Hirzel Dreyfuss & Dempsey, PLLC
NEWS AND INFORMATION
The FTC's Largest Franchise Settlement Was Not About Earnings Claims. It Was About Paperwork.
The short answer
On March 18, 2026, the Federal Trade Commission entered a stipulated order requiring a fitness franchisor and ten affiliated entities to pay $17 million, which the agency described as the largest amount ever returned to consumers in a franchise case. The violations were not exaggerated earnings claims. They were outlet data, litigation history, and the fourteen-day disclosure rule, which is to say the parts of the disclosure document most franchisors treat as clerical.
What the FTC alleged
Four categories, as described in the agency's own announcement:
● Representing that studios typically opened within six months when it generally took more than a year, if ever.
● Failing to disclose litigation involving a former chief executive and the bankruptcy of a former president of franchise development.
● Providing inaccurate names and contact information for franchisees whose studios had closed in the prior year.
● Failing to deliver the disclosure document at least fourteen days before signing.
Relief included the $17 million payment on a schedule, a permanent injunction, ten years of recordkeeping, and ongoing franchisee information obligations.
Our take: the boring items are the enforcement items
Most franchisors and most franchisee-side lawyers concentrate on Item 19, the financial performance representation, because that is where the exciting fraud claims live. The Commission just spent its largest franchise recovery on Items 3 and 20 and on a delivery deadline.
That should change how both sides read a disclosure document.
For a franchisor, the three items above are all verifiable from records the franchisor already has. There is no judgment call in listing the franchisees who left last year, and no defense available when the list is wrong. The fourteen-day rule is a calendar entry. These are the cheapest compliance items in the entire regulatory scheme and they are now the most expensive to get wrong.
For a franchisee, this is a roadmap. A materially wrong outlet table is provable without expert testimony, and it goes directly to the representation that matters most to a prospective buyer, which is how many people did this before me and how many are still doing it. It also supports state-law claims, because there is no private right of action under the federal rule itself. That gap is the subject of pending federal legislation.
We would note candidly that a consent order is not an adjudication. The company did not admit the allegations, and a settlement reflects litigation risk as much as merit.
What it means practically
Franchisors should audit the outlet tables and the litigation disclosure before the next annual update, and should treat the fourteen-day period as a hard deadline with a documented delivery record. Franchisees should request the prior three years of disclosure documents and compare the outlet tables against each other. Inconsistencies between years are the easiest disclosure problem to spot and the hardest to explain.
When to call a lawyer
Before signing, and before the next annual disclosure document update.
Sources
● FTC business guidance blog, Protecting franchisees: the FTC's case against Xponential Fitness
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.
Do Not Sign a Broad Release Without Advice
The short answer
A general release is the shortest document in a franchise transaction and usually the most expensive one. It arrives at transfer, at renewal, with remodel money, with a fee concession, or attached to a settlement of a default notice. It is presented at the moment you have the least leverage, in a form drafted by the franchisor, and it typically releases claims of you, your entity, your owners, and your guarantors, known and unknown, from the beginning of time.
Why it comes up
The release is rarely the subject of the negotiation. It is in the signature package. By the time it appears, the deal is agreed, the buyer is waiting or the concession has been promised, and the release reads like a formality.
It is not a formality. It is the entire consideration the franchisor is receiving for whatever it is giving you, and it is usually worth more than what you are getting.
When you will be asked to sign one
Transfer. Consent to sell is conditioned on a release from the seller and often from the buyer.
Renewal. A successor term is conditioned on the current form agreement plus a release of everything arising under the expiring term.
Remodel, reimage, and incentive programs. A release in exchange for a construction contribution, a royalty abatement, or an extended term.
Cure of a default or settlement of a termination notice. A forbearance or reinstatement agreement with a release. This is the one context in which a release is most likely to be enforceable and most likely to be appropriate, for reasons discussed below.
Financial concessions. Deferrals, note restructuring, fee waivers, emergency relief. California specifically prohibits requiring a general release in exchange for assistance related to a declared state or federal emergency, which tells you how often that happened.
Franchisor-drafted amendments. Addenda, technology program consents, supply program consents, with a release inside the signature block.
What it actually wipes out
A general release ordinarily extinguishes breach of contract claims for past franchisor conduct such as fee overcharges, failure to provide promised support, and marketing fund misuse; encroachment and implied covenant claims for units or channels already opened; fraud and misrepresentation claims arising from the original sale; tortious interference and unfair competition claims; claims in pending litigation, since the release condition is routinely used to compel dismissal; and the individual claims of owners and guarantors where the release form names them.
It ordinarily does not release the franchisor's obligations going forward, your own continuing obligations such as post-term covenants, indemnities, and your personal guaranty, or the landlord's or lender's claims. Those require separate treatment.
The load-bearing phrase is "known and unknown." A release limited to claims you know about leaves undiscovered claims alive. "Known and unknown" is drafted to sweep in the claims you have not found yet, which in the franchise context is precisely the fraud that only becomes visible once the unit underperforms.
Our take: two arguments survive a release, and they are different arguments
Fraud in procuring the release itself. A release is an ordinary contract and is voidable for fraud in its procurement. The Supreme Court said so in Callen v. Pennsylvania Railroad, 332 U.S. 625 (1948): one who attacks a settlement bears the burden of showing the contract is tainted, either by fraud practiced upon him or by mutual mistake. The exception is real. The burden sits on the franchisee.
A claim that had not accrued when the release was signed. In Burger King Corp. v. Austin, 805 F. Supp. 1007 (S.D. Fla. 1992), the release covered only claims existing prior to its effective date, and the parties represented they were unaware of any basis for complaint. The court held that a general release cannot bar a claim that did not exist when it was signed. The fraud claim that had not yet matured survived. The promissory estoppel claim resting on pre-release events did not.
Those are the two openings. Neither is a reason to sign a release casually, because both are litigated uphill and both depend heavily on the specific language and the governing state law.
The statutory limit is the thing to check first. Several states void releases of statutory franchise claims outright. Washington's statute is representative: any agreement purporting to bind a person to waive compliance with the franchise act is void, except a release executed pursuant to a negotiated settlement in connection with a bona fide dispute arising after the franchise agreement has taken effect, where the person giving the release is represented by independent legal counsel. Minnesota voids waivers including choice of law provisions. New York makes it unlawful to require a franchisee to assent to a release relieving a person from any duty or liability imposed by the article. Maryland bars requiring a release as a condition of the sale of a franchise. California voids provisions disclaiming representations made to a prospective franchisee or reliance on them.
Read the Washington carve-out again, because it describes the shape of a release that legislatures consider legitimate: post-dispute, arm's length, with independent counsel. A release extracted as the price of a routine transaction is the fact pattern those statutes were written to defeat.
Federal law adds a narrower protection. 16 C.F.R. 436.9(h) prohibits a franchise seller from disclaiming or requiring a prospect to waive reliance on any representation made in the disclosure document. Note the limit: that protects reliance on the FDD. It does not, on its face, reach a questionnaire aimed at oral statements made outside the FDD. Washington and New York close that gap by mandatory 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. That is the central point for a Florida franchisee and it is covered in our post on franchisee rights in Florida.
What it means practically
Treat the release as a priced term, not a formality. If the franchisor is giving you $40,000 in remodel money in exchange for releasing a claim worth more than that, the concession is not a concession.
Inventory your claims before you sign, not after. You cannot value a release without knowing what it releases.
Ask what the release is doing in the document. A release attached to a genuine settlement of a live dispute is normal and often appropriate. A release attached to a routine consent, a renewal, or a technology addendum is doing something else.
Never assume "known and unknown" is boilerplate. It is the operative language.
When to call a lawyer
Before you sign, and ideally before you ask the franchisor for the consent or the concession that will trigger the release demand.
