The SEIU Petitions the FTC to Investigate the 'Abusive and Predatory' Franchise Industry

The Service Employees International Union is redoubling its efforts against the franchise industry from a pro-franchisee front.

On Monday, the SEIU petitioned the Federal Trade Commission to launch an investigation into the franchise industry, citing an imbalance of power that vastly favors franchisors over franchisees.

"The relationship between big corporations like McDonald's and their franchisees can best be described in two words: abusive and predatory," Scott Courtney, assistant to the president of the SEIU, said in a press call regarding the petition.

The SEIU points to a number of franchisor practices that can potentially hurt franchisees while boosting corporate profits. These include franchisors providing incomplete or misleading financial information to potential franchisees, demanding unreasonable spending when it comes time to renew franchise agreements and arbitrarily denying franchisees' requests to sell or transfer their businesses. The union also said that franchisees feared retaliation from their franchisors if they joined franchisee associations and unpredictable termination or non-renewal of franchise agreements.

The press call also served to highlight negative experiences of current and past McDonald's and 7-Eleven franchisees who felt their hard work had been taken advantage of by franchisors.

“The franchise sector bills itself as a path to the American Dream, but the truth is that franchisors like 7-Eleven and others have made this business into a trap,” said Jas Dhillon, a member of a group of 7-Eleven franchisees who filed a lawsuit last July claiming the company unjustly forced store owners to terminate their agreements as part of a profit scheme. “Franchisors hold all the power, and so they can churn through one operator to the next, leaving us with nothing while their profits continue to soar.”

Other franchisees who spoke included Luis Moyett, a McDonald's franchisee in Puerto Rico who filed an FTC complaint last July after the company sold franchise rights for the territory to a Latin American restaurant operator, and Kathryn Slater-Carter, who says she lost her business last year after speaking out on the need for reform in the franchise industry.

A running thread between franchisees was that they claimed their relationships with franchisors had significantly shifted and deteriorated in the years since signing a franchise agreement. Both Slater-Carter and Dhillon are second generation franchisees, and spoke of a previously constructive relationship between themselves and their respective franchisors. Moyett also described a formerly mutually beneficial relationship with McDonald's, prior to the company shifting control of Puerto Rico's franchisees to a Latin American franchisee.

"In short, this is not the system that we bought into," said Moyett.

Of course, not everyone in the franchise industry agrees with these claims.

“Franchisees are highly satisfied, they have a high level of trust in their franchisors and they know they have remedies in places through their mutually-agreed upon contract, through the courts and through many state laws if and when issues may arise between two parties," Steve Caldeira, president of the International Franchise Association, said in a statement. "That wouldn’t be the case if franchisees were dissatisfied or there were systemic abuses as the SEIU would like regulators to believe."

The SEIU's recent partnership with franchisees represents the union's attempt to "rebalance power" in the franchise industry by targeting corporate franchisors from all angles.

"The franchisees are stuck just like the workers are," said Courtney. The SEIU is best known in recent years for its work to raise the minimum wage to $15, an effort that has focused to a large degree on fast-food employees.

Courtney blames franchisors for building low wages into the franchise system, leaving franchisees powerless to raise employee pay on thin margins. He and the SEIU believe that money that goes towards paying executives and investor payouts at mega-chain would be better spent towards raising employee wages, without cutting into franchisees' margins.