With so many franchise brands competing for attention, potential franchisees can feel like they are choosing from a crowded marketplace of “opportunities,” each promising a path to independence and profit. To sort through those options, one of the most important tools franchisees rely on is the Franchise Disclosure Document (FDD), which provides standardized, detailed information about fees, obligations, litigation history and financial performance. This information allows a buyer to make an informed comparison across brands. 

When a franchisor attempts to win over franchisees through unfair or deceptive conduct related to the FDD — such as omitting material facts, misstating costs or risks, using misleading earnings claims or pressuring a prospect to sign before receiving adequate time to review — the franchisee may enter the relationship under false assumptions. This can lead to unexpected expenses, underperformance or long-term contractual burdens. In these situations, franchisees may be able to pursue legal remedies.

What qualifies as unfair or deceptive?

An unfair or deceptive act generally involves a representation, omission or practice that misleads or is likely to mislead a reasonable prospective franchisee. Materiality is central. A claim is material when it affects a decision to purchase, to sign, to pay a fee or to open. An unfair act typically involves substantial consumer injury that is not reasonably avoidable or outweighed by countervailing benefits. In the franchise context, unfair or deceptive acts often arise from presale communications, sales scripts, earnings narratives, undisclosed fees, undisclosed litigation history or inconsistent explanations of renewal, territory, supply restrictions or required purchases.

What is the franchisor’s duty to disclose?

The Franchise Rule mandates delivery of the current FDD at least 14 calendar days before signing any binding agreement or making a payment in connection to the franchise sale. The franchisor must deliver a final agreement with completed terms at least seven calendar days before signing. The FDD must contain specific items, including franchisor background, litigation, bankruptcy, initial fees, estimated initial investment, restrictions on sources of products or services, financing, franchisor assistance, territory, trademarks, patents, copyrights, financial performance representations, outlets, financial statements plus contracts.

Financial performance representations, sometimes called earnings claims, receive heightened scrutiny. If a franchisor makes a financial performance representation, it must have a reasonable basis and substantiation. Oral earnings claims that exceed the FDD, that lack substantiation or that conflict with disclaimers frequently trigger enforcement risk.

What are some signs of unfair or deceptive practices?

Common red flags of unfair or deceptive practices include:

• FDD delivered after payment, after signing, or delivered with missing exhibits, missing financial statements, or outdated issuance date  
• Earnings claims presented without underlying data, assumptions or written substantiation  
• Contradictions between sales promises and contract terms, including territory assurances, exclusivity, renewal rights, transfer rights, advertising fund use, supply obligations or required purchases  
• Hidden fees, undisclosed rebates, undisclosed supplier arrangements or undisclosed affiliated vendors that change true unit economics  
• Misstatements regarding litigation history, bankruptcy, key executive experience, outlet counts, closures, terminations or nonrenewal

These signs often overlap. A single red flag may support a broader pattern of misrepresentation or omission.

What happens when a franchisor violates the Franchise Rule?

FTC enforcement can include investigations, subpoenas, consent orders, injunctive relief, monitoring obligations and monetary relief where available. The FTC can seek civil penalties for Rule violations, plus additional relief under applicable statutes and doctrines. State franchise regulators, state attorneys general and private litigants may also pursue relief under state franchise laws, consumer protection laws or common law fraud theories. A franchisor may face mandatory disclosure corrections, FDD amendments, rescission offers, registration consequences in franchise registration states, broker restrictions, advertising restrictions plus ongoing compliance audits.

It is important to note that this is an area that is evolving. Lawmakers have expressed interest in expanding the ability of franchisees to hold franchisors accountable for such violations. The proposal was recently introduced and is currently under review. 

What remedies are available for a franchisee?

Available remedies depend on jurisdiction and the language of the contract. Examples can include:

• Monetary damages
• Injunctive relief to stop continuing misrepresentations
• Regulatory complaints to trigger investigation, corrective disclosure, or settlement leverage

These remedies require a strong case. Evidence that can help build a case include emails, texts, pitch decks, recordings where lawful and payment receipts.

Franchisees can hold franchisors who engage in unfair and deceptive practices accountable for losses. A franchisee who identifies timing failures, earnings claim irregularities or material contradictions should preserve evidence, assess statutory remedies, pursue negotiated resolution or escalate through regulatory channels where appropriate. Prompt action can protect the franchisee’s future interests. We are familiar with such claims and offer free consultation to review your case and provide guidance.