Why this is not a do-it-yourself problem
Whether a particular release validly reaches a particular claim turns on the anti-waiver statute of the governing state, the choice of law clause, whether the claim had accrued when the release was signed, and whether the release itself was procured by concealment. Those are four separate determinations, none of which can be made from the face of the document, and all of which have to be made before signing, because after signing the analysis is about setting the release aside rather than about whether to give it. The document will be two pages of plain language that appears to say exactly what it means, which is what makes it dangerous. The question is never what it says. The question is what it reaches, and that is not on the page.
Talk to us
HDD Law Firm advises franchisees and franchisors on releases, consents, renewals, and franchise dispute resolution. If a franchisor has asked you to sign a release, contact us to discuss your matter before you do.
Sources
● 16 C.F.R. 436.9, Additional prohibitions (eCFR)
● FTC, Amended Franchise Rule FAQs
● Callen v. Pennsylvania Railroad, 332 U.S. 625 (1948) (CourtListener)
● Burger King Corp. v. Austin, 805 F. Supp. 1007 (S.D. Fla. 1992) (CourtListener)
● RCW 19.100.220, Washington Franchise Investment Protection Act
● Washington DFI, Washington Addendum to the FDD and Franchise Agreement
● New York State Addendum to the FDD (NY Attorney General)
● California DFPI, What's New in 2023 for Franchisors (AB 676)
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.
A Florida Franchisor Got an Injunction Against Someone Who Never Signed the Noncompete. Here Is How.
Correction, September 11, 2026. An earlier version of this post stated that we could not verify an August 2026 order in this case, that no motion to transfer venue appeared on the docket, and that the agreement contained a choice-of-law clause rather than a forum-selection clause. Each of those statements was wrong. The court entered an omnibus order on August 20, 2026 (Doc. 227) denying the defendants' motion to dismiss for lack of personal jurisdiction and to transfer venue to Ohio; the agreement contains both a Florida choice-of-law clause and a forum-selection clause; and the court applied a conspiracy theory of specific jurisdiction to the non-signatories. The discussion below has been corrected and expanded, and the error is described in the section on the August order. We regret it.
The short answer
Florida law says a court may not enforce a restrictive covenant against a person who did not sign it. An Orlando federal judge nonetheless enjoined a former franchisee's chief operating officer and the competing company he formed. The covenant was not applied to them as covenantors. The court relied on Florida authority permitting injunctions against those who aid and abet a covenantor's breach or serve as a straw man for it, and it added Federal Rule of Civil Procedure 65(d)(2), which binds a party's officers and agents and anyone acting in active concert with them, as a further ground. The distinction matters, and it shapes how far the order actually reaches.
What happened
The Filta Group, Inc. v. LXU, Ltd., No. 6:25-cv-914-PGB-NWH (M.D. Fla.), is a suit by an Orlando-based fryer-filtration franchisor against a former franchisee operating territories in Ohio, Indiana and Kentucky, the franchisee's principal, a new company called Kitchen Kare Innovations, and Shane Farrer, a technician who had risen to become the franchisee's chief operating officer. Farrer did not sign the franchise agreement.
Judge Paul G. Byron granted a preliminary injunction on December 23, 2025, after a two-day evidentiary hearing. The facts that follow are the court's findings on that motion, not allegations.
The findings are the kind that decide cases. The franchisee's principal loaned Farrer $17,500 to secure a distributorship with a cleaning-chemical supplier, knowing the franchisor was building its own relationship with that supplier, and Farrer formed the competing company on October 1, 2024. The franchisee then sent a cessation-of-services letter to roughly 450 franchise customers. The new company retained about 150 of those accounts and grew from five to forty-one employees using transferred equipment and personnel. Employees visited the franchisor's customers wearing uniforms bearing the franchisor's marks.
And this detail, which is worth the whole post: seven minutes before the franchisee sent its cessation-of-services letter to customers, counsel for the franchisee was giving the franchisee's employees, its principal and Farrer instructions on how to back up the franchisor's email and files.
Our take: the covenant and the injunction are two different questions
Start with what Florida law forbids. Section 542.335(1)(a) provides that "a court shall not enforce a restrictive covenant unless it is set forth in a writing signed by the person against whom enforcement is sought." Section 542.335(1)(f) addresses who may enforce a covenant, and it sets different conditions for different enforcers: a third-party beneficiary must be expressly identified in the covenant as a beneficiary and the covenant must expressly state that it was intended for that person's benefit, while an assignee or successor may enforce only where the covenant expressly authorizes enforcement by an assignee or successor. Neither subsection speaks to who may be bound.
So on the face of the statute, a non-signatory cannot be held to a franchise noncompete as a covenantor. The court did not disturb that. It also did not expressly analyze subsection (1)(a), and this post should not be read as a holding reconciling that subsection with Rule 65.
The court reached the non-signatories a different way, and it gave more than one reason. Its first ground was substantive. Quoting North American Products Corp. v. Moore, 196 F. Supp. 2d 1217, 1229-30 (M.D. Fla. 2002), the court noted that Florida courts have enforced noncompetes against the signatory and against the entities through which business was conducted even where the individual was the only signatory, and that parties "cannot avoid the reach of the non-solicitation agreement by using a straw man." It then drew on Dad's Properties, Inc. v. Lucas, 545 So. 2d 926, 928-29 (Fla. 2d DCA 1989), for the propositions that individuals and entities may be enjoined from aiding and abetting a covenantor's violation and that an injunction binds not only the signatory but those identified with the signatory in interest, in privity, represented by, or subject to the control of the signatory. The court collected district court decisions enjoining spouses and new entities set up by terminated franchisees on the same reasoning.
A note on the weight of those authorities. North American Products is a federal district court decision and therefore persuasive rather than binding. Dad's Properties is Florida appellate authority, but it predates the 1996 enactment of section 542.335.
Rule 65(d)(2) came next, as an additional basis. The rule provides that an injunction binds, on actual notice, "the parties," "the parties' officers, agents, servants, employees, and attorneys," and "other persons who are in active concert or participation with" them. Farrer was the franchisee's chief operating officer, which placed him within the officer-and-agent clause, and the court found the new company was in active concert. The court introduced this analysis with "Moreover" and concluded that "for this reason, as well," the injunction against the franchisees binds Farrer and the new company. It was a further ground, not the sole mechanism.
What Rule 65 does and does not do. It identifies who is bound by an injunction that has already issued, provided they have actual notice. It does not make a non-signatory a party to the contract, and it does not convert him into a covenantor. That distinction is the point of this post.
The scope of the order, which is where the practical answer lives
The decretal paragraphs are worth reading closely, because the shorthand that "the non-signatories got a narrower order" is only partly right.
Paragraph 2 enjoins all defendants, and all persons acting on their behalf, in concert with them, or under their control, from using the franchisor's marks, holding themselves out as a franchisee, or suggesting any affiliation.
Paragraph 3 applies to the franchisee and its principal, and to all persons acting on their behalf, in concert with them, or under their control. For two years from the date of the order, it bars owning, operating, working for, financing or holding an interest in a competing business within the former territories or within twenty-five miles of their perimeter, and it bars contacting customers the franchisee served in the year before May 16, 2025 for solicitation purposes.
Paragraph 4 applies to the new company and Farrer, and to persons acting in concert with them. For two years from the date of the order, it bars providing similar services to, or soliciting, the customers the franchisee served in that same one-year lookback. It is customer-specific rather than geographic.
Paragraph 5 requires all defendants, and again persons acting in concert with them, to return mobile filtration units, confidential information, manuals and filters within fixed deadlines.
So the customer-specific restriction in paragraph 4 is narrower than the geographic restriction in paragraph 3. But paragraph 4 does not exhaust the non-signatories' exposure. They are also covered by paragraphs 2 and 5 directly, and paragraph 3 reaches persons acting in concert with the franchisee. Our reading is that a court crafting relief against a non-signatory will often draw it more tightly to the conduct that justified reaching that person, because the source of the obligation is the injunction rather than the contract. That is our inference from how this order is structured. It is not a rule this decision announces, and it is not a guarantee in the next case.
