National TUPSSO Franchise Owners Association Issues Public Comment to FTC
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The comment was on Docket No.
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Please provide comprehensive answers to the questions below.
For all requests, language copied from provisions from your franchise agreement, specific examples/stories and data are most effective and very much appreciated.
The Franchise Relationship
(1) Negotiability of the Franchise Agreement
* Is it a take-it-or-leave it contract? If not, what terms can be negotiated?
* Has the franchisor explained/justified why it is non-negotiable? If so, how?
(2) Unilateral changes to the franchise system
* If yes, how often/prevalent are these changes?
* Does the franchisor disclose these changes before they are made? If so, where and how? List specific examples
* Are there restrictions on how the franchisor can make these changes? What are they and where are they disclosed?
* Please list changes to operating manuals that were made unilaterally, including specific language
* Aside from changes to the operating manual, how do franchisors make unilateral changes?
* What are the effects of franchisors' ability to make unilateral changes to the franchise system on franchisees, consumers and employees?
* Has the franchisor explained/justified its use for making unilateral changes?
Yes, per the FDD: "Business model can change. The franchise agreement may allow the franchisor to change its manuals and business model without your consent. These changes may require you to make additional investments in your franchise business or may harm your franchise business."
Changes such as additional requirements regarding equipment, fixtures, software, and/or other operational modifications can be made via the Operations Manual. Changes can be made to the Operations Manual at any time by the Franchisor. These changes are often announced with little, to no, advanced notice provided by the Franchisor to the Franchisee.
Corporate Retail Solutions (CRS) is a program that provides services to other companies via
Provisions of the Franchise Agreement
(1) Explanation and Examples of Various Provisions
For each of the following provisions, discuss (a) its prevalence, (2)its effect on franchisees, consumers, workers, and competition, and (c) any justifications for such provisions in your franchise agreement:
* "No Poach" - restricting a franchisee from hiring employees of the
franchisor or other franchisees;
* Employee training - including whether costs are borne by the franchisor or the franchisee;
* Franchisee purchasing or leasing goods, services, real estate, or related items from suppliers approved by the franchisor, or under the franchisor's specifications;
* Prohibitions on the sale or purchase of unapproved products or services;
* Maximum and/or minimum pricing or other limits on franchisee discretion to price products and services;
* Wages, hours or working conditions of employees;
* Mandates for franchisees to maintain certain hours of operation;
* Restrictions or other language regarding the territory or sites where the franchisee may operate its business;
* Restrictions or other language regarding competition of a franchisor (or its successors-in interest)and a franchisee within a designated area;
* Requirements that franchisees make non-recoverable capital investments at the franchisor's direction (often described as "mandatory capital investment provisions")
There is no official policy stated regarding the hiring of employees by Franchisee. Wages offered to employees are determined by the Franchisee and may vary from market to market. Web Based Training (WBT) modules are made available by the Franchisee or without any direct cost to the Franchisee. WBT modules are a required part of the training for any new hire and/or continuing training of existing employees. While some of these WBT modules are optional, others are required by the Franchisor. Failure to complete required WBT modules can result in disciplinary action, up to and including material breach of the Franchise Agreement.
Per the FDD: Supplier restrictions."You may have to buy or lease items from the franchisor or a limited group of suppliers the franchisor designates. These items may be more expensive than similar items you could buy on your own."
Per the FDD: Operating restrictions."The franchise agreement may prohibit you from operating a similar business during the term of the franchise. There are usually other restrictions. Some examples may include controlling your location, your access to customers, what you sell, how you market, and your hours of operation."
Minimum hours of operations are determined by the Franchisor. The new FDD requires 7 days a week as the standard for hours of operation, when in previous FDDs Sunday was considered a recommended, but optional day. No business case has been formally presented by the Franchisor to the Franchisees for the requirement of Sunday operational hours. In a survey conducted by the
Pricing for our shipping services is determined by the parent company (UPS) of the Franchisor. The profit margin of shipping services, excluding accessorial charges such as Declared Value, is determined at the sole discretion of the parent company (UPS).
