The FTC Franchise Rule (16 C.F.R. Part 436) is the federal regulation that governs franchise disclosure in the United States, and 2024-2025 brought the most significant interpretive guidance and proposed legislative changes in over a decade. The FTC issued formal guidance in July 2024 addressing undisclosed fees hidden in operations manuals, took a public position on non-disparagement clauses in franchise agreements, and Congress saw the reintroduction of the Franchise Freedom Act, a bill that would fundamentally change how the Rule is enforced. At Lopes Law LLC, we advise both franchisors and franchisees on FTC compliance, and these developments affect every franchise system operating in the United States.

This guide explains what changed, what the proposed legislation would do if enacted, and the specific steps franchisors and franchisees should take in response.

What Did the FTC’s July 2024 Guidance Say About Undisclosed Fees?

The FTC’s July 2024 informal staff guidance addressed a practice that franchise attorneys have been flagging for years: franchisors introducing new fees or financial obligations through operations manual updates rather than through the FDD. The FTC made clear that this practice violates the Franchise Rule.

Here is the core issue. The FTC Franchise Rule requires franchisors to disclose all fees a franchisee will pay in Items 5 (initial fees), 6 (other fees), and 7 (estimated initial investment) of the FDD. When a franchisor later introduces a new technology fee, a required vendor program with mandatory costs, or a marketing fund assessment through an operations manual update, those fees were never disclosed to the franchisee before they signed the franchise agreement.

The FTC’s position is straightforward: the operations manual is part of the franchise relationship, and any fee introduced through the manual that was not disclosed in the FDD at the time of sale constitutes a potential Franchise Rule violation. The guidance specifically identified three common scenarios:

• Technology platform fees: Franchisors that mandate new software platforms, POS systems, or digital ordering tools and pass the cost to franchisees without prior FDD disclosure.
• Vendor rebate programs: Franchisors that require franchisees to purchase from designated vendors where the franchisor receives rebates or commissions that were not disclosed in the FDD.
• Marketing fund expansions: Increases to advertising fund contributions or new categories of required marketing spending introduced through operational directives rather than FDD amendments.

How Does the FTC’s Position on Non-Disparagement Clauses Affect Franchise Agreements?

The FTC also addressed non-disparagement clauses in franchise agreements, a provision that has become increasingly common in the franchise industry. Non-disparagement clauses typically prohibit the franchisee from making negative statements about the franchisor, the franchise system, or the franchise opportunity during and after the franchise relationship.

The FTC’s concern is specific: non-disparagement clauses may interfere with the franchise validation process. Validation is the step in franchise due diligence where a prospective franchisee contacts existing franchisees to ask about their experience with the system. The FTC requires franchisors to provide a list of current and former franchisees in Item 20 of the FDD for exactly this purpose.

If existing franchisees are contractually prohibited from sharing negative information about the franchise system, prospective buyers receive a distorted picture of the franchise opportunity. The FTC’s position is that non-disparagement provisions that prevent franchisees from providing truthful information to prospective buyers may violate the spirit and potentially the letter of the Franchise Rule’s disclosure requirements.

This does not mean all non-disparagement clauses are unenforceable. The FTC distinguished between provisions that prevent disclosure of truthful, material information to prospective franchisees (problematic) and provisions that protect legitimate trade secrets or prevent demonstrably false statements (generally acceptable). For a deeper understanding of the validation process and why honest franchisee feedback matters, see our guide on the franchise validation process.

What Is the Franchise Freedom Act and Why Does It Matter?

The Franchise Freedom Act is the most significant proposed change to federal franchise law in decades. Reintroduced by Representative Jan Schakowsky in December 2024, the bill would create a private right of action for violations of the FTC Franchise Rule.

Currently, the enforcement landscape for the FTC Franchise Rule has a critical gap. Only the FTC itself can bring enforcement actions for Franchise Rule violations at the federal level. Individual franchisees who are harmed by FTC Rule violations cannot sue the franchisor under the federal rule. They must instead rely on state franchise laws (which vary dramatically in scope and strength), common law fraud claims, or contract law remedies.

The Franchise Freedom Act would change this by allowing franchisees to:

• Sue directly in federal court for FTC Franchise Rule violations, including failure to provide a complete and accurate FDD, material misrepresentations in the FDD, and failure to provide the FDD within the required timeframe before the franchise sale.
• Seek treble damages (three times actual damages) plus reasonable attorney fees and costs. This remedial structure is modeled on federal antitrust law and is designed to make it economically viable for franchisees to bring claims even when individual damages are moderate.
• Bring class action claims on behalf of similarly situated franchisees, which would allow franchisees across a system to aggregate claims arising from the same disclosure violations.

The bill has been introduced in multiple prior congressional sessions without passing. However, its reintroduction in December 2024 comes at a time when franchise regulation is receiving increased attention from both the FTC and state regulators, which may improve its prospects. At Lopes Law LLC, we track this legislation closely because its passage would fundamentally change the risk calculus for both franchisors and franchisees.

A Client Scenario: When Operations Manual Fees Created Legal Exposure

A multi-unit franchisee operating four locations in a food service franchise contacted our firm after receiving a directive from the franchisor requiring adoption of a new digital ordering platform. The platform carried a monthly fee of $450 per location, totaling $21,600 per year across the four units. This fee was not disclosed anywhere in the FDD the franchisee received before signing the franchise agreement two years earlier.

