong> a “Franchise,”<br />
unless an enumerated exclusion or exemption is available. 45 The main<br />
requirement <strong>of</strong> <strong>the</strong> FTC Rule – also a requirement in several states – is <strong>the</strong><br />
production <strong>of</strong> a disclosure document to prospective franchisees. The document is<br />
intended to provide prospective franchisees with all <strong>the</strong> necessary information to<br />
make fully informed decisions about purchasing a franchise. Consequently, <strong>the</strong><br />
FTC Rule provides basic regulations for <strong>the</strong> franchising industry throughout all<br />
50 states. In addition, many states have increased <strong>the</strong> disclosure onus by adding<br />
<strong>the</strong>ir own requirements. 46<br />
The Uniform Franchise Offering Circular (“UFOC”), a new disclosure<br />
document, was introduced in 1986, providing franchisors an alternative means <strong>of</strong><br />
disclosure to that established by <strong>the</strong> FTC. 47 The Commission has always<br />
permitted franchisors to comply with disclosure requirements ei<strong>the</strong>r by following<br />
<strong>the</strong> provisions in <strong>the</strong> Franchise Rule itself, or by following <strong>the</strong> UFOC<br />
guidelines. 48 This is in part due to <strong>the</strong> UFOC and <strong>the</strong> FTC requiring similar<br />
disclosure items, including a description <strong>of</strong> (1) <strong>the</strong> franchisor and its business;<br />
(2) prior litigation and bankruptcies relating to <strong>the</strong> franchisor; (3) initial and<br />
ongoing fees; (4) obligations <strong>of</strong> <strong>the</strong> parties and o<strong>the</strong>r terms <strong>of</strong> <strong>the</strong> contract; (5)<br />
43<br />
Mexican Association <strong>of</strong> Franchises, “Objectives,” online: Association<br />
.<br />
44<br />
Ibid.<br />
45<br />
Frank Zaid and John Sotos, supra note 28.<br />
46<br />
Daniel F. So, Canadian Franchise <strong>Law</strong> Handbook, (Markham: LexisNexis Canada Inc., 2005)<br />
at 92.<br />
47<br />
Ibid. at 95.<br />
48<br />
Federal Trade Commission, “Frequently Asked Questions, Amended Franchise Rule” online:<br />
.