Per the FDD: Competition from franchisor."Even if the franchise agreement grants you a territory, the franchisor may have the right to compete with you in your territory...You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control. This is the case, in part, because we have the right to establish Non-Traditional sites in your Territory We expressly reserve (for ourselves and our Designees) the exclusive, unrestricted right to sell, distribute and market any products or services (under any brands, including our trademarks) to customers (wherever located) through all
(2) Non-disparagement/
* To what extent and how do franchisors enforce these clauses?
* How do they inhibit franchisees from filing complaints with state, local, or federal agencies related to unfair or deceptive conduct by franchisors?
* How do they inhibit franchisees from providing information to prospective/current
franchisees or third parties about the franchise?
* How prevalent are these clauses and what effects do they have on franchisees, consumers, workers, and competition?
* Has the franchisor explained/justified its use including these clauses?
Per the FDD:"Both during and after the franchise term, you must not directly or indirectly contest, derogate, disparage or impugn any of our Marks... Before Franchisee may initiate suit or action against TUPSS, Franchisee shall attempt first to resolve a controversy or claim with TUPSS arising out of or relating to the Franchise Agreement ("Dispute") by offering TUPSS the opportunity to engage in coordinated mediation to be conducted within one hundred twenty (120) days after the franchisee first gives notice of such Dispute(the "Mediation Notice"). The Mediation Notice must contain a detailed description of the alleged facts, circumstances and claims giving rise to the Dispute and include a demand that is supported by law and proportional to the alleged damages. TUPSS may, in its sole judgment, accept or reject Franchisee's offer to mediate the Dispute by notifying Franchisee of that acceptance or rejection within thirty (30) days after receiving the Mediation Notice. If TUPSS accepts Franchisee's offer to mediate the Dispute, and unless mutually agreed by the parties, the mediation shall be conducted in person at TUPSS' Headquarters(or at a location in
(1) Facilitated mediation, utilizing a single mediator, governed by either (i) the Commercial Mediation Rules of the
(2) TUPSS, in its sole judgment, may elect mediation by informal meeting and discussion among the appropriate parties without the presence or involvement of a mediator.
Mediation is a compromise negotiation and shall constitute privileged communications under
(b) Franchisee acknowledges that one or more other franchise agreements in effect as of the Effective Date between TUPSS and Franchisee or its Affiliates, and/or one or more other franchise agreements in effect as of the Effective Date in which an Owner of Franchisee is deemed to be a Controlling Owner (the "Related Franchise Agreements"), might contain mediation provisions
differing from those contained in Section 20.2(a) of this Agreement. To achieve uniformity and consistency in the mediation of disputes among the parties to this Agreement and any and all Related Franchise Agreements, TUPSS, by this Section 20.2(b), hereby amends the mediation provisions of all Related Franchise Agreements to reflect the identical provisions set forth in Section 20.2(a) of this Agreement. AS ADDITIONAL CONSIDERATION FOR TUPSS' GRANT OF THE FRANCHISE RIGHTS ASSOCIATED WITH THIS AGREEMENT,FRANCHISEE, ON BEHALF OF ITSELF, ITS AFFILIATES, AND ITS CONTROLLING OWNERS, AGREES THAT, BY VIRTUE OF THIS SECTION 20.2(b), THE MEDIATION PROVISIONS OF ALL RELATED FRANCHISE AGREEMENTS ARE HEREBY AMENDED TO PROVIDE THE IDENTICAL PROVISIONS SET FORTH IN SECTION 20.2(a) OF THIS AGREEMENT. SUCH AMENDMENT OF THE RELATED FRANCHISE AGREEMENTS WILL SURVIVE THE TERMINATION OR EXPIRATION OF THIS AGREEMENT."
The brand, in its sole discretion, makes the determination of what constitutes 'disparagement' per the Franchise Agreement. The brand, in its sole discretion, determines what actions, if any, are triggered when communication of any kind (written, verbal, electronically, etc.) has been identified as disparaging to the brand. Actions taken by the Franchisor against the Franchisee could be anywhere from a proverbial slap on the wrist, a cease-and-desist letter, a phone call, or email asking the Franchisee to remove, delete, or disavow the offending material. In extreme cases, it may lead to the revocation of the Franchise Agreement. The Franchisee really has no way of knowing what the brand's response will be; until after the Franchisee's remarks have been deemed as disparaging. As a result, most current and former Franchisees are very reluctant to publicly speak about their experience in the franchise community.