Where the case stands now, and the correction
On August 20, 2026, the court issued an omnibus order, Doc. 227, that resolved the defendants' motion to dismiss for lack of personal jurisdiction and, in the alternative, to transfer venue to Ohio, along with the franchisor's summary judgment motion. The motion to dismiss was denied. The motion to transfer was denied. Summary judgment was denied without prejudice in favor of trial. The court stated that the defendants remain actively subject to the preliminary injunction.
On jurisdiction, the court held that the non-signatories are subject to specific personal jurisdiction in Florida under sections 48.193(1)(a)(2) and 48.193(1)(a)(7), applying the rule that where any member of a conspiracy commits tortious acts in Florida in furtherance of the conspiracy, all conspirators are subject to personal jurisdiction here. It rejected general jurisdiction over Farrer. On venue, the court treated the agreement's forum-selection clause as a significant factor and found it likely controlling as to the signatories, while noting the non-signatories were not bound by it. In a footnote, the court expressly declined to decide whether a non-signatory can be bound to a forum-selection clause, resolving the motion on long-arm and due process grounds instead. The agreement contains both a Florida choice-of-law clause and a forum-selection clause designating the courts where the franchisor's principal office sits.
An earlier version of this post said that we could not verify any of this, that no motion to transfer venue appeared on the docket, and that the agreement had a choice-of-law clause rather than a forum-selection clause. That was wrong on each count, and the error was ours. The two orders are distinct and should not be conflated: the December 2025 order is the preliminary injunction, and the August 2026 order is the jurisdiction, venue and summary judgment ruling.
What it means practically
For franchisors. The people who can do the most damage on exit are frequently not signatories. They are managers, technicians and officers who hold the customer relationships. Both the aiding-and-abetting line of authority and Rule 65(d)(2) can reach them, which means the evidence to develop early is the agency relationship and the coordination, not just the covenant.
For franchisees and their employees. An employee who has signed nothing is not therefore free. Helping a former franchisee compete can land you inside an injunction. Forming a new entity does not solve it, because the straw man principle exists for exactly that move.
For everyone, the timeline is the case. A seven-minute gap between a customer letter and a data-backup instruction is the kind of sequence a court can read without guessing. That is a point about coordination, not about spoliation, and no preservation finding was made here. The practical lesson is the ordinary one: once a dispute is foreseeable, preserve documents and communications, because the sequence of what was sent and when will be reconstructed by someone.
When to call a lawyer
For a franchisee planning an exit, before any new entity is formed or any customer is contacted. For a franchisor, the moment customer defection is detected, because a two-day evidentiary hearing runs on documents that have to exist.
Why this is not a do-it-yourself problem
The intuition that you are safe because you never signed anything is wrong, and it is wrong in a way that is invisible from the contract. Nothing in the franchise agreement tells a chief operating officer that he can be enjoined for helping the signatory breach it, or that a procedural rule governs who an injunction reaches once it issues. The exposure comes from the combination of agency status, coordinated conduct, and the equitable authority to stop evasion of a covenant by people who never signed one. None of that appears in the document anyone read. By the time it becomes clear, the conduct is complete and the evidence of it is in somebody's email.
Talk to us
HDD Law Firm litigates franchise, trade secret and restrictive covenant disputes in the Florida state courts, the Southern, Middle and Northern Districts of Florida, and the Eleventh Circuit. If you are planning an exit from a franchise system or responding to one, contact us to discuss your matter.
Sources
The Filta Group, Inc. v. LXU, Ltd., omnibus order of August 20, 2026 (Doc. 227), official PDF
Fla. Stat. 48.193, Acts subjecting person to jurisdiction of courts of state
North American Products Corp. v. Moore, 196 F. Supp. 2d 1217 (M.D. Fla. 2002) (Justia)
Dad's Properties, Inc. v. Lucas, 545 So. 2d 926 (Fla. 2d DCA 1989) (Justia)
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.
How Specifically Must You Describe Your Trade Secret in a Complaint? In This Circuit, Nobody Knows.
The short answer
Two federal appellate decisions within two months pulled in different directions on what a trade secret plaintiff must plead. One held that a confidentiality agreement alone can establish reasonable measures to protect a secret. The other dismissed a case for failing to identify the trade secrets with reasonable particularity. The Eleventh Circuit has issued no published trade secret decision in the past year, which means the judges of the Southern and Middle Districts of Florida are choosing among out of circuit approaches case by case. That uncertainty is the most important practical fact in Florida trade secret litigation right now.
Why it comes up
Every trade secret case begins with a dilemma that has no clean answer. To state a claim, the plaintiff must describe what was taken. To describe what was taken is to disclose it, in a public filing, to the defendant who allegedly took it. Plead too generally and the case is dismissed. Plead too specifically and the plaintiff has published the thing it is suing to protect.
The federal Defend Trade Secrets Act and the Florida Uniform Trade Secrets Act both require the plaintiff to show the information derives value from not being generally known and was the subject of reasonable efforts to maintain secrecy. How much of that must appear in the complaint is the question.
What the two decisions held
The Fourth Circuit, on November 18, 2025, held in a published decision that at the pleading stage a confidentiality agreement alone can constitute reasonable measures under the federal statute. The court declined to impose any requirement to plead more, and emphasized that reasonableness is context dependent and ordinarily a jury question.
The Seventh Circuit, in January 2026, held in a published decision that the plaintiff had failed to identify its trade secrets with reasonable particularity, and affirmed dismissal on that basis.
These are not squarely in conflict. One concerns reasonable measures, the other concerns identification. But they reflect meaningfully different judicial temperaments about how much work a trade secret complaint must do, and a district judge deciding a motion to dismiss in Miami can reach for either.
Our take: the gap is the opportunity, on both sides
If you are the plaintiff, decide the disclosure question before you draft, not while you draft. The options are a complaint that describes categories with enough specificity to survive dismissal while reserving the details for a protective order, a complaint filed under seal in part, or a state court action where the pleading standard may differ. What does not work is a complaint that recites the statutory elements and describes the secret as confidential business information, and that is what a great many complaints do.
Note also the Fourth Circuit's point about the confidentiality agreement, because it is actionable in advance. A company with executed non-disclosure agreements, confidentiality provisions in employment agreements, and documented access restrictions has a materially easier pleading burden than one that relied on informal practice. That work is done before the dispute, not during it.
If you are the defendant, an identification challenge is the cheapest early exit available in a Florida trade secret case, and the absence of controlling circuit authority means the motion is genuinely open rather than foreclosed. It is also strategically valuable even when it fails, because it forces the plaintiff to commit early to a definition of the secret, which constrains the case through discovery and trial.
If you are a referring lawyer, this is exactly the kind of unsettled question that justifies bringing in counsel who litigates these cases, early, before the complaint is filed and the disclosure decision is made irreversibly.
We would be candid that the absence of Eleventh Circuit authority cuts against certainty for everyone. A published decision could come at any time and could adopt either approach.
When to call a lawyer
Before filing a trade secret complaint, and before responding to one. The pleading decision is the case.
Why this is not a do-it-yourself problem
This is the clearest example in commercial litigation of a decision that cannot be unmade. What a complaint says about the secret is public the moment it is filed, it defines the case through trial, and there is no controlling authority in this circuit telling anyone how much is enough. Getting that judgment right requires someone who has litigated these motions and knows how the judges in this district have actually ruled, because the published law does not answer it. A complaint drafted without that judgment either discloses too much or gets dismissed.
Talk to us
Trade secret litigation is a core part of this firm's practice, and we have represented both companies and individuals in these disputes. If you are considering bringing a trade secret claim, or you have been served with one, discuss your matter with our attorneys before the pleading decisions are made.
Sources
● Samuel Sherbrooke Corporate, Ltd. v. Mayer (4th Cir. Nov. 18, 2025), via CourtListener
● NEXT Payment Solutions, Inc. v. CLEAResult Consulting, Inc. (7th Cir. Jan. 2026), via CourtListener
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.