The franchisor’s position was that the operations manual authorized the franchisor to require technology upgrades and that the franchisee had agreed to comply with the operations manual as part of the franchise agreement. The franchisor pointed to a broadly worded provision in the franchise agreement stating that the franchisee “shall comply with all standards, specifications, and procedures set forth in the Operations Manual, as amended from time to time.”

We reviewed the FDD and confirmed that no technology platform fee of this nature was disclosed in Item 6 (Other Fees) or Item 7 (Estimated Initial Investment). We also confirmed that the operations manual amendment introducing the fee was issued 14 months after the franchise agreement was signed. Based on the FTC’s July 2024 guidance, we advised the franchisee that the undisclosed fee represented a potential Franchise Rule violation and drafted a formal response to the franchisor.

The matter was resolved through negotiation. The franchisor agreed to phase in the fee over 18 months rather than immediately, reduce the per-location cost to $300 per month, and amend the FDD to include the technology platform fee for all future franchise sales. The franchisee saved approximately $8,600 in the first year. More importantly, the franchisor corrected a disclosure gap that could have exposed the system to broader regulatory scrutiny.

What Impact Would the Franchise Freedom Act Have on Franchise Systems?

If the Franchise Freedom Act passes, the consequences would be significant for both sides of the franchise relationship:

For franchisors: The risk profile of FDD preparation and franchise sales practices would increase substantially. Currently, a disclosure error in the FDD carries regulatory risk (FTC action) and potential state-level liability, but no federal private right of action. If the Act passes, every franchisee in the system becomes a potential plaintiff for any FDD deficiency. The treble damages provision means that a $50,000 claim becomes a potential $150,000 judgment plus attorney fees. For a franchise system with 200 franchisees, a systemic disclosure failure could generate aggregate exposure in the millions.

For franchisees: The Act would provide a federal remedy that does not currently exist. Franchisees in states with strong franchise relationship laws (such as California, Illinois, and Minnesota) already have state-level private rights of action. But franchisees in states with minimal franchise regulation would gain access to federal court remedies for the first time. The class action provision would be particularly significant for claims affecting many franchisees within a system. For more on what rights franchisees currently have, see our article on franchise termination rights.

Industry Opposition and Support

The franchise industry is divided on the Franchise Freedom Act. The International Franchise Association (IFA) has opposed the bill, arguing that it would encourage frivolous litigation and increase the cost of franchising. The IFA’s position is that the existing regulatory framework, including FTC enforcement and state franchise laws, provides adequate protection for franchisees.

Proponents, including the American Association of Franchisees and Dealers (AAFD) and several state franchisee associations, argue that the FTC’s limited enforcement resources mean that many Franchise Rule violations go unaddressed. They point to data showing that the FTC brings only a handful of franchise enforcement actions per year despite receiving hundreds of complaints.

What Should Franchisors Do to Prepare for These Changes?

Whether or not the Franchise Freedom Act passes, the FTC’s 2024 guidance creates immediate compliance obligations for franchisors. Here is a practical action plan:

1. Audit the operations manual for undisclosed fees. Review every fee, cost, or financial obligation referenced in the operations manual. If any fee is not also disclosed in Items 5, 6, or 7 of the current FDD, it must be added to the next FDD update or removed from the manual.
2. Review non-disparagement clauses. If your franchise agreement contains a non-disparagement provision, evaluate whether it could be interpreted as preventing franchisees from providing truthful information to prospective franchise buyers. Consider narrowing the provision to address only demonstrably false statements and trade secret protection.
3. Tighten FDD disclosure practices. Adopt a policy that no new fee is introduced through the operations manual without first being disclosed in the FDD. This may require mid-year FDD amendments in some cases, which franchise counsel can prepare.
4. Prepare for potential private right of action. Even if the Franchise Freedom Act does not pass in the current session, its reintroduction signals a trend. Franchisors should ensure their FDDs are accurate, complete, and defensible, not just minimally compliant. For comprehensive franchisor compliance guidance, see our article on how to franchise your business.

What Should Franchisees Watch For?

If you are a current or prospective franchisee, the FTC’s 2024 guidance and the proposed Franchise Freedom Act highlight several areas that deserve attention:

• Compare the FDD to the operations manual. After signing, review the operations manual for any fees or costs that were not disclosed in the FDD you received before the sale. If you find undisclosed fees, document them and consult a franchise attorney.
• Watch for non-disparagement clauses. Before signing a franchise agreement, identify any non-disparagement provisions and understand their scope. Ask whether the provision would prevent you from speaking honestly to other franchisees or to prospective buyers who contact you during validation.
• Understand your state’s franchise laws. Even without the Franchise Freedom Act, many states provide private rights of action for franchise law violations. Knowing your state’s franchise relationship law is essential. For a comprehensive overview of franchise rights, see our guide on franchise dispute resolution.
• Get independent legal review. The FTC Franchise Rule requires franchisors to provide the FDD at least 14 calendar days before you sign the franchise agreement or pay any money. Use that time to have the FDD reviewed by an independent franchise attorney. Learn more in our article on whether you need a lawyer to buy a franchise.

Frequently Asked Questions About FTC Franchise Rule Changes

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Last updated: March 13, 2026