Franchising & Distribution Law Blog

Greensfelder summer associate Kiran Jeevanjee contributed to this blog post.

Native American tribes occupy a unique position within the American legal system, and understanding these issues is vital for any franchisor considering a tribe as a potential franchisee. Federally recognized Native American tribes are classified as “domestic dependent nations” — meaning that the tribes are considered “distinct independent political communities” and can govern their own internal affairs. The most important consequence of this classification from a business perspective is that such tribes are entitled to tribal sovereign immunity that protects them from any civil suits or criminal prosecutions to which they did not consent.

A Georgia federal court recently found that a person who did not sign a franchise agreement was nevertheless bound by it. That was good news for a franchisor caught between two parties who claimed no responsibility for violating the franchise agreement by opening a competing business in the same franchise location. 

A recent federal appeals court decision overturning a $6.5 million jury verdict for a franchisee on a state franchise law discrimination claim demonstrates once again the difficulty that franchisees face in such challenges, even when the court finds that the franchisor treated some franchisees differently than others in some instances and could not explain why.

Despite arguably conflicting terms in a franchise agreement, a franchisor could enforce a non-compete provision whenever the agreement ended, whether by termination or expiration. An arbitrator reached that conclusion by harmonizing two provisions in the franchise agreement that referenced a non-compete obligation — one that referenced termination and one that referenced both termination and expiration. This was a reasonable interpretation of the contract, according to the Maryland federal district court that found no basis to upset the arbitration award.

The American Bar Association has recognized a program co-presented by Greensfelder Officer Leonard D. Vines as the best of last fall’s ABA Forum on Franchising.

Over the past few years, the health care industry has really taken a hit. There have been changes in the delivery of health care, reductions in payments for services and increasing regulatory burdens. These developments have forced health care entrepreneurs, investors and providers to think outside of the box and explore opportunities to open and grow franchises in a number of ambulatory care and ancillary service areas. These include home health, medical spas, physical therapy, vaccine and travel medicine centers, vision centers, direct-to-consumer laboratory testing and urgent care centers, to name a few.

John Baer and his co-authors, Anders Fernlund - NOVA, Susan Grueneberg - Snell & Wilmer, LLP, and Jane LaFranchi - Marriott International, Inc., discuss the challenges a non-U.S. franchisor will face in entering the U.S. Market in the article, "Taking the Leap: Bringing a Foreign Brand to the United States," published by the International Journal of Franchising Law. Read the article.

Recently, the United States District Court for the Southern District of Indiana denied franchisor Steak n Shake’s motions to compel the non-binding arbitration of three consolidated lawsuits filed by three franchisees. The decision highlights the importance of a franchisor carefully monitoring and updating its dispute resolution policies in the context of the legal risks facing its system.

The United States District Court for the Eastern District of Pennsylvania recently enforced a non-compete clause in a franchise agreement and granted a franchisor a preliminary injunction against its former franchisee. The court noted that Pennsylvania law recognizes that a franchisor has a legitimate business interest that can be protected by a non-compete clause, and that there was adequate consideration for the non-compete clause in that the clause was entered into as a condition of the franchise relationship. The court then analyzed if the non-compete clause was “reasonably limited in both time and territory.” The non-compete clause at issue had a duration of two years and the geographic scope of the clause was limited to ten miles from the perimeter of the franchisee’s former territory or the territory of any other franchisee.

This month, Delaware passed a law to clarify that the franchisor/franchisee relationship is not an employment relationship. The law applies to relationships that are defined as a franchise under the Federal Trade Commission franchise rule.

As we previously discussed, some states - including Delaware now - are adopting legislation to clarify that franchises are independent contractors. These laws come in the wake of cases that find franchisees to have an employment relationship.