How a Lawyer Helps When You Are Selling or Transferring a Franchise
The short answer
You cannot sell a franchise the way you sell a business. The franchisor almost always holds a consent right, frequently holds a right of first refusal, will charge a transfer fee, will commonly require your buyer to sign the current franchise agreement rather than take an assignment of yours, and will condition consent on a general release of every claim you have against it. Each of those is negotiable in the abstract and almost none of them are negotiable once a buyer is at the table.
Why it comes up
A franchisee decides to exit, finds a buyer, agrees a price, and only then reads the transfer provisions. By that point the seller has committed emotionally and financially to the exit, a buyer is waiting, and the franchisor holds the one thing the deal cannot close without. That is the worst possible negotiating posture, and it is the ordinary one.
What the transfer machinery looks like
The relevant Item 17 rows are (k) how transfer is defined, (l) franchisor approval, (m) conditions for approval, (n) the right of first refusal, (o) the franchisor's option to purchase, and (p) death or disability.
Selling stock instead of assets does not avoid any of it. Row (k) exists precisely because transfer definitions vary, and a well-drafted franchise agreement treats a change of control of the franchisee entity as a transfer. That triggers consent, the fee, the right of first refusal, and the release. The equity structure that a seller prefers for tax reasons buys nothing on the franchise side.
"Consent shall not be unreasonably withheld" is weaker than it sounds. The same section that contains that standard usually goes on to list the conditions the franchisor may impose, each of which is reasonable by definition. A minority of states regulate refusals to consent, applying a reasonableness or good-cause standard and in some cases a deemed-approval window after which silence equals approval. Florida is not among them.
The right of first refusal chills your buyer. The franchisor generally has the right, not the obligation, to buy the unit on the same terms as the third party. The practical effect on a seller is that a buyer who knows the franchisor can step into its shoes after the buyer has paid for diligence and counsel may simply decline to bid. Two operational points matter: the triggering offer usually must carry a fixed price, so contingent or formula pricing may not trigger the right at all, and the franchisor need not accept unrelated assets bundled into the sale.
Your buyer signs the current agreement, not yours. This is the single most under-appreciated transfer term, and the answer depends on your agreement and on how the deal is structured. Many agreements require the buyer to sign the current form; some permit an assignment and assumption of the existing agreement; and an equity sale may leave the same franchisee entity on the same contract while still triggering the change-of-control consent provision. Where the current form governs, the buyer does not step into your contract. The buyer signs whatever form the franchisor issues today, which may carry a higher royalty, a technology fee that did not exist when you signed, a smaller or non-exclusive territory, broader franchisor reserved rights over digital and delivery channels, mandatory arbitration where your agreement allowed court, and new remodel obligations. Your unit's historical profit and loss was earned under the old economics. Your buyer is being asked to pay for it under the new ones.
Your guaranty and your lease do not release automatically. The general release runs from you to the franchisor. It does not release your personal guaranty of continuing obligations, and it does not release your guaranty of the lease. Landlords commonly consent to assignment, charge a fee, require the buyer's guaranty, and decline to release yours, leaving you contingently liable for a stranger's rent for the balance of the term. Both releases have to be separately negotiated, one with the franchisor and one with the landlord.
Our take: the release is the term to worry about
Franchisors treat transfer as the cheapest possible moment to buy peace, because it is the one moment when they are giving the franchisee something the franchisee urgently needs. Industry materials describe franchisors running proactive release programs for exactly this reason, and recommend doing so before the franchisor sells its own system, since pending franchisee claims depress the franchisor's valuation.
The leading case is squarely on the franchisor's side. In Franchise Management Unlimited, Inc. v. America's Favorite Chicken, 221 Mich. App. 239, 561 N.W.2d 123 (1997), franchisees sought approval to transfer a unit. The agreement said consent would not be unreasonably withheld but required a general release in a form satisfactory to the franchisor. The franchisees refused, because signing would have required dismissing their pending federal suit against the franchisor. The franchisor blocked the transfer, and the Michigan Court of Appeals held it had good cause, reasoning that it is commercially reasonable for a franchisor to require a franchisee to resolve its disputes before approving a transfer.
Note the carve-out in that reasoning. The court referred to non-statutory disputes. Claims under the state franchise statute were treated differently, and in several states releases of statutory franchise claims are void by statute. Our post on broad releases covers them in full, and it is the companion to this one.
What it means practically
Read the transfer provisions before you look for a buyer, not after. Everything in this post is negotiable eighteen months out and almost nothing is negotiable eighteen days out.
Get the current franchise agreement form early and compare it to yours. Then price the delta and decide who absorbs it. A buyer who discovers the difference during diligence will reprice, and the reduction comes out of your proceeds.
Sequence the consents. Franchisor consent, landlord consent, and lender consent each frequently condition on the others, and a deal can be fully agreed and still fail on a lease term too short for the buyer's new ten-year franchise term.
Ask for a mutual release. Many franchisors decline. Asking costs nothing and occasionally works.
When to call a lawyer
When you start thinking about selling, and in any event before you sign a letter of intent with a buyer.
Why this is not a do-it-yourself problem
A franchise transfer is three negotiations that look like one: with the buyer over price, with the franchisor over consent, and with the landlord over the lease. Each holds a veto, each conditions on the others, and the franchisor's consent form will arrive as a package that includes a release of claims you may not know you have, drafted by the franchisor's counsel, presented days before closing. A seller reading that package alone has no way to tell which parts are standard, which are negotiable, and which claims the release would extinguish that are worth more than the concession being asked. The one thing that reliably changes the outcome is starting the analysis while you still have time to walk away from a bad transfer condition, which is to say long before a buyer exists.
Talk to us
HDD Law Firm represents franchisees and franchisors in transfers, consents, and franchise disputes in Florida and the federal courts of this state. If you are planning an exit from a franchise, contact us to discuss your matter while the terms are still negotiable.
Sources
● 16 C.F.R. 436.5, Contents of the disclosure document, including the Item 17 table (eCFR)
● FTC, A Consumer's Guide to Buying a Franchise
● FTC, Franchise Rule Compliance Guide
● International Franchise Association, Basics Track: Franchise Relationship Laws
● American Bar Association, Franchise Agreement Provisions That Can Make or Break a Court Case
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.
When the Franchisor Grades You on Price: McDonald's New Value Standard and the Limits of Franchisee Pricing Independence
The short answer
Effective January 1, 2026, McDonald's added value to the standards by which it assesses franchisees. The company says operators keep pricing independence. Operators say a standard that scores the outcome of your pricing decisions, and that feeds into whether you may expand or renew, is not independence. Both statements can be true at once, and the gap between them is where franchise law actually lives.
Why it comes up
Menu pricing is one of the few operational decisions a franchise agreement usually leaves to the franchisee. It is also the decision that most directly determines whether a unit makes money, because the franchisor's royalty and rent are typically calculated on gross sales while the franchisee absorbs the margin consequence of a discount.
That structure is not a scandal. It is the deal. But it means franchisor and franchisee have genuinely different interests in a discount, and a national value promotion is the point where those interests diverge most sharply.
What happened
In December 2025, McDonald's communicated a value provision added to its global franchising standards, applying in the United States and its largest international markets, effective January 1, 2026. Trade reporting describes the standard as assessing the outcomes of franchisees' pricing decisions in relation to delivering value to customers, weighing factors including use of company pricing tools, work with approved third-party pricing consultants, support for system promotions, and business performance, with local circumstances considered.
The significance is in what standards scores govern. According to that reporting, franchising standards scores bear on expansion eligibility and franchise agreement renewal.
In January 2026, the National Owners Association, an independent and self-funded association of McDonald's operators formed in 2018, approved a franchisee bill of rights consisting of fifteen standards it considers essential to fair franchising, including the right to set prices.
In February 2026, CNBC reported a Kalinowski Equity Research survey of twenty McDonald's operators finding unanimous opposition to the new standards, described as the first time in more than twenty years of that survey that every respondent answered a yes or no question identically. The same survey reported operators rating their relationship with corporate at 1.37 out of 5, down from 1.71 in October 2025.
