LIBERTY TAX: Deceptive Franchise Ads?

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”?

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