Informal Staff Advisory Opinion 06-1

This staff advisory opinion addresses how franchisors may seek leads for franchise sales. Specifically, it addresses whether a franchisor may seek leads by posting an offer for employment on an employment website, such as Monster.com or Careerbuilder.com.

I. BACKGROUND

In your letter, you state that a franchisor-competitor of your company posts openings for approximately 50-100 jobs on websites such as Monster.com and Careerbuilder.com. You note that each month the number of jobs listed by the competitor on the two career websites does not change or “does not change much.” Based upon these facts, you make the following assumptions. First, you assume that the jobs listed on the websites are not being filled. Second, you assume that people applying for the jobs are directed instead toward purchasing a franchise. You now ask whether the Franchise Rule permits a franchisor to post “job” offerings on websites in order to obtain leads for franchise opportunities.

II. ADVERTISED EMPLOYMENT OPPORTUNITIES MUST NOT BE DECEPTIVE

For purposes of this advisory, we will address only the general question whether any franchisor or business opportunity seller may seek leads by posting offers of employment on a website1. We begin by noting that the Franchise Rule, 16 C.F.R. Part 436, does not specify how franchisors may seek leads or otherwise go about advertising their offerings. The only substantive regulation of the content of advertising in the Franchise Rule are provisions regarding the making of earnings claims in the general media. Pursuant to section 436.1(e), a franchisor making earnings claims in advertisements, such as in newspapers or trade journals, must have a reasonable basis for the representation at the time it is made and disclose in immediate conjunction with the earnings claim the number and percentage of purchasers known by the franchisor to have achieved the same or better results in the same time period.

Nonetheless, Section 5 of the Federal Trade Commission Act (“FTC Act”) prohibits franchisors, as well as other sellers of business arrangements – including work-at-home and multilevel marketing plans – from engaging in deceptive acts or practices in advertising their opportunities. Commission law enforcement experience shows that some sellers lure unsuspecting consumers by falsely representing that they are offering employment, when, in fact, they are offering business opportunities, such as vending, work-at-home, or multilevel marketing programs. For example, in many instances consumers have responded to advertisements seeking sales executives, only to discover that the “position” requires them to purchase equipment or products from the seller and, in turn, to sell the products or to recruit a downline to sell the products for them. The Commission routinely challenges such advertised offers as deceptive in violation of Section 5 of the FTC Act2.

III. CONCLUSION

Although the Franchise Rule does not specify how franchisors may seek leads for franchise offerings, Section 5 of the FTC Act prohibits franchisors – and other business opportunity sellers – from engaging in deceptive practices in obtaining leads. Accordingly, a false offer of employment where no bona fide job exists that is made for the purpose of luring consumers into purchasing a franchise or other opportunity is a deceptive practice in violation of Section 5.

Please be advised that our opinion is based on the information furnished in your request. Please be advised further that the views expressed in this letter are those of the FTC staff. They have not been reviewed, approved, or adopted by the Commission, and they are not binding upon the Commission. However, they do reflect the opinions of the staff members charged with enforcement of the Franchise Rule.

Franchise Rule Staff: January 30, 2006

1 We take no position on the alleged specific conduct of your competitor. We have not spoken with the competitor, nor investigated the competitor’s alleged conduct.

2 See, e.g., FTC v. Trek Alliance, Inc., No. 02-9270 SJL (AJWx) (C.D. Cal. 2002) (multilevel opportunity seller placed ads in “Help Wanted” sections of newspaper offering salaried position); FTC v. Leading Edge Processing, Inc., No. 6:02-CV-681-ORL-19 DAB (M.D. Fla. 2003) (data entry work-at-home opportunity seller sent emails to job seekers who posted their resumes on job websites, falsely representing the availability of jobs and guaranteeing a steady stream of work); FTC v. David Martinelli, Jr., No. 3:99 CV 1272 (D. Conn. 2000) (pyramid work-at-home opportunity seller sent unsolicited emails falsely offering a $13.50 per hour position processing applications for credit, loans, or employment); FTC v. Equinox, Int’l, No. CV-S-99-0969-JAR-RLH (D. Nev. 1999) (multilevel opportunity seller ran classified ads in the “Help Wanted” sections of newspapers, impliedly offering a salaried position).