McDonald's has said publicly that it has a responsibility to protect the strength and integrity of the brand and to ensure every owner-operator upholds the standards that make the system successful. That is a position with real content, not a deflection. A franchisor that cannot maintain consistency across a system has a brand problem, and brand problems are franchisee problems too.
Our take: this is a system standards question, not a pricing question
The franchise agreement is where this gets decided, and the relevant provision is usually not a pricing clause at all. It is the standards clause.
Most franchise agreements give the franchisor the unilateral right to modify the operating manual and system standards, and require the franchisee to comply with standards as modified. Item 17 of the Franchise Disclosure Document is required to disclose the modification provision, along with the renewal requirements and the definition of cause for termination. A franchisor that adds a criterion to its standards, and that ties standards performance to renewal and expansion eligibility, is generally exercising a right the agreement already gave it.
That is why "you still set your own prices" and "my pricing is being graded" are not actually in conflict. Nobody is setting the price for the operator. The operator is being evaluated on the result, under a standards regime the operator agreed to be evaluated under, with consequences attached at renewal.
What law constrains this? Less than most people assume.
The FTC Franchise Rule does not reach it. It is a pre-sale disclosure rule. It requires the franchisor to disclose that it may modify the manual and system standards, and to disclose the renewal conditions. It does not limit what the standards may contain or how they may change. A standards regime can be demanding, one-sided, and entirely lawful under the Franchise Rule, because there disclosure is compliance. Other federal law is not so narrow. An agreement or coercion on resale prices can raise antitrust questions, and since Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), vertical minimum resale price restraints are analyzed under the rule of reason rather than falling outside federal law altogether. Whether anything is actionable depends on whether the facts show a unilateral standard or an agreement, and on coercion, market power and competitive effect.
State franchise relationship laws reach it only in a minority of states, and even there imperfectly. Those statutes generally govern termination and nonrenewal on a good cause standard. A franchisor declining to renew an operator with poor standards scores would have to defend that decision in those states. In Florida, there is no general franchise relationship statute at all, so the agreement governs entirely.
The implied covenant of good faith and fair dealing is the residual argument, and in Florida it cannot override an express contractual term. Where the agreement expressly grants the franchisor discretion to set and modify standards, the covenant constrains the manner of exercise, not the existence of the right.
The genuinely interesting point is that the FTC's 2024 Issue Spotlight on franchising, drawn from more than two thousand public comments, specifically documents franchisors controlling franchisee operations through mandatory operating hours and required price ranges, and separately documents franchisee fear of retaliation. The agency has identified the category. It has not regulated it. That gap, between an identified concern and an enforceable rule, is the current state of federal franchise law on this subject.
What it means practically
For a franchisee in any system, read the standards and modification provisions before you sign, not when a new standard arrives. The question is not whether the franchisor may impose the standard. It usually may. The question is what the standard is tied to, and whether there is any process, notice, or appeal before a score affects renewal.
Ask what a standards score actually controls. Expansion eligibility and renewal are the consequential ones. A score that affects nothing is a report card. A score that affects renewal is a term of the contract.
Document the economics. Where a franchisee's position is that a mandated or pressured discount is unsustainable at the unit level, that position is worth far more supported by unit-level data than asserted. That is true whether the forum is a franchisee association, a negotiation, or eventually a dispute.
For franchisors, the FTC's 2024 policy statement matters. The Commission has taken the position that contract terms prohibiting franchisees from reporting potential law violations to the government are unfair, unenforceable, and illegal. That statement was adopted on a three to two vote with two commissioners dissenting, one of whom now chairs the Commission, so its future is uncertain. But it is the agency's stated position and it sits alongside a franchise enforcement program that produced a seventeen million dollar redress judgment in March 2026.
When to call a lawyer
Before signing, when the standards and modification provisions are still readable as a negotiation. And when a standards change materially alters unit economics, early enough that the response is a strategy rather than a reaction.
Why this is not a do-it-yourself problem
The instinct on receiving a new standard is to argue about the standard. The productive question is structural and counterintuitive: what provision of the agreement authorizes it, what does compliance or non-compliance actually trigger, and is there any procedural protection attached. Those three answers determine whether there is anything to be done, and they are found in three different parts of a long document that do not cross-reference one another. An operator reading the announcement alone cannot tell whether the standard is an exercise of a granted right, which it usually is, or an overreach, which it occasionally is. And the moment at which the answer matters most, renewal, arrives on a fixed date years later, after the record has already been built.
Talk to us
HDD Law Firm represents franchisees and franchisors in franchise disputes and transactions in the Florida state courts, the Southern, Middle and Northern Districts of Florida, and the Eleventh Circuit. If a change to your system standards is affecting your unit economics or your renewal position, contact us to discuss your matter.
Sources
● McDonald's is making value part of its franchise standards, Restaurant Business (December 8, 2025)
● McDonald's updates franchising standards over value, Restaurant Dive (December 9, 2025)
● 16 C.F.R. 436.5, Contents of the disclosure document, including the Item 17 table (eCFR)
● FTC, Issue Spotlight: Risks to Small Business Success in Franchising
● FTC Secures Settlement Against Xponential Fitness for Franchise Rule Violations (March 18, 2026)
● Fla. Stat. 542.335, Valid restraints of trade or commerce
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.
The Franchise Agreement Terms That Actually Decide Your Outcome
The short answer
Item 17 of every Franchise Disclosure Document is a required table of 23 rows covering term, renewal, termination, transfer, non-competes, and dispute resolution. It is the most consequential page in the document. Rows (k) through (o) determine whether you can ever sell. Rows (u) through (w) determine where and how any fight happens, and often whether a fight is economically possible at all.
Why it comes up
Buyers evaluate franchises on the front end: the fee, the royalty, the build-out cost, the projected volume. Those are the numbers on the spreadsheet. But franchise disputes almost never turn on the royalty rate. They turn on the exit terms, and the exit terms are set out in a chart that reads like an index.
What Item 17 requires
Under 16 C.F.R. 436.5(q), the FDD must contain a table with a summary and a section reference for each of the following: length of the term; renewal or extension; requirements to renew; termination by franchisee; termination by franchisor without cause; termination by franchisor with cause; cause defined for curable defaults; cause defined for non-curable defaults; obligations on termination or non-renewal; assignment by the franchisor; transfer by the franchisee, defined; franchisor approval of transfer; conditions for approval; the franchisor's right of first refusal; the franchisor's option to purchase; death or disability; non-competition during the term; non-competition after termination; modification of the agreement; the integration or merger clause; arbitration or mediation; choice of forum; and choice of law.
Read that list once and the structure of franchise law becomes visible. The Rule requires the franchisor to tell you, before you sign, exactly which breaches get a second chance and which do not, and exactly what it takes to get out.
Our take: five terms carry most of the risk
Territory, and specifically its contingencies. Item 12 discloses whether you get an exclusive or protected area. The size of that area is the number buyers focus on. The contingencies are what matter. Does protection end if you miss performance benchmarks? What about the franchisor's own website and app orders placed by customers inside your area, third-party delivery platforms, ghost and virtual kitchens, alternative channels such as grocery or wholesale, and other brands owned by the same parent? Each of those is a channel through which revenue can be taken from your territory without a competing unit ever opening in it.
Renewal. The FTC's consumer guidance puts it plainly: franchise agreements may run as long as 20 years, and renewals are not automatic. The franchisor may decline to renew, or offer a renewal that does not have the same terms as your original contract, including a higher royalty or a reduced territory. Ask what could prevent renewal. Loss of the lease and failure to hit minimum performance levels are the usual answers.
There is a useful signal buried in the FTC's compliance guidance here. A franchisor need not issue a new FDD to a franchisee continuing at the same outlet unless the new relationship is on terms materially different from the present agreement. So if you are handed a fresh FDD at renewal, that may signal that the terms changed materially. It is not an admission. A franchisor may furnish the document voluntarily, out of caution, or because a state requires it. Compare the old agreement against the proposed one before drawing any conclusion.
