Franchisee Association Listings and Gag Clauses in 259 FDDs (2025 to 2026)

What a franchisee association listing in Item 20 means

Summary. Item 20 of the Franchise Disclosure Document (FDD) carries three things a buyer can use to reach other owners: the current franchisee list, the former franchisee list, and the franchisee organization disclosure. It also carries the confidentiality clause statement. A blank organization section does not mean no franchisee association exists, because independent associations are listed only when they ask.

Paragraph numbers. The confidentiality clause rule is 16 CFR 436.5(t)(7) and the franchisee organization rule is 436.5(t)(8), according to the eCFR text up to date as of 15 October 2026. Paragraph (t)(5) is the former franchisee list and (t)(4) the current franchisee list. Paragraph (t)(6) covers resale of an outlet the franchisor controls.

• Confidentiality clauses, (t)(7). The FDD must say whether franchisees signed confidentiality clauses during the last three fiscal years. If they did, it must print a fixed statement: “In some instances, current and former franchisees sign provisions restricting their ability to speak openly about their experience with [name of franchise system].” The number, percentage and circumstances are optional.
• Definition. Under 16 CFR 436.1(c), a confidentiality clause is any contract, order or settlement provision that restricts a current or former franchisee from discussing his or her personal experience with a prospective franchisee. Clauses that protect trademarks or other proprietary information are excluded.
• Franchisee organizations, (t)(8). The FDD must list each trademark-specific franchisee organization the franchisor created, sponsored or endorsed, with its relationship to the franchisor. An independent organization is listed only if it is organized under state law and asks. It must renew that request each year, no later than 60 days after the franchisor’s fiscal year ends.
• Former franchisees, (t)(5). The FDD must list every franchisee whose outlet was terminated, canceled, not renewed or otherwise left during the most recent fiscal year. It must also list any franchisee who has not communicated with the franchisor within 10 weeks of the issuance date.

Key terms. A franchisee association here is a member organization of one brand’s franchisees. The FTC’s 2008 Compliance Guide calls it independent when the franchisor did not create, sponsor or endorse it. Under the same guide, sponsoring means contributing money or tangible support. Endorsing means actively promoting the association. Associations open to franchisees of many brands are not trademark-specific. A franchisor council (advisory council, board or committee) is a body the franchisor sets up. The franchisor usually controls its membership.

How many franchise systems list a franchisee association

Summary. Most FDDs list no franchisee organization at all, and independent associations are rare. Among the bodies that are listed, franchisor-created councils and boards outnumber member associations two to one.

• 15 of 259 FDDs (5.8%) list an independent trademark-specific franchisee association, alone or next to a franchisor body (FDDs issued 2025 to 2026, US systems registered in Minnesota). 4 of those 15 also list a franchisor council.
• 45 FDDs (17.4%) list only a body the franchisor created, sponsored or endorsed. In most of them it is an advisory council or board.
• 1 FDD (0.4%) names a franchisee-elected committee without saying how it relates to the franchisor.
• 183 FDDs (70.7%) say no trademark-specific franchisee organization exists, is known, is sponsored or has asked to be included. Another 15 (5.8%) make no organization statement. Together, 198 FDDs (76.4%) list none.
• Of the 61 organizations listed (23.6% of FDDs), 38 are franchisor councils, boards or committees and 19 are member associations. The other 4 FDDs list one of each.

What this means. A buyer reading Item 20 will usually find a statement that no franchisee association is known. That statement is accurate in its own terms, because the Rule asks only about associations the franchisor links itself to and independent ones that ask. Several independent associations listed in this sample are chapters of the American Association of Franchisees and Dealers (AAFD). The AAFD says it organizes trademark-specific chapters and reports more than 70 managed chapters (self-reported, October 2026).

Franchisor councils are more common than independent associations

Summary. Many systems that list no association still run a franchisee council. That is “franchisor-sponsored council only”: a channel the franchisor designs, rather than one the franchisees own.

• 106 FDDs (40.9%) describe an existing franchisor-sponsored council, board or committee somewhere in the document, usually in Item 11 or the franchise agreement (259 FDDs, 2025 to 2026).
• 52 FDDs (20.1%) list no organization in Item 20 but describe an existing council elsewhere. 87 (33.6%) list none and only reserve the right to form a council. 59 (22.8%) list none and mention no council.
• The advertising-council field published with our advertising fund study (74 FDDs with an advertising council) was joined, not recomputed. This report also counts general councils that do not advise on advertising.

Context. The FTC Compliance Guide treats a franchisor-created council as a trademark-specific organization that must be disclosed, with its relationship to the franchisor. FDDs apply that unevenly. Some name the council in Item 20; others describe it in Item 11 and then state in Item 20 that no organizations exist. This report codes each FDD as written, so the council-only group is a floor for how often councils appear in Item 20.

How many FDDs disclose confidentiality (gag) clauses

Summary. Confidentiality clauses that limit what franchisees may tell prospective buyers are disclosed by a majority of the sample, not a minority. A further group prints the Rule’s warning while also saying no clauses were signed.

