At Your Service? Customer Account Ownership and its Impact on Non-Competes, Control Determinations for Vicarious Liability, and Franchise Goodwill
Franchise law requires familiarity with both federal and state laws that regulate the offer and sale of franchises. Our franchise lawyers have a national franchise practice representing both franchisors and franchisees, including the representation of franchisors in industries as diverse as advertising, fitness and weight loss, home health care, ground transportation, home improvements, restaurants and sailing and boating.
Representation of franchisors and potential franchisors often involves, as an initial step, analyzing a proposed business structure to determine whether (i) the structure creates a franchise under federal law or, if applicable, state law, or (ii) the structure can be modified to avoid the application of franchise laws.
When a business structure constitutes a franchise for federal or state purposes, our franchise lawyers can help you through the process of preparing the franchise disclosure documents required by federal and some state laws, as well as unit-level franchise agreements, multi-unit development agreements and master (or sub-franchising) relationships. In addition, our franchise lawyers ensure that you are properly registered as required in certain "registration states", including Maryland, before you offer or grant franchises in such states. Our franchise lawyers can also generally advise you on other issues that will arise as your franchise network expands, both domestically and internationally.
If the business relationship contemplated is not a franchise as a matter of law, or can be restructured to avoid the franchise classification, our franchise lawyers will prepare the contracts and related documents necessary for you to form business relationships without inadvertently granting a franchise.
In addition to our active franchisor practice, our franchise law team also represents prospective franchisees and active multi-unit franchisees in the evaluation of the franchise opportunity, the negotiation of contracts and leases, business entity formation, mergers and acquisitions and dispute resolution.
As a result of the Bipartisan Budget Act (“BBA”) enacted in 2015, beginning this year partnership audits (which means the audits of any entity taxed as a partnership for federal income tax purposes, most typically limited liability companies (“LLCs”) and limited partnerships) will be governed by the IRS’s newly centralized audit regime. Considering how many franchisees and franchisors are LLCs and are treated as partnerships for tax purposes, these new rules demand the attention of people involved in franchising, real estate and many other business ventures.
David Cahn moderates a presentation on “Start-Up Franchisor Challenges,” presented by Steve Beagelman, Founder and CEO of SMB Franchise Advisors at the International Franchise Association (IFA) Baltimore Area Franchise Business Network Meeting (FBN).
Franchisors have many tools to enhance the franchisor/franchisee relationship, including soliciting honest feedback through surveys and fostering a “partnership” mindset. Please join us for a presentation by nationally recognized franchise researcher Jeff Johnson on how to obtain metrics that lead to extraordinary franchisee satisfaction. All franchisors in attendance will receive a FranSurvey® Express franchisee survey at no cost.
Effective for franchise agreements entered into or renewed this year, new amendments to the California Franchise Relations Act impose significant restrictions on franchisor’s termination or refusal to renew franchise agreements, increase franchisor’s post-termination obligations, and bolster franchisees’ rights to sell their franchised business. These changes make California a somewhat more risky state in which to use franchising as a growth strategy, while arguably bolstering the security of franchisees’ investments in mature brands.
NLRB Issues Advice Memo Finding That Franchisor Is Not Joint Employer
Why Maintain Your Company Charter? Moe's Southwest Grill Will Tell You
"You Made Your Bed, Now Lit In It!" Dickey's BBQ and Franchisees Stuck Litigating and Arbitrating
Before you enter a franchisee/franchisor agreement, try to devise an efficient and fair dispute resolution system so you don’t end up in this sticky situation.
In our previous article on the Moe’s Southwest Grill case, posted June 16, 2015, we explained the importance of complying with state filing requirements to maintain limited liability status in any state where your company is regularly doing business. The case demonstrated how a failure to do so could cost your business the ability to protect its rights and have other substantial legal repercussions. Now, we take up the important question of what instate activities constitute “doing business” to require such state registration as a foreign entity.
Co-Author: Jenny Morris, University of Maryland Law School, Class of 2017
Occasionally corporations and limited liability companies neglect to make the periodic filings required by their state of formation. Even more often, companies that open locations outside of their state of formation do not register as a foreign entity with that other state's business regulatory agency. The May 29, 2015 decision by the Maryland Court of Special Appeals in Guy Named Moe LLC T/A Moe’s Southwest Grill v. Chipotle Mexican Grill of Colorado LLC et al., No. 2270, Sept. Term 2013, is an important reminder to restaurant operators and other business owners of just how dangerous it can be for a company to ignore those basic state filing requirements.