Transfer. Row (k) requires the FDD to state how "transfer" is defined, precisely because the definitions vary. A well-drafted agreement treats a change of control of the franchisee entity as a transfer. That means a seller cannot avoid franchisor consent, the transfer fee, the right of first refusal, and the general release by selling stock instead of assets. Our post on selling or transferring a franchise covers this in full.
Post-term covenants. The FTC notes that after termination, contractual restrictions typically stop you from operating a competing business within specified distances, potentially for as long as three years. NASAA's position is that these should be narrowly drawn and limited to roughly the market the franchisee actually served, for roughly the time needed to replace the franchisee. Whether that position carries any weight depends entirely on the governing state law. In Florida, section 542.335 governs, and it is not a franchisee-friendly statute. Our post on franchisee rights in Florida covers it.
One asymmetry worth flagging to any client reading an arbitration clause: most franchise agreements carve intellectual property and restrictive-covenant enforcement out of arbitration. The franchisor wants a court and an injunction for those, and arbitration for everything else. Read the carve-out, not just the clause.
Dispute resolution. Four features price separately and negotiate separately.
Arbitration versus court, and the injunction carve-out just described. Forum selection, where a Florida franchisee arbitrating in the franchisor's home state can face a cost differential that exceeds the value of the claim outright. Jury waiver, which is often a standalone clause that survives even where arbitration does not apply. And fee-shifting, which is frequently one way in the franchisor's favor.
The baseline is that the Federal Arbitration Act strongly favors enforcement of arbitration clauses in commercial contracts, and vacatur grounds are narrow. The counterweight is state anti-waiver statutes, which in a minority of states can defeat out-of-state choice-of-law and forum clauses for in-state franchisees. Florida is not one of those states, which is a point Florida franchisees should understand before signing rather than after.
What it means practically
Read Item 17 before you read anything else in the FDD, then read the actual contract sections it cross-references. The table is a summary. The contract governs.
Price the dispute-resolution clause as a real cost. An arbitration clause with a distant forum, a one-way fee provision, and a jury waiver is not a procedural detail. It is a decision, made before any dispute exists, about whether disputes are worth pursuing.
Ask which of these the franchisor will move. Cure periods, guaranty scope, transfer mechanics, post-term radius, and mutual fee-shifting are the realistic asks. The royalty rate is not.
When to call a lawyer
Before signing, while Item 17 is still a negotiation rather than a description of what happened to you.
Why this is not a do-it-yourself problem
Item 17 is written in summary form and cross-references contract sections that are written in operative form, and the two do not always sit comfortably together. A summary that says consent to transfer "shall not be unreasonably withheld" sounds protective until you read the section it references and find a menu of conditions the franchisor may impose, each of which is reasonable by definition. Reading the table alone produces a materially wrong picture of the deal, and the mismatch is not visible without reading both against each other. This is also the one part of the agreement where a modest, well-targeted request can genuinely be granted, and knowing which requests those are is the whole of the skill.
Talk to us
HDD Law Firm handles franchise agreement review, negotiation, and litigation for franchisees and franchisors. If you want the exit terms of a franchise agreement explained before you sign, contact us to discuss your matter.
Sources
● 16 C.F.R. 436.5, Contents of the disclosure document, including the Item 17 table (eCFR)
● FTC, A Consumer's Guide to Buying a Franchise
● FTC, Franchise Rule Compliance Guide
● FTC, Issue Spotlight: Risks to Small Business Success in Franchising (2024)
● NASAA, Post-Term Non-Compete Provisions in Franchise Agreements Should Be Reasonable
● Fla. Stat. 542.335, Valid restraints of trade or commerce
● International Franchise Association, Basics Track: Franchise Relationship Laws
● American Bar Association, Franchise Agreement Provisions That Can Make or Break a Court Case
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.
How a Lawyer Helps When You Are Buying a Franchise
The short answer
A franchise purchase is a ten-year commitment to a contract you did not draft, cannot meaningfully rewrite, and will be held to precisely. The value a lawyer adds is not in changing the royalty rate. It is in telling you what the document actually obligates you to do, which of the salesperson's statements are enforceable, and which handful of terms are genuinely negotiable and worth spending your leverage on.
Why it comes up
Buying a franchise feels like buying a proven business. What you are actually buying is a license to use someone else's trademark and system, on their terms, for a defined period, with your capital at risk and their brand standards controlling how you operate.
The FTC's 2024 Issue Spotlight on franchising, which analyzed more than 2,000 public comments, recorded the pressure buyers describe. One commenter reported being told that hiring an attorney "would be throwing money down the drain." Another was told to sign quickly or be replaced by a different candidate. Those are not neutral sales techniques. They are directed at the one step most likely to surface a problem.
What the process should look like
Confirm you are actually getting an FDD. If you are buying an existing unit from the franchisee who owns it, without significant franchisor involvement, the FTC's compliance guidance takes the position that you are not a "prospective franchisee" and the franchisor may owe you no disclosure document at all. You will still be required to sign the franchisor's current franchise agreement. Make delivery of the current FDD a written condition of closing rather than assuming a right to it.
The same gap appears at the high end. Under 16 C.F.R. 436.8, no FDD is required where the initial investment reaches roughly $1.47 million with a signed acknowledgment, or where the buyer has been in business five years with a net worth of roughly $7.35 million. Sophisticated buyers get less disclosure, not more.
Read the FDD against the pitch. Write down, contemporaneously, every specific number you were given and who gave it to you. Then check whether it appears in Item 19. This takes twenty minutes and it is the difference between a provable claim and a swearing contest.
Call franchisees, including former ones. The FTC calls franchisee calls the most reliable way to verify a franchisor's claims, and suggests segmenting the calls: franchisees about a year in on actual versus estimated investment and time to open; franchisees five or more years in on time to profitability and whether the franchisor met its obligations; and former franchisees on why they left.
Read Item 21 with an accountant. 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? The Issue Spotlight's SBA loan data shows how wide the spread between brands runs, with default rates at some systems in the high single digits and above while the franchise average sat near four percent.
Resolve the personal guaranty before you sign. The IFA's own list of key legal questions tells prospects to ask whether a personal guaranty is required and what obligations it covers. The questions that matter: does it reach only money, or also the non-compete and indemnity covenants; is it joint and several among owners; does it reach spouses; does it survive termination and extend to liquidated damages; and does it release when you sell. That last one surprises more sellers than any other term in the document.
Our take: negotiate the exit, not the entry
Most buyers who try to negotiate spend their leverage on the royalty rate and the initial fee. Those are the two terms a franchisor will almost never move, because moving them creates a precedent every other franchisee will demand, and because eight states prohibit discrimination among similarly situated franchisees, which makes one-off concessions genuinely costly to the franchisor.
Spend the leverage on the terms that decide what happens when things go wrong.
Cure periods. A ten-day monetary cure period and a thirty-day operational one are common. Lengthening them costs the franchisor almost nothing and can save the business.
Personal guaranty scope, caps, and release on transfer. A guaranty that releases when you sell is worth more than a point of royalty.
Territory contingencies. The size of the protected area matters less than the list of things that end the protection. Get in writing how the franchisor treats its own website and app orders sourced from your area, third-party delivery, ghost kitchens, alternative channels like grocery and wholesale, and sister brands owned by the same parent. The FTC Issue Spotlight records franchisee complaints about franchisors adding brand after brand into protected territory.
Fee-shifting. Franchise agreements frequently shift fees one way, in the franchisor's favor. Asking to make it mutual is a modest, cheap request that occasionally succeeds and changes the economics of every future dispute.
Post-term covenant radius and duration. The FTC notes post-termination restrictions can run as long as three years. NASAA's published position is that these covenants should be narrowly drawn and reasonable in scope, duration, and territory. That position is a useful thing to put in front of a franchisor's counsel.
