A bill pending in the U.S. House of Representatives would give franchisees the right to sue their franchisors under the Federal Trade Commission (FTC) Franchise rule. While similar legislative efforts have failed in the past, this is a potentially significant development that franchisees should monitor in 2025. Find out more from national franchise lawyer Jeffrey M. Goldstein.
Representative Jan Schakowsky (D-IL) Reintroduces Franchisee Freedom Act
The bill, titled the Franchisee Freedom Act, was reintroduced by Representative Jan Schakowsky (D-IL) on December 5, 2024. As Representative Schakowsky stated when reintroducing the bill:
“Unfortunately, due to a weak rule and even weaker enforcement of the Federal Trade Commission’s Franchise Rule, [the franchise] dream can turn into a nightmare . . . . That is why it is imperative for franchisees that we pass this legislation, which provides small business owners harmed by violations of the Franchise Rule with the means to recover from the harm done.”
The FTC Franchise Rule is the primary federal regulation governing the franchise industry. It establishes the requirement for franchisors to provide prospective franchisees with a Franchise Disclosure Document (FDD), and it establishes the specific disclosure requirements for each of the 23 “Items” in the FDD.
However, franchisees currently do not have a right to sue their franchisors for violations of the FTC Franchise Rule (referred to as a “private right of action”), and the FTC has been fairly inactive in enforcing franchisors’ disclosure obligations. While state laws provide additional protections (and a private right of action) in some jurisdictions—and while prospective franchisees can work with an experienced franchise lawyer to identify federal disclosure violations—this lack of federal enforceability significantly limits franchisees’ ability to recoup losses they incur due to misrepresentations, omissions and other forms of fraud.
The proposed Franchisee Freedom Act is co-sponsored by Representatives Jared Huffman (D-CA) and Hank Johnson (D-GA). According to Representative Schakowsky’s official website, the bill has also been endorsed by the American Association of Franchisees and Dealers (AAFD), Coalition of Franchisee Associations (CFA), and numerous independent franchisee associations.
Key Provisions of the Proposed Franchisee Freedom Act
So, what does the proposed Franchisee Freedom Act actually say? The bill is refreshingly straightforward, and it provides three key protections for franchisees. If passed, the Franchisee Freedom Act would:
- Hold franchisors liable for actual damages, legal fees and costs when they violate the FTC Franchise Rule;
- Entitle franchisees to rescission of their franchise agreements when they are harmed by FTC Franchise Rule violations; and,
- Allow franchisees to sue under the FTC Franchise Rule in their home state.
This last provision would override any jurisdictional provisions in franchisees’ franchise agreements (which typically require franchisees to file claims in the city where their franchisor’s headquarters are located). This alone would eliminate a substantial barrier to asserting franchisees’ legal rights, as litigating out of state can be cost-prohibitive, and would provide franchisees with significant leverage in pre-litigation settlement negotiations.
Will the Franchisee Freedom Act Pass in 2025?
Will the Franchisee Freedom Act pass in 2025? As noted above, similar legislative efforts have failed in the past, most recently in 2022. But, according to a report in the Franchise Times, Representative Schakowsky is hoping for bipartisan support this time around. As she reportedly told the publication, “I feel optimistic that we can get some bipartisan support for this . . . . I know there are a number of franchisees who work with people on both sides of the aisle. So, I’m going to continue to work with them. We’re going to work on adding more co-sponsors to the bill and I think we’ll get a lot of members.”
Of course, this is far from a guarantee, and franchisors and their lobbyists will almost certainly be working hard to prevent the bill from progressing. If you are interested, you can track the bill’s progress here throughout 2025.
The FTC Franchise Rule: How It Protects (and Doesn’t Protect) Franchisees
Originally adopted in the 1970s, the FTC Franchise Rule has established the standards for franchisors’ disclosure obligations in the United States for more than 40 years. While it has been overhauled several times—most recently to transition from the previous Uniform Franchise Offering Circular (UFOC) to the current Franchise Disclosure Document (FDD)—it has always focused on ensuring that prospective franchisees have the information they need to make informed buying decisions.
With that said, the FDD does not provide prospective franchisees with all of the information they need. It also makes certain disclosures optional—most notably franchisor’s financial performance representations (FPRs) in Item 19. As a result, while carefully reviewing the franchisor’s FDD is a critical step when buying a franchise, it is far from sufficient on its own.
Additionally, while the FTC Franchise Rule requires franchisors to make compliant disclosures, it does not hold them accountable for failing to do so. Currently, franchisees do not have a private right of action under the FTC Franchise Rule, and the FTC rarely pursues enforcement actions against franchisors. As a result, when franchisees receive incomplete or inaccurate disclosures, they must pursue remedies through other means, such as relying on their state’s franchise laws (if they exist) or relying on other statutory or common law principles.
As a result, if the Franchisee Freedom Act passes, this would be a big deal—and we will be closely monitoring the bill’s progress in 2025. If there are any significant updates to report, you will be able to find them here on our blog.
Request a Confidential Consultation with National Franchise Lawyer Jeffrey M. Goldstein
Do you have questions about buying a franchise in 2025? Or, do you have questions about your legal rights as an active (or former) franchisee? If so, we invite you to contact us for more information. To request a confidential consultation with national franchise lawyer Jeffrey M. Goldstein, give us a call at 202-293-3947 or tell us how we can reach you online today.
