I understand that “franchising” as a business model does encourage franchisors, the entrepreneurs, to try to build a franchised chain business that will feed the economy and their profits —and that this does serve the “public good” in terms of business activity, jobs, revenue, and taxes — and competition that provides a wide selection for the consumer public.

However, the difference between the franchised chain system and the conventional chain store system is that the franchisees bear the expense of building and operating the physical units —-and this does greatly reduce the risk and expense of the franchisors who do not share in the risk of failure of the physical units in the system NOR the expense of operating these physical units in compliance with federal and state employment laws. Franchisors do, however, always profit from the arrangement because, of course, royalties are paid on gross sales, and commissions and fees are paid to the franchisors, even if there is NEVER any actual profit for the franchisees who operate the businesses that wear the brand names.

I understand that franchisors have to protect their Brand reputation, etc.. and that they must maintain strict control over their franchisees in order to protect their systems. They are able to do this with the adhesory contracts that permit termination of franchisees who do damage the brand name.

However, the point I am trying to make is that the franchisors CAN succeed even as a fairly good percentage of first-owner franchisees fail as long as they can “churn” and sell new franchises out the front door and discounted units out of the back door. Franchisors can succeed as long as franchisees sign long-term franchise agreements that become malicious legal traps when franchisees fail to thrive in their businesses.

Again! I agree with Robert Purvin and Susan Kezios! The failure of the FTC to mandate earnings claims or any disclosure by the franchisor of unit financial performance statistics is misleading by omission and cannot be justified as fair commercial practice.

This failure of regulation that permits franchisors to churn and turn and pump and dump UNITS out of view of new buyers of franchises and out of view of government regulators is a government subsidy of the franchisors.

Unfortunately, the UFOC/FDD, as produced by the FTC Rule, tends to provide cover for franchisors by implying legitimacy but many of these so called “legitimate” franchisors are “knowingly” selling unprofitable retail franchises to the public as a means of survival.

You indicate, Sean “The fact is, the risk of franchising – in general –is shared.” But, the fact is that the risk of the investment in the franchise is not shared with the new buyer of the franchise and therefore, the risk of franchising –in general –is not shared —from my point of view.

- A multi-unit tax preparation franchisee found guilty of fraud, fined $5M by the DOJ.
- A 176 unit restaurant franchisee files bankruptcy because of bad financial mgmt, not unit performance
- A sub shop franchisee convicted of sex crimes and now being held on suspicion of murder in the disappearance of a young coed
- Pharmacy franchisee convicted of selling drugs illegally over the Internet
- Franchisee and manager sued for disseminating nude pictures on a cell phone left in their franchised restaurant

With each franchise granted, the franchisor risks damage to the brand it may have built up over decades and spent millions of dollars to build.
The fact is, the risk of franchising – in general – is shared. If a particular opportunity is set up otherwise, with franchisee failure in large numbers part of the ongoing strategic plan, then that’s a scam operation, not a legitimate franchise company.

But, it is true, isn’t it, that one of the greatest advantages for the franchisors is that the franchiSEES ARE responsible for the expense of building and operating many millions of franchised physical units that wear the brand names?

It is true also, isn’t it, that the franchisees do always bear the great expense and burden of complying with state and federal employment laws when the system is composed of franchisees and few or no corporate units. The franchisors paper empires survive nicely on the backs of their resources, the franchisees.

I understand now that the EEOC did not take action against a franchisor and took action against a Corporation that was not a franchisor.

I have not indicated that all franchisors have “evil platforms” and have been trying to indicate that the “evil” is in NOT disclosing the true risk of the investment in a franchise to new buyers, as known to the franchisor because of unit performance statistics that are not required to be disclosed under federal regulatory policy.

Carol cross wrote: Generally, in franchising, it would be the individual owners of the franchised units, the franchisees only, who would bear the responsibility for employment discrimination…
Well, it would be the employer who would be responsible for employment discrimination. The franchisor would be responsible for their employees, the franchisees for theirs. I don’t think this example bolsters your franchisors-r-evil platform, Carol.

When you see how many “tax payer” provided “government” attorneys were involved, you understand that this moral victory for EEOC is all that is really important to the EEOC.

Where are they in Bankruptcy Court in terms of their standing as a Creditor? Laughable to think that any judgement could be collected.

Generally, in franchising, it would be the individual owners of the franchised units, the franchisees only, who would bear the responsibility for employment discrimination —unless the franchisor’s manual of operations promoted discrimination. Afterall, isn’t this why franchising is so attractive to franchisors —-who don’t generally bear the responsibility for operating the physical units that wear their brand names in compliance with state and federal laws!

Is this what happened?—There was proof that it was Corporate policy? I don’t really understand how these Centers were operated in the first place and it looks like there will be NO winners anywhere in this disgusting scenario.