One more point worth making, because it is commonly used against buyers. A franchisor cannot tell you that your requested change would restart the seven-day waiting period and therefore cannot be made. The FTC's rule expressly exempts changes initiated at the prospective franchisee's request. Negotiation is contemplated by the Rule itself, and 16 C.F.R. 436.9(h) says so, permitting a prospect to voluntarily waive specific contract terms during the course of sale negotiations.
What it means practically
Budget for the review. A franchise lawyer's review of an FDD and franchise agreement is a small fraction of the initial investment and a very small fraction of the ten-year cost of the contract.
Do it inside the 14 days, not after. Once you sign, every term is settled and the conversation changes from negotiation to compliance.
If your lawyer reads a term they have never seen before and cannot recommend, the SBA's own guidance says to walk away unless the franchisor agrees to modifications your attorney accepts. That is not lawyer caution. That is the federal small-business agency's published advice.
When to call a lawyer
When the FDD arrives, and before you pay a deposit. A "fully refundable" deposit is frequently the payment that starts the clock.
Why this is not a do-it-yourself problem
The document is not hard to read. It is hard to read correctly, because the terms that matter interact across Items that never reference one another, and because the consequences are asymmetric. A franchisee who misreads a territory contingency finds out three years later when a sister brand opens two miles away. A franchisee who does not notice that the personal guaranty survives a sale finds out at closing, when it is far too late to negotiate. A lawyer who reads these regularly is pricing risk you have no basis to price, on a contract you will live under for a decade, and is doing it against a 14-day clock that runs whether or not anyone is reading. The review is also the only moment in the entire relationship when you have leverage, because it is the only moment when you can still walk.
Talk to us
HDD Law Firm represents franchisees and franchisors in franchise transactions and disputes in the Florida state courts, the Southern, Middle and Northern Districts of Florida, and the Eleventh Circuit. If you are considering a franchise purchase, contact us to discuss your matter before the disclosure period runs.
Sources
● 16 C.F.R. 436.8, Exemptions (eCFR)
● 16 C.F.R. 436.9, Additional prohibitions (eCFR)
● FTC, A Consumer's Guide to Buying a Franchise
● FTC, Issue Spotlight: Risks to Small Business Success in Franchising (2024)
● FTC, Franchise Rule Compliance Guide
● FTC, Amended Franchise Rule FAQs
● FTC, Franchise Fundamentals: Considering, calculating, and consulting
● NASAA, Post-Term Non-Compete Provisions in Franchise Agreements Should Be Reasonable
● International Franchise Association, Basics Track: Franchise Relationship Laws
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.
A Franchisee Bill of Rights Is Not a Legal Document. Here Is Why It Still Matters.
The short answer
In January 2026, an independent association of McDonald's operators approved a fifteen-point franchisee bill of rights, including the right to set prices. It creates no enforceable rights, because a franchisee association cannot amend anyone's franchise agreement. What it does is establish a documented, collective position at a moment when three separate forces, the FTC, several state legislatures, and the renewal cycle itself, are all newly attentive to franchisor control.
Why it comes up
Franchisees are structurally disorganized. Each one signs the same contract separately, at a different time, with no ability to bargain collectively and, in most systems, a contractual relationship that runs only vertically to the franchisor. Franchisor-recognized advisory councils exist in most large systems, but they are creatures of the franchisor.
Independent associations are the exception, and they exist precisely because the vertical structure leaves franchisees without a way to say anything together.
What happened
The National Owners Association was formed in October 2018, reported at the time as the first independent, self-funded franchisee association in McDonald's United States history. More than four hundred operators met in Tampa and voted to form it. By March 2023 it reported more than one thousand members, in a system with more than two thousand United States franchisees. It is distinct from the National Franchisee Leadership Alliance, which is the company-recognized elected operator body.
In January 2026, following McDonald's addition of a value criterion to its franchising standards, the association approved a list of fifteen standards it considers vital to fair franchising, including the right to set prices.
Our take: the document has no legal force, and three reasons it matters anyway
Start with the plain answer. A franchisee bill of rights is not a contract, a statute, or a rule. Nobody is bound by it. Franchise agreements are individually negotiated and individually signed, and most contain integration clauses that foreclose reliance on anything outside the four corners of the document. An association's declaration changes none of that.
Three things give it weight regardless.
One. There is a live federal record, and it is built from franchisee statements. The FTC's 2023 Request for Information on franchisor control over franchisees and workers drew, by the agency's own account, more than five thousand submissions, of which staff reviewed over two thousand publicly posted comments spanning more than one hundred and fifty brands. The resulting 2024 Issue Spotlight catalogued the leading complaint categories, including unilateral operating manual changes, fees and royalties, mandatory supply restrictions, renewal and non-negotiable contract terms, and fear of retaliation, and it documented franchisors controlling operations through mandatory operating hours and required price ranges.
A collective, documented franchisee position is an input into that process. The Franchise Rule review opened in February 2019 remains open. Whether it produces anything is genuinely uncertain, and the 2024 policy statement issued alongside the Spotlight passed on a three to two vote with two commissioners dissenting, one of whom now chairs the Commission. But the record is being built, and the record is made of exactly this kind of material.
Two. States are legislating, and one of the recurring provisions is the right to associate. Recent trade reporting describes franchise bills in several states, including provisions protecting franchisees' right to form associations, a ban on post-termination non-competes, and good cause plus notice requirements for termination and nonrenewal. That is the first meaningful state-level franchise legislative activity in years, and the right-to-associate provisions speak directly to the concern franchisee groups have voiced about retaliation for participating in owner-only meetings.
Three. And this is the one that actually operates today: it changes the evidentiary picture. A franchisor's standard response to a franchisee complaint is that it is an outlier. A documented position adopted by an association representing a substantial share of the system is harder to characterize that way. In a dispute over whether a standard was applied uniformly, whether a nonrenewal was pretextual, or whether a franchisor's discretion was exercised in good faith, contemporaneous evidence of a system-wide objection is not dispositive but it is not nothing.
The candid limit. None of this helps an individual franchisee facing an individual renewal decision next quarter. Association advocacy operates on a legislative and regulatory timescale. Contract deadlines do not. A franchisee whose renewal is at risk needs to read the renewal conditions in Item 17 and the corresponding contract sections, and to understand what standards scores actually control, which is the subject of the companion post to this one.
What it means practically
Participation in an independent association is protected in some states and under some agreements, but there is no general nationwide protection, so check the governing state law and the agreement. Some agreements contain non-disparagement and confidentiality provisions that a franchisor could read as reaching association activity. The FTC's 2024 policy statement takes the position that contract terms barring franchisees from reporting potential law violations to the government are unfair, unenforceable, and illegal. That addresses government reporting specifically, not association activity generally, and the distinction matters.
Do not treat a bill of rights as a defense. If a franchisor asserts a default, the answer is in the franchise agreement, not in a declaration of principles.
Franchisors should read this as information rather than as a threat. A documented list of fifteen items is a franchisee body telling a franchisor exactly what it cares about, in writing, in advance. Systems that treat that as intelligence tend to have fewer disputes than systems that treat it as insubordination.
When to call a lawyer
Before responding to a franchisor inquiry about association activity. Before a renewal cycle in which standards performance is in question. And before a franchisee group commits anything to writing that will be read later by a regulator, a court, or the franchisor.
Why this is not a do-it-yourself problem
Collective franchisee action sits on an awkward legal seam. The activity is generally lawful, and in several states is becoming expressly protected, but the franchise agreement usually contains confidentiality, non-disparagement, and cooperation provisions drafted before anyone contemplated an independent association, and the franchisor's reading of those provisions is not always the obvious one. There are also antitrust considerations when competitors in the same system discuss pricing, which is precisely the subject at issue here, and those considerations are real regardless of how sympathetic the underlying grievance is. Getting the participation right, and getting the documents right, is a different exercise than being right on the merits.
Talk to us
HDD Law Firm represents franchisees and franchisors in franchise disputes and transactions in the Florida state courts, the Southern, Middle and Northern Districts of Florida, and the Eleventh Circuit. If you are evaluating your position within a franchise system, contact us to discuss your matter.
