Franchising & Distribution Law Blog

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 nearly 10-year-old Illinois privacy law that has sparked class action lawsuits against familiar tech companies such as Google, Facebook and Shutterfly has moved into the franchise industry.

Following in the footsteps of claims under the Americans with Disabilities Act and the Telephone Consumer Protection Act, class action lawyers are now filing lawsuits under Illinois’ Biometric Information Privacy Act (BIPA) alleging that companies are unlawfully collecting biometric information from customers and employees through devices such as fingerprint scanners. Plaintiffs are suing both franchisors and franchisees. Franchisors are being sued for collecting the information themselves for their own employees and also for the actions of their franchisees on theories of joint and several liability, vicarious liability, agency and alter ego. A recently filed case alleges that a franchisor mandates and controls virtually every aspect of its franchise locations, including the use of certain equipment that collects biometric information to track employees’ time and attendance and to monitor cash register systems for fraud. Other cases allege that franchisors and franchisees are using it to track health and fitness information and authenticate customers’ transactions.  

On May 8, 2017, the North American Securities Administrators Association (NASAA) released its final commentary on financial performance representations (FPRs), providing franchisors with additional clarification and guidance on how to prepare one of the most important parts of their franchise disclosure documents (FDDs).

More and more franchise registration states are offering the option to submit franchise applications either electronically or in hard copy. As of June 30, 2016, Wisconsin franchise filers now find themselves required to e-file all future franchise applications. 

The new year is upon us, and franchisors across the U.S. are focusing on updating their franchise disclosure documents and renewing their franchise registrations. In this busy time, it is easy to overlook other filing requirements for franchisors.

Since 2009, franchisors that have at least one franchisee that does business in New York state and is required to be registered as a sales tax vendor are required to file information returns with the New York State Department of Taxation and Finance. The reporting period is from March 1 to February 28 (or 29) of the subsequent year. The return is due on March 20.

In the aftermath of a significant change in the joint employer standard this year, several states are attempting to address how franchisors are affected.

In August, the National Labor Relations Board (NLRB) released a decision in Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Recyclery, 362 NLRB No. 186 (Aug. 27, 2015), drastically expanding the standard for determining whether an entity was a joint employer. (See our blog post about it here). In doing so, the NLRB veered away from precedent that required a showing that a company exerted actual control over the employees of another company in order for the first company to be considered a joint employer.

The American Bar Association’s annual Forum on Franchising took place recently, and Greensfelder, Hemker & Gale attorneys David Harris, Dawn Johnson, Beata Krakus, Kim Myers, Abby Risner and Leonard Vines, as well as franchise paralegal Tom Ligouri, attended the two-day program in New Orleans.

NLRB’s Richard Griffin and DOL’s David Weil address joint employer issues at the ABA Forum on Franchising

Joint employer issues have preoccupied many in the franchise field for some time now. So it is no surprise that a session with Richard F. Griffin, Jr., the general counsel of the National Labor Relations Board (NLRB), and David Weil, the administrator of the Wage and Hour Division of the U.S. Department of Labor (DOL) and author of “The Fissured Workplace,” drew large crowds at the 38^th annual meeting of the American Bar Association Forum on Franchising.

We previously reported on the proposed amendments to the California Franchise Relations Act (CFRA) in a Sept. 28 blog post. The proposed bill was signed into law by the governor on Sunday, Oct. 11, and will take effect Jan. 1, 2016.

The bill revises the previous provisions of the CFRA regarding termination, introduces a restriction on a franchisor’s ability to prevent transfers by a franchisee and broadens the franchisor’s obligation to repurchase inventory. Critics of the bill are concerned that it will turn franchisors away from California, while the bill’s proponents laud it as strengthening franchisee rights.

Over the past several years, California has severely restricted the permissible scope of non-competition covenants, and many California courts have been liberal towards franchisees. Yet, franchisors continue to sell franchises in the state. Whether the amendments to the CFRA are the drop that spills the glass remains to be seen. Only time will tell about the real impact of the amendment.

Many states have seen attempts over the past several years to enact new franchise relationship legislation. California’s bills have made it further in the legislative process than those of other states, and by Sept. 30, we should know whether the latest attempt, bill AB 525, will make it all the way.

The smart money is betting that California Gov. Jerry Brown will sign the new bill that modifies certain provisions of the California Franchise Relations Act. The purpose of the bill is to give more protections to franchisees. Last year, the governor vetoed a similar but more franchisee-friendly bill (SB 610).