Franchisor Business Practices
(1) Retaliation for participation in franchisee associations
* Do franchisors retaliate against franchisees for participating in non-franchisor endorsed/sponsored franchisee associations? If so, how prevalent is such retaliation, and what form does it take, including possibly audits or on-site inspections?
* How do these practices affect franchisees, consumers, workers, and competition?
TUPSSI does not recognize or have any official contact with the Association. TUPSSI does not directly retaliate and/or openly target members of the Association. However, indirectly, TUPSSI had previously engaged in a campaign to dissuade Franchisees from joining the Association. Some of the methods used by TUPSSI in the past included patent falsehoods about the Association, frequent audits of Association affiliated Franchisees, rigorous on-site inspections of Association affiliated Franchisees, banning leadership of the Association from holding positions on the
(2) Wages and Working Conditions
* How do franchisors exercise control over your wages/working conditions other than through the terms of franchise agreements?
* What service-based quality control measures, whether imposed through licensing or other agreements, depend on franchisee employee performance?
* What data do franchisors collect and retain regarding franchisees' employees, labor and employment law compliance, and labor costs?
* How do these practices affect franchisees, consumers, workers, and competition
* How prevalent are these practices?
* What justifications exist for these practices?
Franchisor requires all employees of the Franchisee to complete certain WBT modules. The Franchisor requires some employees, based upon their roles within the Franchisee's business, to complete additional on-site and/or remote training. The expense of this additional training is the responsibility of the Franchisee. Failure to complete this additional training as required by the Franchisor can result in disciplinary action including, and up to, material breach of the Franchise Agreement.
The Franchisor collects data on labor costs incurred by the Franchisee. The Franchisor does not verify and/or track the labor law adherence of the Franchisee. The Franchisor does not regulate the Franchisee's fulfillment of obligations such as Worker's Compensation or optional employee programs (Paid Time Off,
Payments to Franchisors from Third Parties
(1) Do franchisors receive payment/consideration from third parties (e.g., suppliers, vendors) related to the purchase of their goods or services by franchisees?
* If so, do franchisors provide any services that justify the payments?
* Do franchisors facilitate, encourage, or require franchisees to purchase goods and services from the third party?
* Are franchisees able to source goods or services independently from third parties other than those approved by the franchisor?
(2) Do franchisors direct/steer franchisees to purchase goods or services from third parties that are owned, in whole or in part, by an entity that has an ownerships take in the franchisor?
(3) Do franchisors direct/steer franchisees to refrain from selling goods or services that compete with third parties that are owned, in whole or in part, by an entity that has an ownership stake in the franchisor?
(4) How prevalent are the following forms of payment or consideration to franchisors from third parties for franchisee purchases?
* Direct cash payments
* Rebates
* Signing bonuses
* Access fees
* Exclusivity fees
* Preferential wholesale pricing
* Most-Favored-Nation (MFN) clauses
* Other discounts
* Other forms of consideration, including consideration deriving from co-ownership of the third party and the franchisor.
(5) To what extent do franchisors fail to disclose, or seek to conceal, the receipt of payments from third parties based on purchases made by franchisees?
(6) What justifications exist for these third party-franchisor payments?
Per the FDD:"We are the only approved supplier of fixtures, graphics, mailboxes, computers (excepting optional laptops) and peripherals, window signs, acrylics, technology installations, security gates, storefront signage, and some packaging materials (i.e., retention inserts). We will derive revenue from the sale of these products.
There are no purchasing or distribution cooperatives for any of the items described above.
