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. 

Unlike some states’ franchise laws, the Missouri Franchise Act gives limited protection to franchisees. However, it does provide that if a franchisor fails to give 90 days’ notice of cancellation or termination, the franchisee may be awarded “damages sustained, to include loss of goodwill, costs of suit, and any equitable relief that the court deems proper.” A recent case provided much-needed clarification on how damages are measured if a franchisor fails to give a proper notice of termination.

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.

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.

In a closely watched case with far-reaching implications, the California Supreme Court determined that Domino’s Pizza, the franchisor, should not be held liable for the alleged sexual harassment by an employee of one of its franchisees. The lengthy, well-reasoned decision gave great weight to the contemporary realities of the franchise business model and the unique nature of franchising. Noting how franchising has become such an important and thriving part of our economy, the Court followed the modern, enlightened view and rejected the reasoning of the old line of cases that found a franchisor vicariously liable for acts of its franchisees based on the degree of control they exercised over their franchisees.

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.