On April 28, 2015 the National Labor Relations Board (“NLRB”), Office of the General Counsel, issued an Advice Memorandum to the NLRB’s Chicago area regional office finding that a restaurant franchisor and its Chicago area development agent are not joint employers with a Chicago franchisee. This is an important development in light of the current pursuit by the NLRB’s General Counsel of joint employer cases against McDonald’s Corporation.
Appeals Court Upholds "Silent Fraud" Jury Verdict Under Franchise Investment Law
What's the Value-Add of a "Full Service" Law Firm? - Personal Observations from a Lawyer in the Trenches
Enforcing Quality Standards in Hotel Franchise Agreements
If your franchise offering document is silent on key issues, you can be liable if your people “oversell” to a potential franchisee. Better to deal with the issue in carefully vetted writing than to be surprised by something your people say off the cuff.
A franchisor’s diligence in conducting and documenting quality assurance inspections is as important as ever, particularly if the franchisor seeks to exercise its ultimate weapon – termination of the franchise agreement. Prudent inspection and documentation practices are particularly crucial in the many U.S.
Over the past decade I have been a solo legal services provider, then managing member of a boutique firm, and then a part of a much larger firm, Whiteford Taylor & Preston, since 2011. So I have really seen the legal profession from all sides—and of course, like all lawyers, I have heard the grumbles from clients about “big law firms.”
So maybe my three-faceted experience in providing legal services will help you gain some perspective as well.
Recent Franchise Non-Compete Cases Show Unpredictability of Enforcement
Restaurant and Retail Franchisors: Could This Be Your in 2014?
Recent cases involving attempted enforcement of covenants not to compete by franchisors show the unpredictability of the results in such cases. However, careful reading of the factual circumstances of the cases also supports the adage that “bad facts make bad law.” So it behooves franchisors to check whether they have a sympathetic case on the facts when trying to enforce their non-competes.
The case of Wojcik v. Interarch, Inc., currently pending in the U.S. District Court for the Northern District of Illinois against the fast casual restaurant franchisor Saladworks, LLC, contains a factual scenario that should serve as a valuable reminder for existing franchisors who are updating their Franchise Disclosure Document (“FDD”) for use in 2014, for companies beginning the offer of franchise rights, and for prospective franchisees who are investigating opportunities. Bottom Line: Franchisors need to be careful not to underestimate site development costs, ongoing operating costs, and the challenges of opening locations in geographic areas not familiar with their brands.
Is California's "Good Faith" Franchise Legislation Necessary or Meaningful?
Another Court Ruling Shows Franchisors the Value of Providing an Item 19 FPR
Severe Consequences for Franchisor Executives: Personal Liability and Non-dischargeable Debt
Franchisors cannot rely on disclaimers in the contracts and FDD to protect against claims of providing false financial information.
“Do not pass Go, do not collect $200” is a phrase we all remember from the childhood game Monopoly. Like Monopoly, state franchise sales laws have rules and regulations that must be followed. A franchisor’s failure to follow these basic procedural rules for selling franchises can result in self-destruction.
On May 28, the California Senate passed S.B. 610, which is an amendment to California’s Franchise Relations Act (the “CFRA”). The bill has been introduced in California’s General Assembly and was referred to that body’s Judiciary Committee on June 10.
"Gangland" Judicial Opinion is a Reminder of Liability for Franchisees and Their Franchisors
The Power of Association: Auto Dealer Protection Laws
Contingency Planning for the Business Owner -- Are You Covered?
NLRB "Pushing the Envelope" to Protect Employees' Rights to Communicate Online
In Ford v. Palmden Restaurants, LLC, the Court of Appeals of California issued a strong reminder to both restaurant franchisees and their franchisors of their potential liability for criminal conduct that takes place on a restaurant’s premises. While the legal principles at issue differ for franchisees and franchisors, this potential liability is one that neither can ignore.
Most of the work that I do for franchise owners falls into two categories: (1) helping to evaluate a potential franchise opportunity and negotiating the franchise agreement and real estate lease, and (2) evaluating potential exit strategies from the franchise and/or claims against the franchisor. While grateful to serve in that capacity, I worry whether franchisees and other small business owners are adequately planning for and protecting against their own death or disability. This article outlines some legal and practical estate planning issues that each person should address.
Through its recent activities the current National Labor Relations Board (“NLRB”) has indicated its determination to make itself relevant to all U.S. employees (and employers), by focusing a less prominent part of its authority -- to insure that “Employees shall have the right . . . to engage in other concerted activities for the purpose of . . . mutual aid or protection.” Among the areas where this emphasis is being shown is the ability of employers to limit employees’ use of social media networks such as Facebook to communicate with each other.
