Validation calls and “Discovery Day” meetings are common practices in the franchise sales process. These conversations allow franchisors to explain their business model, answer questions, and evaluate potential franchisees. However, they can also create significant legal exposure if handled improperly. In a significant number of instances lawsuits do not only arise from what was represented in the Franchise Disclosure Document (“FDD”) and in the contract documents, they may also arise from what was said during the phone calls, Discovery Days,and emails.
Therefore, are your franchise development personnel properly trained to hold these discussions and not dig a hole for the franchise system down the road?
Understanding what franchisors cannot say to franchisees is essential to reducing your liability and avoiding costly disputes. Further, to the sophisticated franchisee candidate, your professionalism during this due diligence phase may set you apart (good or bad) from competitor franchise systems. Consider this investor’s view point: “If they are not showing competency now, how will this franchisor perform over the next five (or ten) year term, and after I have invested a tremendous amount of money and time? Will I be properly supported?”
Discovery Calls Create Serious Legal Risk
Franchise recruitment conversations are regulated under federal and state franchise laws. One of the areas of exposure involves franchise misrepresentation lawsuits, where franchisees later claim they were misled during the sales process.
Casual statements made by franchise sales personnel can become evidence in litigation. Comments such as:
- “You’ll definitely make six figures.”
- “Our franchisees are all highly profitable.”
- “This location can’t fail.”
- “You’ll recoup your investment within a year.”
- “You can run this business while continuing full time with your career.”
- “You’ll only need to spend ___ hours a week on your franchise.”
These comments may sound benign in conversation, but they may create substantial legal problems if those claims are not properly disclosed in the FDD. Understand, a misrepresentation of fact, which is then relied upon by the franchisee when signing the contract documents, and thereafter leads to the franchisee suffering damages, may be a claim for fraud. The worst case scenario could be the franchise agreement declared null and void by a court or arbitrator, and you then facing significant damages. Franchisor, you do not ever want to be in a position where you must disclose the details of such a lawsuit in Item 3 in your next FDD (regardless of the lawsuit’s merits). Therefore, train your franchisee development staff carefully to avoid these pitfalls.
The Dangers of Earnings Claims
One of the most common sources of litigation involves illegal franchise earnings claims. Under federal franchise law, franchisors cannot make financial performance representations unless those representations comply with Item 19 of the FDD.
This means franchisors cannot casually discuss expected revenues, profits, or financial success unless the information is properly documented and disclosed according to legal requirements.
Unfortunately, many franchisors unintentionally create exposure by allowing salespeople, brokers, or executives make verbal statements that go beyond what is disclosed in the FDD. These statements frequently become central evidence in franchise disputes.
Consider this scenario: I had a franchisee bring a dispute to me, wherein the franchisor had provided the client, then a franchise candidate, with a brochure setting-forth anticipated gross revenue over a period of time. Additionally, the document misstated the anticipated expenses, among other misrepresentations. Because the document was disclosed outside the FDD, it violated federal law (16 C.F.R. § 436). My client relied on this brochure when executing the franchise contract documents and was substantially damaged (initial franchise fee, onboarding expenses, etc.). This information went well beyond sales puffing and put the Franchisor in a position where it had little choice but to agree to a monetary settlement, including the mutual termination of the franchise agreement.
Bottom line: Proper FTC franchise disclosure compliance (not to overlook several state regulations) requires strict control over how financial discussions occur during recruitment conversations.
Verbal Promises Outside the FDD Create Major Problems
Expect that well prepared franchisee candidates will ask detailed questions about territories, operational support, marketing assistance, staffing, vendor relationships, or future expansion plans. If, in response to these inquiries, franchisors make promises that are not clearly supported by the franchise agreement or FDD, those statements can later become the basis for fraud or misrepresentation claims. Do not rely on a merger (integration) clause to get you off the hook here. (Ask your attorney about this issue.)
For example, such verbal assurances could sound like the following phases:
- “You’ll receive exclusive territory protection.”
- “Corporate will handle all your marketing.”
- “We never terminate franchisees.”
- “You’ll have unlimited expansion rights.”
- “We’ll be present at your business opening.”
These statements can create serious disputes if the written agreements state otherwise.
This is why franchisors must ensure that all recruitment communications align precisely with the FDD and governing contract documents.
Discovery Days Require Careful Oversight
Many franchisors host discovery days or in-person meetings designed to showcase the brand and build excitement among prospective franchisees. While these events are valuable marketing tools, they may also create unique legal issues.
Excited executives, franchisees, or sales staff may unintentionally overstate performance expectations or make promises outside the approved disclosure process. Even informal conversations over lunch or during tours can later be relied upon by the franchisee in litigation/ arbitration.
Franchisors should implement structured scripts, compliance training, and clear communication guidelines for anyone interacting with franchisee candidates.
Franchise Sales Compliance Must Be Systematic
Strong compliance procedures are essential to reducing franchise sales legal risks. Franchisors should carefully train employees and brokers regarding what can and cannot be discussed during recruitment conversations.
Best practices often include:
- Using approved sales scripts;
- Limiting financial discussions to Item 19 disclosures (and understand that the candidate is permitted in some instances to request additional information related to Item 19);
- Documenting communications with candidates;
- Requiring written acknowledgments;
- Prohibiting unauthorized earnings representations; and
- Regularly auditing sales practices.
These procedures help strengthen franchise FDD compliance requirements and reduce exposure to regulatory scrutiny.
Protecting the Franchise System
Franchise litigation, and even arbitration, is expensive, time-consuming, and highly disruptive to a growing brand. Many disputes may be avoided simply by carefully controlling the sales process.
At Kilcommons Law PC, we advise franchisors on franchise sales compliance, disclosure obligations, and risk management strategies. Proper training, disciplined communication practices, and strong documentation procedures can significantly reduce the likelihood of franchise misrepresentation lawsuits while protecting the integrity of the franchise system.
In every franchise industry, what is said verbally to a candidate can matter just as much as what is written in the contract. Careful compliance today can help prevent costly disputes tomorrow. Therefore, franchise right.
© Kilcommons Law, P.C. 2026
