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The Liberty Tax Service franchise program is known for its aggressive and creative marketing – but has their franchise marketing gotten too creative? Has it crossed the legal line set by the FTC prohibiting deceptive advertising?
(above: screen shot from CareerBuilder.Com August 19, 2009)
Liberty Tax Service has been ranked the #3 franchise in Entrepreneur magazine’s Franchise 500 for 2009, trailing only McDonald’s & Subway.
However, recent comments on a popular franchise website suggest that franchisee satisfaction with the huge tax prep chain may not live up to the hype (see Are LIBERTY TAX SERVICE Franchise Owners Happy?).
One such comment led me to take a closer look at the Liberty Tax Services franchise advertisements on employment website CareerBuilder.com. What I found casts some doubt on the ethics and even legality of some of Liberty Tax Services franchisee recruitment advertising, which may be in violation of FTC regulations.
The FTC Prohibits Franchise Ads Masquerading as Job Ads
On January 30, 2006, the Federal Trade Commission (FTC) issued Informal Staff Advisory Opinion 06-1, which addressed whether a franchisor “may seek leads by posting an offer for employment on an employment website, such as Monster.com or Careerbuilder.com.”
The FTC Advisory Opinion was issued in response to a franchisor’s complaint that a competitor was placing recurring franchise sales ads designed to entice job seekers into purchasing their franchise opportunity. In the Advisory Opinion, the FTC states:
…Section 5 of the FTC Act prohibits franchisors – and other business opportunity sellers – from engaging in deceptive practices in obtaining leads. Accordingly, a false offer of employment where no bona fide job exists that is made for the purpose of luring consumers into purchasing a franchise or other opportunity is a deceptive practice in violation of Section 5.
The FTC Prohibits Unsubstantiated Earnings Claims
The advisory opinion reiterates the fact that franchisors are prohibited from making unsubstantiated “earnings claims” without providing very specific details and back-up data:
Pursuant to section 436.1(e), a franchisor making earnings claims in advertisements, such as in newspapers or trade journals, must have a reasonable basis for the representation at the time it is made and disclose in immediate conjunction with the earnings claim the number and percentage of purchasers known by the franchisor to have achieved the same or better results in the same time period.
Franchise Ads Dressed in Job Ad Clothing?
A search for Liberty Tax Service on CareerBuilder.com revealed no less than 433 Liberty Tax Service franchise opportunity promotional listings mixed in with the employment ads.
While one of the fields was tagged “Franchise” and the title for most was “Liberty Tax Service – Franchise Ownership,” the franchise ads were steeped in employment lingo including “Job type: Full Time,” “View Full Job Description” & “View Similar Jobs.”
Is Liberty Tax Service crossing the line set by the FTC by trolling for franchise prospects among desperate job seekers?
[Right: Detail of Liberty Tax Service franchise listings on CareerBuilder.com 8/19/09. Red circles added to highlight earnings claims]
Inclusion of Prohibited Earnings Claims
It could be argued that the Liberty Tax franchise ads were clearly labeled as such and any confusion with job ads was accidental.
However, its inconceivable that a large and experienced franchisor (#3 in the nation?) with a cadre of lawyers somehow missed the section of Franchise Marketing 101 regarding the prohibition against earnings claims outside of the required format of Item 19 of the Franchise Disclosure Document (FDD).
But there it is, plain as day, repeated (one must assume), 433 times:
Job type: Full-Time / Pay: $56K – $69,900/year
The Liberty Tax Service Franchise Disclosure Document does, in fact, include Item 19 Financial Performance Representations, but it does not even vaguely resemble the promise of a “$56K – $69,900/year” franchise owner profit contained in the CareerBuilder ads. In fact, it contains no profit information whatsoever, just the average number of tax returns prepared by 1st, 2nd and 3rd year and older storefront office locations, and an average price per return of $164.20.
WHAT DO YOU THINK? IS LIBERTY TAX SERVICE FRANCHISEE RECRUITMENT ABOVE-BOARD? SHARE A COMMENT BELOW.
Also read: Are LIBERTY TAX SERVICE Franchise Owners Happy?
LIBERTY TAX SERVICE Franchise Success Story
LIBERTY TAX SERVICE Franchise Complaints
Is LIBERTY TAX SERVICE a Great Franchise?
LIBERTY TAX FRANCHISE: “Bankrupt by Liberty”?
897 days ago
[...] Leave a Comment // Last Thursday I published a post regarding 433 franchisee recruitmant ads placed on the employment website CareerBuilder.com. (Read LIBERTY TAX: Deceptive Franchise Ads?) [...]
Sean,
This claim is truly misleading, never mind the questionable practice Tax Liberty do. It seems like they do guarantee such income. Are they? By what guarantee and what is the compensation for unreached guarantee?
Liberty Tax is creative, indeed; but I guess they go a bit too far.
Ivan Widjaya
FranchiseNote.com
Excellent observation, Sean.
As you know Liberty Tax is the brainchild of the former owner of Hewitt Jackson.
I have followed with some interest the postings on career builder and monster for franchises, always wondering about where the line was being crossed.
Here is a quote from the FTC Advisory:
“The only substantive regulation of the content of advertising in the Franchise Rule are provisions regarding the making of earnings claims in the general media.
Pursuant to section 436.1(e), a franchisor making earnings claims in advertisements, such as in newspapers or trade journals, must have a reasonable basis for the representation at the time it is made and disclose in immediate conjunction with the earnings claim the number and percentage of purchasers known by the franchisor to have achieved the same or better results in the same time period.”
What is unfortunate is that this misleading advertising by Liberty Tax does not result in any possible cause of action because a breach of the Franchise Rule can only be pursued by the FTC.
And we all know that that the FTC simply doesn’t get into cat fights with franchise systems, only fly by night biz ops.
Again, great observation.
Wow Sean!
This is an impressive post. It is obvious that Liberty Tax needs some help understanding earning claims and the difference between a job and a franchise offering! It boggles the mind when large, successful organizations make such blatant “errors”.
It makes me wonder about the accuracy of their ranking as number 3. Entrepreneur gets the info for the ranking by sending a questionnaire to companies; and, I’ve heard that some stretch the truth a little. But that was not the point; it just goes to show how companies must be extra careful with how they present themselves because “errors” like this one can lead to mistrust of the company as a whole.
Thanks for the info!
Sean,
Earnings claim or not, if it it is not a “job, it is just plain wrong.” This reeks of desperation.
JL
Since they also have individual ads targeting specific states – including registration states – they could run into trouble with individual state regulators.
There are other franchisors advertising there, but none with blatant earnings claims.
Sean,
Ok. They are not too fast.
JL
Sean,
Fantastic earnings claim. Great job spotting this. They are rather aggressive. Let’s see how fast they are. Are they tuned in to the blogoshpere?
The Franchise King
Joel Libava