When a Franchisor's Earnings Claims Cross the Line
The short answer
A franchisor may tell you what its units earn in exactly one place: Item 19 of the Franchise Disclosure Document. Making the disclosure is optional, and many franchisors make none. If a salesperson, a broker, a webinar, or a spreadsheet gave you numbers that are not in Item 19, that is a violation of federal law, and it is a violation whether or not the numbers were accurate.
Why it comes up
Nobody buys a franchise without forming a view of what it will earn. If Item 19 is blank, that view came from somewhere. It came from a conversation, a pro forma emailed during diligence, a figure mentioned at discovery day, or a bank loan projection someone helped prepare.
Franchisors know this, which is why their FDDs say no one is authorized to make such representations. Whether that disclaimer protects them is the whole question.
What the rule requires
Under 16 C.F.R. 436.9(c), it is an unfair or deceptive act to disseminate any financial performance representation unless the franchisor has a reasonable basis and written substantiation for it at the time it is made, and the representation is included in Item 19. Three independent conditions. Subject to the two narrow exceptions noted below, a representation can be perfectly accurate and still unlawful because it is not in Item 19.
Section 436.9(a) separately prohibits making any claim or representation, orally, visually, or in writing, that contradicts information required to be disclosed. Note "orally" and "visually." That reaches sales conversations, slide decks, and webinars.
Section 436.9(d) requires the franchisor to make written substantiation available to prospects on reasonable request, and to the FTC.
If a franchisor does make an Item 19 disclosure, it must state whether the figures are historical performance or a forecast; for historical data, disclose the date range, the number of outlets included, the total number of outlets, the number and percentage that actually attained or surpassed the stated results, and the material characteristics of the measured outlets that may differ from the outlet being offered to you. That last requirement is what exposes cherry-picking. A franchisor may lawfully report only its top quartile, but it must tell you that is what it did, how many units are in the group, and how many hit the number.
If it makes none, Item 19 must contain prescribed language stating that the franchisor does not make representations about future financial performance or past performance of its outlets, does not authorize its employees or representatives to make such representations orally or in writing, and that if you receive any other financial performance information or projections of your future income, you should report it to the franchisor's management, the FTC, and the appropriate state regulator.
Read that last sentence again. The FDD itself tells you what to do if someone gives you numbers outside Item 19.
The prohibitions run to the "franchise seller," not only the franchisor, and the FTC's guidance treats a broker under contract with the franchisor and compensated on sales as within that definition. A broker's oral projection is squarely covered.
How to read an Item 19 number, against Items 20 and 21
An Item 19 figure in isolation is close to meaningless, because the disclosure reports revenue far more often than profit, and because the outlets behind it may look nothing like yours. Three questions make it readable.
Ask what the number measures. Average unit volume is gross sales. It says nothing about food cost, labor, rent, royalty, advertising contribution, debt service, or what the owner takes home. A system can report a strong average unit volume and still have unprofitable units.
Ask which outlets are in it. The Rule requires disclosure of the subset. Read it. A figure drawn from mature company-operated locations in dense markets tells a prospective owner-operator of a new suburban unit very little.
Ask how many hit the number. The Rule requires the percentage that attained or surpassed the stated result. If forty percent of the reported group hit an average, the average is being carried by the top of the distribution.
Then read Item 20. It gives outlet counts by state for three years, including terminations, non-renewals, reacquisitions and closures. A system reporting healthy averages while churning units is telling you two different things, and the turnover table is the more reliable one. Item 20 also carries the contact list for franchisees who left the system in the last fiscal year. Those are the people with no incentive to sell you anything.
And read Item 21. Audited financial statements. The FTC poses the diagnostic question directly: does the franchisor make more of its income from royalties paid by successful existing franchisees, or from selling franchises to new prospects?
