Nearly every clause in a franchise agreement governs money or operations: what you pay, what you build, how you run the place. A small cluster of clauses governs something else entirely — what you're permitted to say about the experience once you're inside it. They rarely come up at discovery day, they cost nothing to sign, and they're easy to read as boilerplate. Their effect shows up later, in two places that matter: whether you can speak candidly to a regulator if you think something unlawful is happening, and whether the franchisees you interviewed during your own research were free to tell you the truth.
Three clauses that do similar work under different names
The Federal Trade Commission groups them together because in practice they overlap. A non-disparagement clause bars the franchisee from disparaging the brand. A confidentiality or non-disclosure clause restricts sharing information about the franchise or the franchisee's experience of it. A goodwill clause — the broadest and, by several accounts, the most common — bars conduct that could tarnish the goodwill of the brand. That last formulation is worth pausing on, because "conduct that tarnishes goodwill" is elastic in a way that "don't disparage the brand" is not. A franchisee reading it can't easily tell whether it reaches a candid answer to a prospective buyer, a complaint in a private franchisee group, or a comment to a trade publication.
Where these clauses live also varies. Some sit in the franchise agreement you sign at the start. Many are signed later, in a release or settlement at the end of the relationship — which is precisely when a franchisee has the most to say and the least leverage.
What the Commission said in July 2024
On July 12, 2024, the FTC issued a policy statement on franchisors' use of contract provisions, including non-disparagement, goodwill, and confidentiality clauses. Its core position is narrow and specific: provisions in franchise agreements or other contracts between franchisors and franchisees may not restrict a franchisee's communications with the Commission, or with any other state or federal law enforcer or regulator, about potential law violations. The Commission's view is that clauses which impair such communication are void and unenforceable, and that implicit or explicit threats of retaliation against a franchisee for reporting to the government are themselves unfair under Section 5 of the FTC Act.
The statement came out of a 2023 request for information about franchise agreements and franchisor business practices. The Commission received 5,291 comments and publicly posted 2,216 of them, and the responses on this question did not agree. Some franchisee associations described non-disparagement and goodwill clauses as ubiquitous and said fear of retaliation kept franchisees from filing complaints at all; several commenters on that point filed anonymously, which is its own kind of evidence. One law firm told the Commission that specific non-disparagement provisions appeared in roughly 6% of the FDDs it surveyed, and that such clauses show up mainly in termination and settlement agreements. Franchisors including Domino's and Wyndham, and the International Franchise Association, said their provisions weren't intended to and did not stop franchisees from talking to regulators or to prospective buyers.
Two limits on all of this are worth stating plainly, because they're in the document itself. A policy statement confers no rights and doesn't bind the public; in any enforcement action the Commission still has to prove a violation of an existing legal requirement. And the Commission was clear that it takes no issue with clauses that narrowly protect a company's genuine intellectual property. The statement was adopted by a 3–2 vote, with two commissioners dissenting — a reminder that this is the agency's stated enforcement posture rather than a settled rule, and that agency positions can shift.
The Item 20 warning the rule makes franchisors print
There's a disclosure requirement here that almost no buyer knows to look for. If franchisees signed confidentiality clauses during the franchisor's last three fiscal years, Item 20 of the FDD has to say so, using language the rule prescribes: that in some instances current and former franchisees sign provisions restricting their ability to speak openly about their experience with the system, that you may wish to speak with them, and that not all of them will be able to communicate with you (16 CFR § 436.5(t)(7)). The rule then says the franchisor may also disclose the number and percentage of franchisees who signed such agreements in each of those years, and the circumstances under which they signed.
That split between mandatory and optional is the useful part. The boilerplate warning tells you only that the practice exists somewhere in the system. The counts and circumstances — which are voluntary — tell you whether one franchisee signed an NDA in a single unusual settlement or whether a meaningful share of departing owners left under one. If a franchisor includes those numbers, read them closely. If it doesn't, that's a fair thing to ask for directly, and the answer, including a refusal, is data.
Why this shapes your own due diligence more than you'd expect
Every guide to buying a franchise, including this one, tells you to interview current and former franchisees. These clauses are the reason that advice sometimes returns thin results. A former owner who lost money and signed a release with a confidentiality provision may genuinely be unable to describe what happened. A current owner reading a broad goodwill clause may decide the safe answer to your questions is a pleasant one. Neither is lying to you; both are managing an obligation you can't see from the outside.
So build the possibility into how you interpret what you hear. When answers are uniformly upbeat and oddly non-specific, particularly about a franchisor dispute or a unit that closed, consider that the constraint may be contractual rather than a reflection of reality. And ask about it head-on: whether the person is subject to anything limiting what they can tell you, and whether they'd say more if they weren't.
Where a legitimate confidentiality interest actually ends
None of this means confidentiality provisions are illegitimate. A franchisor has a real interest in protecting trademarks, recipes and formulas, proprietary software, supplier terms, and unit-level financial data that isn't public — and the FTC said as much. The line the Commission drew isn't between confidentiality and none; it's between protecting proprietary information and preventing someone from telling the government about a suspected legal violation. A clause written to do the first raises no concern; one drafted broadly enough to do the second is the one at issue.
What to read, and what to ask, before you sign
Locate the actual language in the agreement rather than relying on a summary. Search the document for the words disparage, goodwill, confidential, and non-disclosure, and read every clause you find in full. For each one, work out four things: who you're restricted from speaking to, what subjects it covers, how long it lasts after the relationship ends, and what happens if the franchisor decides you breached it. Then check Item 20 for the prescribed confidentiality warning, and ask the franchisor for the optional counts if they aren't printed.
Take the clauses to a franchise attorney licensed where you'll operate, and ask two concrete questions: how courts in that state have treated language this broad, and whether the agreement's remedies make an alleged breach of a goodwill clause a plausible route to default. Ask the franchisor directly, in writing, whether it reads its provisions as limiting communications with regulators or with prospective franchisees — that answer, in writing, is worth having regardless of what the clause says. And know that a reporting route exists independently of the contract: the FTC maintains a reporting portal, and its stated position is that no contract term can lawfully close it to you. You'll probably never need any of this. But of all the clauses in a franchise agreement, these are the ones whose effect you're most likely to have already encountered — in every conversation you had with a franchisee before you ever saw the contract.