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Top Takeaways from the 2023 IFA Legal Symposium: AI and Privacy, Labor Disputes and More
By Greensfelder Franchising & Distribution Industry Group on May 22, 2023 at 2:30 PM

Greensfelder’s Franchising & Distribution Industry Group attended the 2023 International Franchise Association’s (IFA) Legal Symposium in Washington, D.C., in May. Greensfelder Officers Beata Krakus and Abby Risner led roundtable discussions, and the team attended sessions exploring the dynamic changes happening in the world of franchising. Below is a summary of the group’s top takeaways:

Fast-changing privacy laws. New state privacy legislation is being proposed and signed into law monthly, creating an inconsistent patchwork of laws governing how franchised (and non-franchised) businesses can use their data. Brands cannot afford to bury their heads in the sand. Customer data is the lifeblood of nearly all businesses. Brands need to be up to date on the new regulations and prepared to adjust their data policies and operational approaches. Each state’s requirements vary. Consider incorporating appropriate requirements to address privacy issues in your franchise agreements and operations manuals.

Time to speak up. The Federal Trade Commission has asked for public input as it is poised to enact the first extensive new franchise regulations in a generation. Many are concerned that the FTC may hamstring brands’ abilities to continue generating opportunities for would-be entrepreneurs using the franchise model. If you are a franchise success story, now is the time to make your voice heard. Greensfelder’s team is prepared to walk you through the public comment process.

Not so fast. Important insights from Christina Russell, CEO of Radiance Holdings (and former franchisee of the Curves brand): Rapid franchise growth may look like success for emerging brands, but it can be the path for the brand’s demise if the franchisor has not built sufficient infrastructure to support the new franchisees. A good franchise attorney can help you plan for the future and minimize risks.

Protecting your data from AI. The confidential data of businesses using popular cloud-based data storage services and web-based email services may be fueling the rise of artificial intelligence services like Google’s AI chatbot Bard and OpenAI’s ChatGPT. It’s important for businesses to understand how their data storage and email services can use their data to ensure that AI tools don’t farm it and give their competitors unexpected access.

The robots are taking over! Will they protect your confidential information? Franchise systems are increasingly embracing digitization, AI, and even robots, but must be careful in the implementation. Obtaining and deploying valuable data points to help guide operations can give franchise systems a cutting edge, but franchisors should make sure they understand the impact of sophisticated software. For example, confidential information entered into ChatGPT as part of a request for ChatGPT to generate material may make that confidential information part of the data maintained by the software for use by anyone else.

Labor issues in full swing – but why? Issues involving independent contractor classification and joint employer status continue to be a thorn in the sides of franchisors. Following what is happening at the NLRB and the DOL, it is obvious that labor lawyers are sometimes practicing politics rather than law. However, politics is not the only thing having a significant impact on unionization and labor issues. Changing demographics in the workforce play a significant role, and franchisors and franchisees alike must understand how these changes may impact their businesses to best avoid labor disputes.

“I have a great prospective franchisee but am not registered in any state” – Exemptions to the rescue! At a roundtable moderated by our own Beata Krakus, a lively debate took place about the use of exemptions from federal and state disclosure rules and statutes. Exemptions can be a useful tool when a franchisor has had to go dark during renewal season, or for a franchisor wishing to sell a franchise in a registration state where it is not yet registered. It is a tricky area of law, though, that any franchisor needs to tread into carefully, with significant differences between exemptions available under the FTC Franchise Rule and state laws.

Franchisee associations and advisory councils. Whether your system already has a franchise advisory council and/or a franchisee association, consider how to ensure the franchise is optimizing its value. At a roundtable moderated by Abby Risner, both franchisor and franchisee attorneys discussed the ways in which franchise advisory councils can be a great resource to franchisors for communicating with franchisees, testing new ideas, rolling out changes to brand standards, offering training opportunities, and more.  Franchise advisory councils are typically formed by the franchisor, whereas franchisee associations are normally formed by a group of franchisees, sometimes when there is widespread franchisee discontent.

Setting sail for foreign lands – an update. The IFA/IBA Joint Conference provided practitioners with insights to issues faced by franchisors taking their brands to new markets abroad. Many issues faced by franchisors are the same, but with a twist. For example, registration requirements exist in many countries, but may look different. Some countries may require the franchise agreements to be registered, while others may require training and operations manuals to be part of the registration. Likewise, many countries have relationship statutes, but in some cases the regulation goes beyond what is common in the U.S., significantly restricting how much franchisees may be required to spend on remodeling, or even requiring the franchisor to contribute financially to the remodeling.

Given all the developments in new state laws related to joint employer and franchising issues, as well as rapid advances in technology that are unpredictable and could dramatically affect the way companies do business, this is an important time to revisit your agreements to consider class action waivers and/or dispute resolution provisions, including whether a dispute escalation clause or arbitration provision is appropriate for your system.

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