Let’s take a look at some advertising language that franchisors use to entice potential franchise buyers. These types of misleading franchise advertising claims are often what draw people in—but not all are legally actionable. After all, these advertisements are often the sole reason a prospective franchisee reaches out to a franchisor in the first place.
- “Own your own business by owning a franchise.”
- “We want to share our successful franchise opportunity with a very select few who want to achieve more for themselves and their families.”
- “This will reap you great rewards! Get the income you have always wanted and live the lifestyle you deserve. Create wealth and business equity to retire on your own terms!”
- “I have the desire to own my own business!”
- “Aspire to something better, succeed, and control your career.”
- “Start growing your own business in a rapidly expanding market.”
- “Unparalleled support.”
- “Franchise support every step of the way.”
Can I sue a franchisor for false advertising?
Yes, but only under certain conditions. General promotional claims—like “unparalleled support” or “own your own business”—are usually considered puffery and are not legally enforceable. To sue for false advertising, a franchisee typically must prove the franchisor made a materially false or misleading statement of fact, not opinion, and that the franchisee relied on that falsehood in deciding to invest.
Prospective franchisees often take these advertisements literally, only to find out that such statements are not binding on the franchisor and are not necessarily unlawful misrepresentations even if they turn out to be false.
Is franchise advertising regulated?
Yes. The Federal Trade Commission (FTC) enforces the Franchise Rule, which requires franchisors to provide accurate, detailed disclosures in a Franchise Disclosure Document (FDD). However, many marketing materials—like websites, emails, or social media ads—are not reviewed by regulators. This creates a gray area where misleading claims can circulate, even if they’re not included in the FDD or final agreement.
What is the difference between puffery and fraud in franchise law?
Puffery refers to exaggerated or subjective claims used to promote a product. It includes statements like “we offer the best opportunity” or “unparalleled support.” These statements are generally too vague to be proven true or false. Fraud, on the other hand, involves a false statement of material fact, such as guaranteed earnings or historical profitability, that a franchisor knows is untrue. Courts typically protect puffery, but not fraud. One exception to this rule is that in some cases, a statement about future performance can be fraudulent where it does not accurately reflect past or present circumstances.) The distinction between false statements of fact and puffery, however, is not always clear. Puffing is defined as “the expression of an exaggerated opinion—as opposed to a factual misrepresentation—with the intent to sell a good or service.” Black’s Law Dictionary 1269 (8th ed. 2004).
Let’s take a look at the above advertisements viewed in this context.
- Whether or not franchisees own their own business is a matter of opinion—or at least a matter of interpretation. On one hand, a franchisee does not actually own his or her own business because the franchise agreement can be terminated or expire, in which case, the franchisee may not have any right to the equity he or she built in the business. On the other hand, because franchisees can build equity in a franchise and sell the business as a franchise, there is an argument to be made that franchisees do own their franchise businesses.
- A franchisor that advertises the “great rewards” a prospective franchisee will obtain is closer to the line separating fraud and puffery, depending on the circumstances. While we would argue that if most franchisees are not profitable or earning a decent living at the time the statement is made, it should constitute fraud, franchisors will argue that this statement is no different from saying that the franchise offers an excellent opportunity, which would likely be “mere puffery.” Compare In re Shopko Securities Litigation, 2002 WL 32003318 (E.D. Wis. 2002) (holding that statements and predictions of success are mere puffery) with Gross v. GFI Group, Inc., 162 F. Supp. 3d 263 (S.D. N.Y. 2016) (holding that a statement that a merger was a “singular and unique opportunity to optimize value” was not mere puffery).
- Franchisors advertising “support every step of the way” are likely not making fraudulent statements even if the franchisor does not actually provide such support in practice. How can they do that? First, it is not a statement of something that is verifiable by reference to past or present facts—it is more like a promise to do something in the future. The problem here, however, is that when a prospective franchisee signs a franchise agreement, the only terms that bind the franchisor are in the written agreement, and the franchisee, by signing the agreement, disclaims any statements or representations not included in the franchise disclosure document or franchise agreement.
When is a franchisor statement considered fraudulent?
A franchisor’s statement may be considered fraudulent if it misrepresents a material fact—such as profitability or failure rates—and the franchisor knew or should have known the statement was false. For example, claiming that “most franchisees are successful” when most are actually losing money could be actionable if that claim influenced a franchisee’s decision.
How can I prove that a franchisor’s statements were fraudulent?
You must demonstrate that:
- The statement was materially false
- The franchisor knew it was false or acted with reckless disregard
- You relied on that false statement in deciding to invest
- You suffered damages as a result of that reliance
This is difficult, but not impossible. Courts are more likely to act when there’s a pattern of misleading financial promises that contradict documented performance.
What legal protections do franchisees have against deceptive ads?
Franchisees are protected by the FTC Franchise Rule, which mandates full disclosure of key facts before sale, and by state franchise laws, which can address misleading advertising and legal recourse for those that have been misled. However, most franchise agreements include disclaimers that limit reliance on oral or promotional statements. That’s why it’s critical to review the FDD, get independent legal counsel, and document any verbal claims made before signing.
Franchisees asserting fraud claims have an uphill battle for the reasons set forth above (as well as other reasons not discussed here), but with strong franchise counsel, it is not always an insurmountable hill. Misled franchisees don’t have to accept unfair treatment and strong legal counsel can guide you to the recourse you’re seeking. When you need a franchise lawyer on your side, contact Garner, Ginsburg & Johnsen!
Whether you’re franchise owner or a franchisee, you do have rights and legal recourse.