Arbitration Clause in Subway Franchise Agreement Booted by Court of Appeals  9/24/15 By: Jeffrey M. Goldstein Goldstein Law Firm, PLLC goldlawgroup.com 202 293-3947 Doctor’s Associates Inc. v. Jose Luis Carbonell, et al., New Mexico, 2015 WL 4380284 (June 29, 2015), addressing an arbitration clause in a Subway franchise agreement.  My view is that Arbitration clauses in franchise agreements are on balance more helpful than not to franchisees and dealers, and this position has remained consistent throughout my career representing exclusively franchisees and dealers as a franchise lawyer. That is not to say, however, that during my frequent, ongoing and methodical reassessments of the benefit of Arbitration clauses I have always reached the same net value on the balancing scale. To the contrary; over time, my positive assessments have been veering downward. Is it possible to explain this notable downhill secular trend against the benefits of Arbitrations for franchisees and dealers? Yes. The unadorned answer is that large franchisors, especially those with forum selection clauses in their franchise agreements, have over time become increasingly adept at obtaining biased Arbitrators during the Arbitrator selection process. This obviously does not mean that every arbitrator is intentionally biased. Nor does it mean that every arbitration association despises franchisees. It does mean, though, that the arbitrator selection process itself is inherently biased.  Understandably, this observation will be attacked by many who regularly serve and make money as ‘Arbitrators.’ Despite their anticipated sincere objections, these critics cannot show that they are immune from the forces of human […]

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The Unintended Consequences to Franchising of the NLRB’s New Joint Employer Test Like all other government regulation, the new NLRB joint employer test has unavoidable unintended consequences. The Browning-Ferris joint-employer decision will likely send many franchisors back to the drawing board to find aspects of their systems about which they can relinquish legal and operational control and responsibility to their franchisees. Unfortunately, the increased costs that the new standard will impose on franchisors will be passed along, in large measure, to franchisees, some of which will be unable to maintain a profitable business. Of these, some will simply shut their doors, and others will be terminated. Last week, the National Labor Relations Board (NLRB) decided the Browning-Ferris decision, one that was long-awaited by the franchise industry. Although the case did not directly involve franchise industry parties, the decision did establish a new standard for determining whether an entity is an employer subject to the statutory obligation to engage in good faith collective bargaining with workers. Under the new standard, franchisors can be found to be employers, along with their franchisees, of their franchisees’ workers. The NLRB, in jettisoning the established test of “direct control” (e.g., hands-on efforts regarding hiring and firing), embraced a far more expansive test of “indirect control.” In so doing, the NLRB has exposed franchisors, which, although not the actual employers of their franchisees’ workers, nevertheless exert indirect control of their franchisees’ workers. As the dissent in the Browning-Ferris decision pointed out, for many years the NLRB did not […]

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Court Closes Dairy Queen Franchise in Franchise Termination   By: Jeffrey M. Goldstein Goldstein Law Firm, PLLC jgoldstein@goldlawgroup.com (202) 293-3947 goldlawgroup.com   American Dairy Queen Corporation v. Wardlow, 2015 WL 5178454, United States District Court, D. South Dakota (September 4, 2015)   When a Dairy Queen franchisee failed to show up in federal court to defend against its franchisor’s (ADQ or Dairy Queen) emergency motion to enforce the franchisee termination by getting a court order to shut it down, the Judge, embracing a very traditional legal analysis, ordered that the franchisee cease operations. Not surprisingly, preliminary injunctions arising out of disputes in the fast food franchise industry are prolific.  The traditional test for determining whether to grant emergency relief to shut down a franchisee normally, in some fashion, encompasses four equitable issues, including: (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest. Regarding the first point, the Court pointed out that irreparable harm occurs when a party has no adequate remedy at law, typically because its injuries cannot be fully compensated through an award of damages. Interestingly, rather than ruling that the franchisor would suffer per se damages as a result of the trademark infringement, the Court examined the factual basis underlying this claim. In so doing, the Court ironically further solidified the jurisprudential principle that […]

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Domino's franchise operators accused of uttering death threats will keep store… This is one way for a franchisee to hold down franchisee labor costs and at the same time side-step a franchise termination. Not sure, however, if the 'new big brothers' of franchisee organizations (big labor and the unions) would be happy with the result. JMG The operators of a Domino's Canada franchise in North Vancouver who were alleged to have exploited two former employees will keep their pizza store.  On Wednesday, CBC News learned a B.C. Supreme Court civil case, between brothers Keyvan Iranmanesh and Farhad Iranmanesh and Domino's Canada, was settled on Aug. 27, with the owners retaining the store.   The employees filed complaints with police and government, and also said at the time that they feared for their safety.  One of the franchisee employees told CBC News that his bosses said they would "cut his [Dearman’s] head off" and that "they're going to slit our throats and murder us." Domino's terminated the franchise, but the franchisees fought the termination in court. In so doing, the franchisee won a temporary injunction in BC Supreme Court to hold on to their business while the court case was pending. They also adamantly denied any assaults or threats.

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