Franchising & Distribution Law Blog

SBA-backed loans have long been an important source of funding for many franchisees, but in the past several years, the system has been in flux. Changes will again be implemented on Jan. 1, 2018, and franchisors should ensure they are ready.

Today the Office of the General Counsel of the National Labor Relations Board (“NLRB”) took its next step in the investigation of labor practices within the McDonald’s franchise system and issued consolidated complaints against McDonald’s franchisees and the franchisor – McDonald’s USA, LLC on the theory that the franchisor is a joint employer with its franchisees. Consistent with General Counsel’s amicus brief in the Browning-Ferris matter that was filed this summer, the focus of the complaints appear to be on the use of technology and tools that allows franchisors insight and potential control over franchisee operations.

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.

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.

The Second Circuit held that two trial franchisees properly asserted an action under the PMPA when their franchisor failed to comply with the notice provisions under the Petroleum Marketing Practices Act (“PMPA”) prior to terminating their franchises.