• 138 of 259 FDDs (53.3%) disclose that franchisees signed confidentiality clauses during the last three fiscal years, or print the Rule’s prescribed statement without a denial (FDDs issued 2025 to 2026).
• 16 FDDs (6.2%) print the prescribed statement and also state that no franchisee signed such a clause. Counting them, the upper bound is 154 FDDs (59.5%).
• 103 FDDs (39.8%) state that no franchisee signed a confidentiality clause. 2 FDDs (0.8%) make no statement.
• 14 of the 15 FDDs that list an independent franchisee association also disclose signed clauses.

How to read it. The Rule requires the prescribed statement only when clauses were signed, so this report counts the statement as an affirmative disclosure. The 16 contradictory FDDs show that some franchisors print it as boilerplate. The FTC adopted the requirement in 2007 after 42 of 166 commenters (one quarter) raised confidentiality clauses, according to the Statement of Basis and Purpose (72 FR 15444). It covers only clauses aimed at prospective franchisees. The Compliance Guide adds that a clause barring only the terms of a settlement does not trigger it.

How strongly the clause statements are worded

Summary. Most affirmative statements go beyond the model sentence, but very few say how many franchisees signed or why. Buyers rarely learn whether the clauses come from settlements, exits or the franchise agreement itself.

• 95 of the 138 affirmative FDDs (68.8%) add the franchisor’s own sentence that clauses were signed, for example “during the last three fiscal years, some franchisees have signed confidentiality clauses”.
• 34 (24.6%) print only the model sentence. 3 (2.2%) only say franchisees “may” sign.
• 6 (4.3%) give a number or share. 5 report one or two agreements, and 1 says all franchisees have signed a confidentiality clause.
• Signers: 51 (37.0%) say only “franchisees”, 35 (25.4%) rely on the model sentence’s “current and former”, 24 (17.4%) say current and former, 17 (12.3%) say current or former, and 11 (8.0%) say former franchisees only.
• Circumstances: 13 (9.4%) say why the clauses were signed. 6 cite dispute settlements, 4 cite termination, release, reacquisition or transfer agreements, and 3 cite more than one.
• 4 FDDs print the model sentence as “speak only”, the wording in the FTC’s 2008 Compliance Guide, instead of the Rule’s “speak openly”. 1 leaves the bracketed placeholder in place.

Both rise with system size and age

Summary. The share of FDDs that disclose signed clauses, and the share that list any franchisee organization, both climb steadily with system size and with years franchising. Independent associations appear almost only in large, established systems.

• Clauses disclosed: 33.8% of systems with 1 to 24 franchised outlets, 57.1% at 25 to 99, 66.7% at 100 to 499 and 77.3% at 500 or more (chi-square p = 2.9e-06). The median system disclosing clauses had 110 franchised outlets at year end; the median system not disclosing had 28.
• Independent association listed: 0.0% below 25 outlets, 4.3% at 25 to 99, 6.0% at 100 to 499 and 31.8% at 500 or more. Systems with 500 or more outlets were 13.4 times as likely by odds to list one (7 of 22 vs 8 of 237; Fisher exact p = 5e-05).
• By age: clauses disclosed rise from 25.9% of systems franchising under 5 years to 81.6% at 35 years or more. Any organization listed rises from 1.9% to 65.8%. Independent associations rise from 0.0% to 18.4%.
• Franchisor councils follow the same pattern: 13.8% of systems with 1 to 24 outlets describe one, compared with 68.2% at 500 or more.

Why. Large and older systems have had more exits, transfers and disputes, which is where clauses are usually signed. They also have enough owners to organize. Size and age overlap, and sector mix differs by band, so the two patterns cannot be separated here. Turnover by size and age is covered in our franchise closure rates index.

Association listings, outlet turnover and franchisee lawsuits

Summary. Systems that list an independent franchisee association lose a smaller share of their outlets when pooled. The typical system’s rate is close to that of systems listing nothing, and the pooled gap mostly reflects size. This comparison covers associations only; confidentiality clauses are not cross-tabbed with turnover.

• Pooled exits (terminations, non-renewals, reacquisitions and ceased operations) were 3.8% of start-of-year franchised outlets in the 15 systems listing an independent association, 4.5% in the 45 listing only a franchisor body, and 8.7% in the 161 listing none (latest fiscal year in FDDs issued 2025 to 2026).
• Median system exit rates were 3.5%, 4.8% and 4.6%. The gap between associations and none is not statistically clear (Mann-Whitney p = 0.8).
• Among systems with 100 or more franchised outlets, median exits were 3.1% with an independent association (12 systems), 4.8% with a franchisor body only (31) and 6.1% with none (59).
• Item 3 litigation: 11 of the 15 systems with an independent association (73.3%) disclose at least one action brought by franchisees against the franchisor side. The share is 42.2% for franchisor-body-only systems and 32.9% for systems listing none. The median system in the first group had 441 franchised outlets at the start of the year; the median in the last group had 48.

Limits. Association listing does not cause or prevent turnover or litigation. Both rise with system size, and franchisee associations often form after disputes. Item 3 data are joined from our Item 3 litigation disclosure study; exit counts are joined from the closure-rates dataset, not recomputed.

