What is the 7 Day Rule for Franchises?

The FTC Franchise Rule is a consumer protection regulation that establishes a 7 day waiting period after a franchisor alters or amends a franchise agreement to enable franchisees to review and understand the changes. This explanation describes the philosophy behind the Rule, but it does not provide a workable answer to the question, “What is the 7 day rule for franchises?.

The attorneys at Franchise.Law could explain how this federal rule and various state “Little FTC Acts” affect a franchisor’s business operations. Our lawyers work out of our headquarters office in Charlotte, NC, and advise franchisors across the country on their federal and multi-state franchise compliance obligations.

What Should Franchisors Know About the 7 Day Rule?

The Federal Trade Commission adopted the FTC Franchise Rule and its 7 day waiting period to level the playing field for franchises that might be caught off guard by a franchisor’s last-minute changes to a franchise agreement. Because of this rule, franchisors cannot force their franchisees to sign and return the agreement without giving them a full and fair opportunity to review it with their legal and financial advisors.

Franchisors should also know that:

• The rule applies whenever a franchisor unilaterally modifies any material term or condition of a franchise agreement, such as annual fee requirements or territorial limitations
• The 7 days exclude the date on which a document is provided to a franchisee and the date on which it is returned
• The rule is distinct from and in addition to the 14 day franchise disclosure document rule that applies when franchisors give a franchise document packet to franchisees
• The rule exempts minor revisions, such as updates to names or dates that are generally inserted into blank lines on a franchise agreement.

Following the 7 day rule helps franchisors maintain transparency and protect their agreements.

Do the 7 Day and 14 Day Rules Coordinate With Each Other?

The 7 day rule applies to changes in franchise agreements and is separate from the 14-day rule for the Franchise Disclosure Document (FDD). The two waiting periods might overlap, but in all cases, franchisors need to verify that they are following each rule.

Consider, for example, that a franchisor delivers an FDD to a prospective franchisee on the first day of the month. The franchisee then has a full 14 days, or from the second through the 15th day of the month, to review the FDD before signing and returning it on the 16th, which is the soonest that the franchisor is allowed to accept the fully-executed FDD.

If the franchisor then delivers a final agreement for signatures on the first day of the next month, the franchisee has from the second through the 8th day of that month for review. The franchisor cannot accept the fully-executed final agreement until the 9th day of that month. As this example illustrates, the starting and ending days of the two waiting periods are determined independently. Franchisors that have questions about the 7 and 14 day rules should consult with Franchise.Law for specific guidance.

Call Franchise.Law for Answers to Compliance Questions About the 7 Day Rule

Compliance with federal and state franchise laws is complicated, and it is not unusual for even an experienced franchisor to ask, “What is the 7 day rule for franchises?” The attorneys at Franchise.Law could answer this and other questions that franchisors throughout United States might have about their legal obligations. Failure to comply with those obligations can be disastrous, with penalties that delay or prevent franchise expansion and impose significant fines. Reach out to our office today.