Sources
● Nation's Restaurant News coverage of the franchisee bill of rights (January 28, 2026)
● McDonald's franchisees may take their complaints to the FTC, Restaurant Business (March 14, 2023)
● FTC, Issue Spotlight: Risks to Small Business Success in Franchising
● FTC, Policy Statement on Franchisors' Use of Contract Provisions
● FTC, Franchise Rule, 16 C.F.R. Parts 436 and 437
● From Maryland to Arizona, States Consider New Franchise Legislation, Franchise Times
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.
What a Franchise Disclosure Document Is, and Which Items to Read First
The short answer
Federal law requires a franchisor to hand you a Franchise Disclosure Document, containing 23 numbered Items, at least 14 calendar days before you sign a binding agreement with, or make any payment to, the franchisor or one of its affiliates in connection with the sale. The FTC does not review or approve it. Some states do review it: a registration state such as California or New York examines the filing and issues comment letters on deficiencies. That review is a compliance check on the document, not an endorsement of the offering, and by statute an effective registration is not a finding that the document is true, complete or not misleading. It is a disclosure document, not a seal of approval. The three Items that tell you the most are the ones most buyers skip.
Why it comes up
The FDD arrives as a bound volume of two hundred pages or more, most of it exhibits. It is designed to be complied with, not read. The natural response is to skim the marketing-adjacent Items, sign the receipt at the back, and rely on what the salesperson said.
That is the mistake the entire disclosure regime exists to prevent, and it is the reason a franchise dispute three years later so often turns on a document the franchisee received and never opened.
What the rule requires
The FTC Franchise Rule, 16 C.F.R. Part 436, governs. Three mechanics matter.
A franchise is defined by function, not by label. Under 16 C.F.R. 436.1(h), three elements must be present: you obtain the right to operate under the franchisor's trademark, the franchisor exerts or may exert significant control over your method of operation or provides significant assistance with it, and you are required to make a payment. Calling you a "licensee," a "dealer," or a "distributor" does not avoid the Rule if those three elements exist. The FTC alleged exactly that workaround in its 2024 case against a coffee franchisor.
The 14-day clock is real, and it is calendar days. Under 16 C.F.R. 436.2(a), the franchisor must furnish the FDD at least 14 calendar days before you sign a binding agreement or make any payment, whichever comes first. If the document is sent by first-class mail, it must go out at least three calendar days before that date, so a mailed FDD effectively needs seventeen. Under 16 C.F.R. 436.9(e), the franchisor must also give you the FDD earlier on reasonable request, and cannot hold it back.
A separate 7-day clock applies to changes. Under 16 C.F.R. 436.2(b), if the franchisor unilaterally and materially changes the agreement, you get seven more calendar days with the revised version before signing. Important, and widely misunderstood in the franchisee's favor: changes you asked for do not restart the clock. The FTC's compliance guidance says so expressly. A franchisor cannot refuse your requested addendum on the ground that it would reset the timeline.
Our take: read Items 20, 21, 19 and 17, in that order
Most buyers read Item 7, the estimated initial investment, and stop. Item 7 is the franchisor's own estimate of what it costs to open. It tells you almost nothing about whether the system works.
Item 20 first. Item 20 requires outlet counts for the three most recent fiscal years, broken out by state, showing outlets opened, terminated, not renewed, reacquired by the franchisor, and ceased for other reasons. It also requires contact information for current franchisees, and, critically, a list of every franchisee whose outlet was terminated, cancelled, not renewed, or that otherwise ceased operating during the last fiscal year, plus anyone the franchisor has not heard from in ten weeks.
That last list is the single most valuable page in the document. Those are the people with no incentive to sell you anything. Call them. The FTC treats a stale or inaccurate former-franchisee list as a material violation, and it was one of the counts in the agency's 2026 case against a fitness franchisor that produced a $17 million judgment for franchisee redress.
Item 20 also carries a warning worth reading twice: some current and former franchisees may have signed provisions restricting their ability to speak openly about their experience. If a franchisee will not talk to you, that may be a contract term rather than an absence of problems.
Item 21 second. Item 21 requires audited financial statements: balance sheets for the two most recent fiscal years and statements of operations, equity, and cash flows for the three most recent. Read it to answer one question. Can this franchisor actually deliver, for the next ten years, everything Item 11 promises about training, field support, supply chain, technology, and advertising?
A going-concern qualification, negative equity, or revenue dominated by initial franchise fees rather than ongoing royalties all tell you something. A franchisor whose income comes from selling franchises rather than from the royalties of successful ones is in a different business than you think it is.
Item 19 third. Item 19 is where a franchisor’s financial performance representations must appear, and making the disclosure is entirely optional. Two narrow exceptions let a franchisor give you figures outside Item 19: the actual operating results of a specific outlet being offered for sale, given only to potential purchasers of that outlet, and a written supplemental representation about a particular location or variation where the franchisor has already made an Item 19 disclosure. See 16 C.F.R. 436.5(s)(4) and (5). Many franchisors make none. If Item 19 says the franchisor makes no representations about financial performance, and a salesperson has been telling you what units make, you have a problem that our post on earnings claims addresses in detail.
Item 17 fourth. Item 17 is a required table of the exit rules: term, renewal, how the franchisor can terminate, which defaults are curable and which are not, transfer rights, non-competes, and where and how disputes get resolved. It is the most consequential page in the document and it is formatted as a chart, which is why people skim it.
What it means practically
Three habits change outcomes.
Read Item 20's former-franchisee list and actually make the calls. Ask what the unit did in revenue, what it cost to run, why they left, and what they wish they had known.
Compare what you were told to what Items 19 and 20 say. Where they diverge, write down the divergence, with dates and names, before you sign. That contemporaneous record is worth far more than a recollection reconstructed two years later.
Use the 14 days. The clock exists to give you time for a lawyer and an accountant to read the document. The 14 days are not yours to waive. Section 436.2(a) makes it an unfair or deceptive act for the franchisor to fail to furnish the document at least 14 calendar days before you sign or pay, so a franchisor who puts the agreement in front of you on day three is the one violating the Rule. Do not agree to compress the period.
When to call a lawyer
When the FDD arrives, not after you have signed the receipt at the back.
Why this is not a do-it-yourself problem
The FDD is a compliance artifact written by franchisor's counsel to satisfy a federal rule. It is accurate, and it is organized to be defensible rather than to be understood. The information that would change your decision is real and it is in there, distributed across Items 3, 4, 8, 12, 17, 19, 20 and 21, none of which cross-reference each other. A lawyer who reads these regularly knows which combinations matter: an Item 12 territory that shrinks in Item 17, an Item 8 supply restriction that quietly transfers margin through rebates disclosed elsewhere, an Item 20 turnover pattern that contradicts an Item 19 average. Those are not hidden. They are simply not visible unless you know to look for the pairing. And the review has a deadline, because the 14-day clock runs whether or not anyone is reading.
Talk to us
HDD Law Firm represents franchisees and franchisors in franchise disputes and transactions in the Florida state courts, the Southern, Middle and Northern Districts of Florida, and the Eleventh Circuit. If you have received an FDD and want it reviewed before the clock runs, contact us to discuss your matter.
Sources
● 16 C.F.R. Part 436, Disclosure Requirements and Prohibitions Concerning Franchising (eCFR)
● 16 C.F.R. 436.2, Obligation to furnish documents (eCFR)
● 16 C.F.R. 436.5, Contents of the disclosure document (eCFR)
● FTC, Franchise Rule Compliance Guide
● FTC, Amended Franchise Rule FAQs
● FTC, A Consumer's Guide to Buying a Franchise
● FTC, Franchise Fundamentals: Taking a deep dive into the FDD
● FTC Secures Settlement Against Xponential Fitness for Franchise Rule Violations (March 18, 2026)
● FTC Takes Action Against Qargo Coffee for Franchise Rule Violations (October 16, 2024)
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.