What an unlawful earnings claim looks like
The FTC's own enforcement complaints supply the taxonomy. In its case against a burger franchisor, the agency pleaded a stand-alone count for dissemination of financial performance representations not included in the FDD, alleging that the defendants made verbal representations about the financial performance of existing locations and prospective franchisees' likely performance, including estimates for weekly or monthly sales figures and break-even points, and that they not only failed to include those in Item 19 but contradicted them by stating in the FDD that no such representations had been made.
That pattern, oral numbers plus a "no representations" Item 19, is the classic fact pattern. The others look like this: spreadsheets, pro formas, or loan projection templates handed over outside the FDD; "you'll make X in year one" or "most of our owners clear six figures"; and claims on the franchisor's website, on franchise broker portals, in webinars, on discovery day slides, or on social media.
In FTC v. Minuteman Press, 53 F. Supp. 2d 248 (E.D.N.Y. 1998), a franchisor's sales force told prospects specific expected monthly gross sales and profit figures while the offering circular disclaimed earnings claims. The court found gross sales claims made without contemporaneous substantiating documentation, and reasoned from the common-sense net impression prospects received rather than from the written disclaimer.
Our take: you cannot sue under the Franchise Rule, and that changes everything
There is no private right of action to enforce the FTC Franchise Rule. Courts have said so consistently, and the FTC said so itself in the Federal Register when it adopted the amended rule. A franchisee cannot walk into court with a Rule violation as a cause of action.
What the Rule supplies is the standard. The claim travels through other vehicles.
State franchise investment statutes, in the registration states, create private remedies for untrue statements of material fact and material omissions in connection with the offer or sale of a franchise.
State deceptive trade practices statutes. In Florida, FDUTPA is the vehicle, and courts have litigated 16 C.F.R. 436.9 through it. Florida's own section 817.416 separately makes it unlawful to intentionally misrepresent the prospects or chances for success of a franchise, with a remedy of all moneys invested plus costs and, at the court's discretion, fees. For a Florida franchisee, that statute is frequently the strongest claim available, and our post on franchisee rights in Florida covers it.
Common-law fraud and negligent misrepresentation, where the fight is usually about reliance.
The disclaimer, integration clause, and questionnaire are the battleground. The franchisor's standard package is an Item 19 disclaiming representations, an integration clause, an express non-reliance representation, and a pre-closing compliance questionnaire in which the buyer certifies that nobody said anything about sales, costs, income, or profits. The purpose is to convert a later fraud claim into an unreasonable-reliance loser.
Courts split on whether it works, and the split runs along state lines more than along facts. In Hetrick v. Ideal Image Development Corp., 758 F. Supp. 2d 1220 (M.D. Fla. 2010), franchisees had signed a compliance questionnaire certifying that no agent made revenue statements, and the disclosure document said the franchisor did not authorize salespersons to furnish information concerning actual or potential sales, costs, income, or profits. A jury nonetheless found the franchisees were not precluded from relying on the statements despite their certifications, and the court granted summary judgment against the franchisor's affirmative defense premised on the questionnaire.
In Teng Moua v. Jani-King of Minnesota, Inc., 810 F. Supp. 2d 882 (D. Minn. 2011), the court reached the opposite result, holding it unreasonable as a matter of law to rely on a representation completely contradicted by the terms of a written agreement, and giving effect to an acknowledgment form on which a plaintiff had written "none" in answer to whether any representations about sales, income, or profit levels had been made.
Some states have removed the question from the courts. California voids as contrary to public policy any provision disclaiming representations made to a prospective franchisee or disclaiming reliance on them. Washington and New York require addendum language providing that no questionnaire or acknowledgment signed at the commencement of the relationship waives claims under state franchise law, including fraud in the inducement, or disclaims reliance on statements by the franchisor.
Florida has no such statute, which is why the Florida answer depends on a fact-bound reliance analysis rather than on a legislative rule. Hetrick is a Florida decision and it is a good outcome for franchisees, but it is a district court decision resolving a specific record, not a rule.
One note on federal law's limit here. Section 436.9(h) prohibits requiring a prospect to waive reliance on any representation made in the disclosure document. By its terms that protects reliance on the FDD. It does not, on its face, reach a questionnaire aimed at oral statements made outside the FDD. That textual gap is exactly what the California, Washington, and New York provisions close, and exactly what Florida leaves open.