Precise basis by which we will or may derive revenue or other material consideration as a result of required purchases or leases: During our last fiscal year, we had revenues of
We do not provide any material benefit to you (for example, granting additional franchises) for purchasing particular products or services or using particular suppliers. We do negotiate purchase arrangements with several suppliers (including price terms) for printers, flooring, graphics and signage, corrugate, receipt paper, labels, uniforms, service brochures, business cards, stationary, software, rubber stamps, shredding services, payment processing services, postage meters/services, floor mats, finishing equipment, fax machines, copy controls, computer time rental services, photograph equipment and supplies, graphic design services, printing services, electronic lockers, keyless entry, digital media, retail products, general and specialty packaging, and communication services. In doing so, we and our affiliates seek to promote the overall interests of the franchise system and our interests as the franchisor.
Although we are the only approved supplier for our
During its last fiscal year (2022),
The source of this revenue information is
Franchisees are required to purchase and/or use the products, services, equipment, etc. offered by the Franchisor, or its approved vendors. Failure to purchase and/or use these required products, services, equipment, etc. will result in disciplinary action including, and up to, material default of the Franchise Agreement.
Per the FDD:"If you desire to purchase or lease any products or services from other than TUPSS-approved suppliers, or if you desire to purchase or lease other than specified products or services from a TUPSS-approved supplier, you must submit to us a written request for approval of the proposed supplier together with such evidence of conformity with specifications we reasonably require. We may require that our representative be permitted to inspect the supplier's facility and that samples from the supplier be delivered for evaluation and testing, either to us or to an independent testing facility we designate. We may require that you pay a charge not to exceed the reasonable costs of evaluation and testing. (See Item 6) Our criteria for supplier approvals are contained in the Manuals. We will, within 60 days after our receipt of the completed request or completion of the evaluation and testing (if required by us), notify you in writing whether we approve or disapprove the proposed supplier. We will not unreasonably withhold our approval; however, we do reserve the right to limit the number of approved vendors servicing our franchise network. You must not order or sell any products or services of the proposed supplier until you receive our written approval of the proposed supplier.
We may from time to time revoke our approval of particular products or suppliers. Upon receipt of written notice of revocation, you must stop ordering and/or selling any disapproved product and stop purchasing from any disapproved supplier; you must use products purchased from approved suppliers solely for the purposes of operating your Center and not for any other purpose. You must maintain in sufficient supply (as we may require in the Manuals or otherwise in writing), and use at all times, only such fixtures, furnishings, equipment (including computer hardware, software, copy machines, telephone, and fax machine), signs, products, materials, and supplies conforming to our standards and specifications.
This process that allows us to consider (and possibly approve) your proposed use of alternative suppliers does not apply, and is not available, to suppliers of products and services used in the construction, build out, remodeling or image/decor of your Center."
Indirect Effects on Franchisee Labor Costs Related to Franchisor Business Practices
(1) What portion of a franchisee's non labor operating costs are determined by the franchisor?
(2) What effect, if any, does the franchisor's control over non labor operating costs have on labor costs, and what is the effect on franchisees, consumers, workers and competition?
The Franchisor does not determine staffing, hourly wages and/or other aspects of the employee/employer relationship. The responsibility for the entirety of the employee/employer relationship is based upon the labor requirements of the Franchisee.
Language Barriers
(1) To what extent and how often are franchisors marketing their franchises using languages
other than English?
(2) If not, are there other franchise industries where this is more common?
(3) If so, is the franchisor providing disclosures, contracts, operating manuals and other documents to prospective and existing franchisees in the language in which they market the franchise?
* If not, what is the justification?
Per the FDD:"English Proficiency: To be eligible for ownership of a franchised Center, the controlling owner of the Center's franchise rights must demonstrate to our satisfaction that he/she can proficiently read, write, and converse in the English language. We may require an English proficiency test, administered by either us or a testing firm we retain. This English proficiency requirement applies (a) even if the controlling owner of the Center's franchise rights is not the Center's Primary Operator and (b) also to the Center's Primary Operator or (if applicable) the Center's Certified Operator."
Currently all documents, agreements, and communications from Franchisor to Franchisee use English as the only language of communication. Marketing to the consumer can be, depending upon the market, disseminated via Spanish and/or English.
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Original text here: https://downloads.regulations.gov/FTC-2023-0026-1720/attachment_1.docx
TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact
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