Union-Employer Agreement To Cease Importing a Competitive Product

No. 403. Union-Employer Agreement To Cease Importing a Competitive Product.

The Federal Trade Commission rendered an advisory opinion in regard to the legality of labor unions entering into collective bargaining agreements with their employer manufacturers whereby the manufacturers will agree to cease importing products of the type they manufacture.

Tt is alleged that the unions have made such a proposal to their empioyer manufacturers because of the increased imports which have resulted in decreased domestic production, increased domestic unemployment, loss of wages, etc. It is contemplated that penalties will be assessed against any manufacturer who violates the proposed agreement. The Commission concluded that the immunity afforded to labor unions for certain labor activities is lost if the union combines with non-labor groups to effect a restraint of trade not intimately related to wages, hours, and working conditions and otherwise prohibited by the antitrust laws or Federal Trade Commission Act. (File No. 708 7045,

‘released Feb. 4, 1970.)
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“1700 FEDERAL TRADE COMMISSION . DECISIONS

‘No: 404. Franchise Sales Promotion Plan With Pyramiding ‘' Franchises and “Functional Override” Commission Implications, In a previous advisory opinion the Commission advised that a violation of Section 5 of the Federal Trade Commission Act would result from the adoption of the following proposed franchise sales promotion ‘plan.

The plan centers around the sale of a fruit juice drink through franchise independent businessmen who will assist in the franchisor’s growth by training additional franchisees. For such performance an original franchisee will be paid a “Functional Override,” or commission, of 1 percent of the gross sales of those they recruit and train (direct franchisees) and one-half of 1 percent of the gross sales of those recruited and trained by direct franchisees (indirect franchisees). In addition, original franchisees will be granted loan credits and cash bonuses for persons proposed and accepted as franchisees. Although the plan was not intended to have “pyramid sales” implications and the “Functional Override” was to stop with the indirect franchisees insofar as an original franchisee is concerned, a direct franchisee may become an original franchisee and indirect franchisees may become direct, and subsequently original, franchisees by sponsoring other persons as franchisees. This being so the “Functional - Override” continues throughout the chain down to the last indirect franchisee recruited who would be unable to derive any benefits from the plan for the reason that the continually expanding pyramid of franchisees would prevent the later franchisees from successfully recruiting still other participants.

A tabulation distributed through an operations manual to potential franchise purchasers indicates that an original franchisee may, in theory, benefit from the effort of at least twenty (20) other franchisees. This in the Commission’s judgment is somewhat beyond the realm of possibility since an original franchise purchaser does not know the number of prior franchise purchasers nor the degree to which an available market has been saturated with franchises. The return to any given franchise participant will unquestionably be a great dal Jess than the theoretically achievable amount set forth. No single franchise participant can be certain what his return will be, if any, beyond perhaps that from his first few direct franchisees. Any further amount he might receive would accrue to him sheerly through chance. (File No. 708 7057, released Feb. 4, 1970.)