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.

The enforceability of class action waivers in arbitration provisions has been debated for years in courts across the country, including in several cases before the United States Supreme Court. This week, Congress weighed in on the ongoing debate. 

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.  

While state and national efforts are underway to clarify the issue of joint employment, plaintiffs continue to allege the theory against franchisors in hopes of getting past a motion to dismiss. The lesson in one such recent case was that franchisors that give product discounts to their franchisees’ employees may find their generosity backfires if they are sued for being a joint employer in certain states. A federal district court in Michigan recently found that food service managers working at Marriott franchises had alleged enough facts to survive a motion to dismiss a lawsuit claiming that the franchisor, Marriott International, Inc., exercises control over them and is their joint employer. Among the allegations that the court cited in denying Marriott’s motion to dismiss was that Marriott treated plaintiffs like Marriott employees by giving them discount room rates at Marriott hotels worldwide, which the court said could be viewed as the ability to affect compensation and benefits similar to an employment relationship.

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.

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).

Once again, the ABA Forum on Franchising will be recognizing former Greensfelder partner John Baer through the award of a scholarship in his name.

The John R. F. Baer Scholarship for International Civility and Professionalism will be awarded to a member of the Forum on Franchising who has demonstrated an interest in international practice in the field of franchise and distribution law and has demonstrated civility and professionalism in the practice of law. Applications should include:

On June 7, 2017, the U.S. Department of Labor (DOL) announced the withdrawal of two Obama-era guidance letters that provided guidance on joint employer and independent contractor classifications. The withdrawal of these two guidance documents marks a step toward more flexibility for employers.

California’s governor recently vetoed legislation that had intended to make it easier for franchisors and franchisees to do business in the state. While the vetoes came as no surprise, they are disappointing from a franchise perspective.

AB 1782 (Limited Trade Show Exception) and AB 2637 (Negotiated Sales) — which the State Bar of California’s Franchise Law Committee, the International Franchise Association and the Coalition of Franchisee Associations each supported — were vetoed Sept. 22, 2016, by California Gov. Jerry Brown.