Associations that exist but are not in the FDD

Summary. “No franchisee association” in Item 20 often means none asked to be listed. A check of the AAFD’s public chapter directory shows independent associations for brands whose FDD lists none.

• 17 brands in the 259-FDD sample appear in the AAFD chapter directory (read 18 October 2026).
• 10 of them list an independent association in their FDD. 4 list only a franchisor council or board, and 3 list no organization. That is 7 of 17 (41.2%) with an AAFD chapter but no independent association in Item 20.
• The AAFD reported nine new franchisee chapters in the third quarter of 2026 (self-reported, 14 September 2026).

Limits. The directory is current, while the FDDs date from 2025 and 2026, so some chapters may have formed after the FDD was issued. Others may not meet the Rule’s test of being organized under state law and asking each year. Associations outside the AAFD network are not checked. Brand-level matches are in the downloadable data.

How to reach current and former franchisees before buying

Summary. The former franchisee list is the most consistently filled part of Item 20. Nearly every FDD whose tables show a recent exit or transfer names at least one former franchisee. Buyers still need to expect that some former owners signed clauses limiting what they say.

• Of 192 FDDs whose Item 20 shows at least one exit or transfer in the latest fiscal year, 186 (96.9%) name at least one former franchisee in the list. 1 says none, and 5 point to a list whose entries are not in the text layer (FDDs issued 2025 to 2026).
• Of 67 FDDs with no exits or transfers, 55 say the list is empty, 9 (13.4%) still name someone and 3 could not be read. The 9 cover franchisees who signed but never opened, did not respond within 10 weeks, or left after the table year.
• In all, 195 of 259 FDDs (75.3%) name at least one former franchisee. This report counts lists; it publishes no names or contact details.
• In a Franchise Rule settlement announced on 18 March 2026, the FTC alleged that a franchisor omitted franchisees whose outlets had ceased business from this list. The settlement included $17 million in redress to franchisees.

Practical steps.

• Use the current list to call owners in several regions and of different tenure. Do not rely on references the franchisor picks.
• Call names on the former list. The FTC’s consumer guide warns that some may have signed agreements that keep them from talking.
• Read the confidentiality statement. If it says clauses were signed, ask the franchisor how many, when and why. The Rule lets franchisors give that detail, and only 13 of 138 affirmative FDDs did.
• Ask whether an independent association exists even if Item 20 lists none, and check the AAFD directory.
• The buyer steps in our guide to buying a franchise cover the rest of the FDD review.

What federal and state law add

Summary. Federal law requires disclosure but does not ban confidentiality clauses aimed at prospective buyers. The FTC has said clauses that block reports to government are unfair. Some states protect franchisees’ right to form associations.

• On 12 July 2024 the FTC issued a policy statement on non-disparagement, goodwill and confidentiality clauses. It says clauses that bar franchisees from reporting potential law violations to the government are unfair under the FTC Act, and that the Item 20 disclosure duty is unchanged. The page was still listed on ftc.gov with no rescission notice on 18 October 2026.
• The FTC received 5,291 comments on its 2023 franchise Request for Information and posted 2,216 (policy statement, note 12). One law firm commenter said non-disparagement provisions appeared in about 6% of the FDDs it surveyed. That figure is a commenter’s own survey with no published method (policy statement, note 18).
• California Corporations Code 31220 makes it a violation to restrict franchisees from joining a trade association or to prohibit free association among franchisees. RCW 19.100.180(2)(a) in Washington makes it unlawful to restrict or inhibit franchisees’ right to join an association of franchisees.
• State relationship statutes are mapped in our franchise relationship laws tracker.

Methods and data quality

Sample. The 259 Clean FDDs of our royalty rates index, one per franchise system, filed on Minnesota CARDS and issued 2025-01-24 to 2026-08-18 (78 in 2025, 181 in 2026). The sample is quota-stratified across 14 sectors. Results describe systems registered in Minnesota, not all US franchising.

Coding. A parser cut the Item 20 narrative and the former franchisee list out of pdftotext output and suggested codes. Every FDD was then read and coded on 8 fields against a written codebook (data/codebook.md), including councils described in Item 11 or the franchise agreement. Former franchisee lists the parser could not settle, or that conflicted with the FDD’s own Item 20 counts, were read by hand (80 FDDs).

Independent blind check. After the first pass was frozen, a separate reviewer coded 20 random FDDs from the text without seeing the first-pass values (160 fields). The two agreed on 155 fields (96.9%). Each of the 5 disagreements was adjudicated against the FDD. One was a first-pass error: a denial sentence had been missed, an error rate of 0.6%. A scan of all affirmative FDDs for the same pattern found no other case. The other 4 were a codebook ambiguity: whether a model sentence edited to say clauses were signed “in the last 3 years” is the franchisor’s own statement. The rule was clarified and applied to all 259 FDDs. Counting those 4 as errors, the rate is 3.1%. The check did not include many independent-association FDDs (1 of 20), so that rare category was tested less.