“Franchising has always been an on-ramp for the middle class to open their own business,” said Charlie Chase, the chief executive of FirstService Brands, a franchiser of home renovation and painting services.
Over the years, Mr. Chase, who has served on the board of directors of the International Franchise Association, said he had helped hundreds of successful franchisees get their start. “We have created a lot of millionaires,” he said.
Still, Mr. Chase said he was concerned about how some franchisees were being pushed into businesses without understanding all of the risks.
He blames aggressive internet advertising for some of this (Mr. Laskin learned about Burgerim from a Facebook advertisement, for example), and also a network of third-party brokers that often push prospective franchisees to buy multiple franchises at a time.
The Federal Trade Commission, under the leadership of Lina Khan, is looking broadly at industry practices including disclosure and issues such as franchisers’ unilaterally changing the terms of an agreement with a franchisee.
“Franchising can be a good business model, but it can also lead to a lot of harm,” Elizabeth Wilkins, the director of the commission’s Office of Policy and Planning, said. “We are concerned about instances where the promise does not match with reality. We believe there is a significant gap that is worth our investigation.”
In the case against Burgerim, federal officials said that the company executives told franchisees they would refund their franchise fees if their business did not open, but that many people never got their money back. Mr. Bronstein, the lawyer for Mr. Loni, said offering refunds “was not the best way to run a business.”