What it means practically
Write it down before you sign. Every specific number, who gave it, when, and in what form. Keep the emails and the attachments. A contemporaneous record is the difference between a claim and a recollection.
Ask for the substantiation. If a franchisor makes an Item 19 claim, section 436.9(d) requires it to make written substantiation available on reasonable request. Making that request, in writing, is free and highly informative.
If you were given numbers that are not in Item 19, say so in writing before you sign the compliance questionnaire, rather than certifying that nothing was said. That single step preserves more than any argument made afterward.
And note what the FDD itself tells you to do: report earnings information received outside Item 19 to the franchisor's management, the FTC, and the state regulator. The same prescribed legend carries one carve-out worth knowing: if you are purchasing an existing outlet, the franchisor may give you the actual records of that outlet. Section 436.5(s)(4) and (5) set out that exception and a second one for a written supplemental representation about a particular location or variation. The FTC's 2024 policy statement makes clear that contract terms prohibiting franchisees from reporting potential law violations to the government are unfair, unenforceable, and illegal.
When to call a lawyer
Before you sign the compliance questionnaire, if numbers were given to you that are not in Item 19. Afterward, promptly, because limitations periods run from events that are easy to misdate.
Why this is not a do-it-yourself problem
The violation is easy to identify and hard to convert into a recovery. There is no federal claim, so the case has to be built under a state statute or a common-law theory, each with different elements, different damages measures, and, in Florida, different fee exposure, one of which runs both ways. Layered on top is a signed questionnaire certifying that the very conversation you are describing never happened, and whether that certification defeats you is a state-specific question that courts have answered both ways on similar facts. The single most valuable thing anyone can do about an improper earnings claim happens before signing, which is why this is a post about diligence rather than about litigation.
Talk to us
HDD Law Firm represents franchisees and franchisors in disputes involving disclosure, misrepresentation, and the sale of franchises, in the Florida state courts, the Southern, Middle and Northern Districts of Florida, and the Eleventh Circuit. If you were given earnings figures that do not appear in Item 19, contact us to discuss your matter.
Sources
● 16 C.F.R. 436.9, Additional prohibitions (eCFR)
● 16 C.F.R. 436.5, Contents of the disclosure document, including Item 19 (eCFR)
● FTC, Franchise Rule Compliance Guide
● FTC, Amended Franchise Rule FAQs
● FTC, Issue Spotlight: Risks to Small Business Success in Franchising (2024)
● FTC, Policy Statement on Franchisors' Use of Contract Provisions (July 2024)
● United States v. Burgerim Group USA, Inc., Complaint (C.D. Cal. 2022)
● FTC v. Minuteman Press, 53 F. Supp. 2d 248 (E.D.N.Y. 1998) (CourtListener)
● Hetrick v. Ideal Image Development Corp., 758 F. Supp. 2d 1220 (M.D. Fla. 2010) (CourtListener)
● Teng Moua v. Jani-King of Minnesota, Inc., 810 F. Supp. 2d 882 (D. Minn. 2011) (CourtListener)
● A Love of Food I, LLC v. Maoz Vegetarian USA, Inc., 70 F. Supp. 3d 376 (D.D.C. 2014) (CourtListener)
● Fla. Stat. 817.416, Franchises and distributorships; misrepresentations
● California DFPI, What's New in 2023 for Franchisors (AB 676)
● FTC, A Consumer’s Guide to Buying a Franchise
Disclaimer
This post discusses publicly reported legal developments for general informational purposes. It is not legal advice, it does not create an attorney client relationship, and it does not reflect the firm’s position in any pending matter. Outcomes depend on the specific facts and the governing law of the relevant jurisdiction.
Related coverage: earnings-claims disputes sit inside a broader pattern of franchise-system control litigation, including how mandated technology systems shift risk to franchisees and how territorial protections are tested in court.