WASHINGTON -- The Service Employees International Union (SEIU) has petitioned the Federal Trade Commission (FTC) to launch an investigation into the franchise sector and issue recommendations for curbing what it called ”abusive and predatory” practices by franchisors in the $800-billion industry.
“Franchised businesses represent a large and growing segment of the nation’s businesses,” the petition said. “Yet, unlike traditional small businesses, most franchises reflect a profound imbalance of contractual power that favors the franchisor and places franchisees in a financially precarious situation.”
The 32-page petition calls on the FTC to invoke its authority to issue civil investigative demands that would compel top franchise companies to turn over information about their relationships with franchisees.
The request for investigation contains evidence, SEIU claims, from an extensive review of franchise agreements at 14 of the largest franchise systems in the country, alleging that franchise agreements are consistently one-sided, often allowing franchisors to terminate franchisees for minor violations of one of thousands of pages of ever-changing rules.
The petition details five franchisor practices that are particularly harmful and that the SEIU claims are "endemic" to the sector:
1.Incomplete or misleading financial performance representations made to prospective franchisees.
2.Unreasonable capital expenditure demands tied to renewal of franchise agreements.
3.Retaliation against operators who join franchisee associations.
4.Unfair termination or nonrenewal of franchise agreements.
5.Arbitrary denial of franchisees’ requests to sell or transfer their business.
Franchise operators for major chains including 7-Eleven and McDonald’s voiced their support for a federal investigation Monday in a press conference, describing how their experiences in the franchise sector underscore the urgent need for balance and fairness in the industry.
“The substantial evidence of pervasive franchisor abuses presented in the petition demonstrates an urgent need to reform the growing franchise sector—for the benefit of workers and franchisees alike,” said Scott Courtney, assistant to the president of SEIU. “An FTC investigation could help curb harmful and predatory franchisor practices, giving franchisees space to create good jobs and grow the economy.”
Jas Dhillon, a 7-Eleven franchisee from Los Angeles, described how South Asian immigrant franchise operators at 7-Eleven have allegedly been targeted for abuse by the company, facing threats and intimidation, and according to Dhillon, with many ultimately losing their business altogether after the company decided to resell their stores in a ‘churning program’ revealed by a management whistleblower to other higher-paying operators.
“The franchise sector bills itself as a path to the American Dream, but the truth is that franchisors like 7-Eleven and others have made this business into a trap,” said Dhillon. “Franchisors hold all the power, and so they can churn through one operator to the next, leaving us with nothing while their profits continue to soar.”
Although it would not directly address the SEIU’s petition and allegations, in a response to a CSP Daily News request for comment, 7-Eleven provided this statement:
“Franchisees are an essential part of brand 7-Eleven. Our company strives to support these small independent business owners within our system as much as possible. We continuously work side-by-side with franchisees as they face a patchwork of regulatory issues across the country—including minimum wage changes—and we’ll continue to support their efforts. There will always be challenges, but we have a successful history of working together when facing tough issues. In fact, the company is currently engaged in litigation with less than 0.6% of its franchisees.
“7-Eleven is proud to have a very high retention rate with our franchisees. For example, in 2014 7-Eleven Inc. had a less than 5% franchisee turnover rate nationwide. That turnover includes franchisees choosing to retire, selling their franchise to another franchisee, transferring their franchise to a son or daughter, divorce, etc. A termination is a rare occurrence.”
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