Because of their brand recognition, consistency of operation and support network, franchised businesses can be wonderful tenants at shopping centers and other multi-use commercial properties. Franchisees are small business owners with substantial investments and drive to succeed, but who are able to use brands and business systems that provide competitive advantages. However, a lease with a franchisee raises concerns separate and distinct from those with independent small business owners or with regional or national chain store operators.
Through effective trade associations and lobbying efforts, during the last century automobile dealer franchises in the United States convinced state governments to give them significant protection against commercial abuse or unfair dealing by the manufacturer or supplier franchisors. Franchisees in other industries could learn from that example.
Co-Author: Allan P. Hillman, Kern & Hillman
A covenant not to compete is a limited restraint of trade that, in many situations, restricts the freedom of an individual or business seller who is no longer associated in any way with the person or entity that the covenant benefits. These restraints are most common in employment relationships and also are customarily included in franchise agreements. Because sale of business covenants are almost always enforced, and there are few Maryland cases (none recent) evaluating them, in this article we address employer and franchise covenants.
While the continuous growth of Internet-based commerce has to lower prices for many consumer shopping for goods, it has been a major problem for many “bricks and mortar” retailers and also has caused concerns for product manufacturers who want to insure quality experiences for customers purchasing their goods. The question is the extent to which manufacturers may, under applicable U.S. anti-trust and competition law, take steps to protect the image of their brand as well as stopping the “e-tailers” from "free-riding" on the promotion efforts of traditional retailers.
Franchising and its Growth Alternatives
Can I Stop "Bargain Basement Pricing" of My Branded Products?
Could Your Association's Chapter Program Be Considered a Franchise System?
In Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the United States of America, Inc., 646 F.3d 983 (7th Cir. 2011), the U.S. Court of Appeals for Illinois, Indiana and Wisconsin held that the national Girl Scouts organization, a nonprofit incorporated by an Act of Congress, violated the Wisconsin Fair Dealership Law by dissolving a local Wisconsin chapter of the national organization “without good cause.” The 2011 decision is notable both because of its author, the extremely well-known, respected and conservative Judge Richard Posner, and because of the language used by the Court in rejecting the Girl Scouts of the United States’ arguments for immunity based on its nonprofit mission. This article is designed to help the leaders of nonprofit organizations and associations identify ways to mitigate risks posed by this decision.
Compliance costs and ongoing challenges of obtaining financing for new businesses have led many companies seeking growth to search for alternatives to franchising. These efforts, while quite understandable, have legal and practical implications.
Is That Really My Problem? Case Highlights Need to Verify Franchise Disclosure Data
Can They Really Do That? Franchisees' Liability for Lost Future Royalties after Store Failure
Talking to Your Competitors Can Be Risky
A recent decision in A Love of Food I, LLC v. Maoz Vegetarian USA, Inc. , Case No. AW-10-2352, Bus. Franchise Guide (CCH) ¶ 14,633 (decided July 7, 2011), the United States District Court for the District of Maryland, in denying a motion to dismiss, highlighted the need for franchisors to vigilantly update their government-required disclosure document to maintain its accuracy, while also providing a valuable reminder as to the geographic scope of state franchise sales laws’ application.
In its recent decision of Meineke Car Care Centers, Inc. v. RBL Holdings, LLC, et al., Case No. 09-2030, Bus. Franchise Guide (CCH) ¶ 14,586 (decided April 14, 2011), the United States Court of Appeals for the Fourth Circuit provided valuable guidance on one of the most important legal issues for franchisors and franchisees. Specifically, if a franchisee closes franchised businesses that it can no longer afford to operate, can its franchisor obtain a judgment for “lost future royalties” that it would have earned had the businesses continued to operate?
Two recent guilty pleas announced by the U.S. Department of Justice’s Antitrust Division highlight an underappreciated area of serious legal liability – price coordination in violation of the Sherman Act.
Whiteford, Taylor & Preston is pleased to announce that David Cahn, Chair of the firm's Franchise Law group, has been selected as a Franchise Times Legal Eagle for 2016. This ranks David in the top 150 franchising attorneys in North America.
Whiteford, Taylor & Preston is delighted to announce that David Cahn has been selected in the International Who’s Who of Franchise Lawyers. He is one of fewer than 400 lawyers worldwide to receive this designation.
Whiteford Taylor & Preston is pleased to announce that David L. Cahn has been selected for the latest edition of the International Who's Who of Franchise Lawyers. He is one of only 150 lawyers in the United States listed in this reference and one of only two in Maryland.
Whiteford Taylor & Preston is pleased to announce that David L. Cahn, the head of the firm’s Franchise Law practice, has been recognized as a Certified Franchise Executive by the Institute of Certified Franchise Executives.