As a franchisee (or prospective franchisee), among the many important issues you need to consider is the question of geographic protection. When you buy a franchise, you expect to benefit from the franchisor’s brand, systems and goodwill, and the last thing you want is for another franchisee – or even the franchisor – to end up using these against you. When many people hear that they have a “territory,” they assume this means that their territory is exclusive—that is, that no one else within the franchise system will be able to compete against them in their territory. Unfortunately, this isn’t always the case, and the actual territorial rights that are offered (if any) often are not clear in the franchise agreement or the Franchise Disclosure Document (FDD). Exclusive vs. Protected Territories Although they are often used interchangeably, “exclusive” and “protected” can actually have different meanings in the franchise context. If your franchise territory is truly exclusive, your business should be the only source of the franchisor’s goods or services in the territory. On the other hand, if your territory is merely protected, then your franchise agreement may authorize certain forms of competition, such as franchisor sales through alternative channels of distribution (i.e. the internet). As a third option, some franchise systems do not offer any territorial protection at all. In these systems, the franchisor is free to open competing outlets and use alternative channels wherever it pleases. While you may initially be willing to trust your franchisor not to “cannibalize” […]

Read More

When you are considering a new franchise opportunity, the franchisor will provide you with two main legal documents: a Franchise Disclosure Document (FDD) and a franchise agreement (at least initially, the franchise agreement will be included as an exhibit or attachment to the FDD). By federal regulation, the franchisor must provide you with the FDD at least 14 days before you sign the franchise agreement, and some states’ franchise laws require even earlier disclosure. Part of the reason for this is that these documents are exceedingly complex (and long), and it is critical to make sure that you have a thorough understanding of the franchise opportunity before you sign on the dotted line. The Importance of Understanding Your Franchise Agreement and FDD So, should you hire an attorney to review your franchise agreement and FDD? Absolutely. Despite the franchise relationship and disclosure laws that exist in some states, most franchise relationships are still extremely one-sided. If you are not familiar with the way FDDs and franchise agreements are written, you will almost certainly overlook important issues that could have drastic financial and legal implications over the life of your franchise. An experienced franchise lawyer will be able to assess your franchise opportunity in light of industry standards and with an eye toward ensuring that you have reasonable protections in the event that something goes wrong. Top Reasons to Hire a Franchise Agreement Lawyer Before You Sign a Franchise Agreement With these considerations in mind, here are five of the top […]

Read More

As a franchisee, it is important to have at least a basic understanding of the laws that protect you. With the recent growth of the franchise industry, more companies are turning to the franchise model for growth, and unfortunately more franchisees in new and established systems alike are finding themselves in situations where they need to take legal action to enforce their rights. States With Franchise Relationship, Registration and Disclosure Laws Currently, 21 states and the District of Columbia have franchise relationship or franchise registration and disclosure laws (or both). These laws serve different purposes, but the overarching concept is that they are designed to provide at least some measure of protection for franchisees. It is widely understood that franchisors have the upper hand in franchise agreement negotiations and in the ongoing franchise relationship, and as a result state franchise laws provide franchisees with certain rights even if those rights are not explicitly stated in the franchise agreement. Along with Washington D.C., the following states currently have franchise laws in place: Arkansas California Connecticut Delaware Hawaii Idaho Illinois Indiana Iowa Kentucky Maryland Michigan Minnesota Mississippi Missouri Nebraska New Jersey Tennessee Virginia Washington Wisconsin What if Your State Does Not Have a Franchise Law? If your state does not have a franchise law (or even if it does), there still may be other statutes or case law that protect you. For example, many states have industry-specific laws that franchisees and their franchise attorneys can use to their advantage. States also have […]

Read More

A recent case decided by the United States District Court for the District of New Jersey may breathe new life into the New Jersey Franchise Practices Act and the Robinson-Patman Act. South Gas, Inc. v. Exxonmobil Oil Corp., 2016 WL 816748 (D.N.J. February 29, 2016). The plaintiff franchisees’ claims in the case focused primarily on Exxon’s pricing practices, which pivoted off of a labyrinthine discriminatory pricing program known as zone pricing.  In ruling for the Exxon franchisees, the Court was careful to point out that its ruling was preliminary, and as such, was limited to the question whether the plaintiff franchisees had alleged enough in the Complaint to meet their initial pleading obligation, not whether the franchisees had substantively proven their claims. The plaintiff franchisees in this case were independent service station dealers that purchased refined gasoline directly from Exxon and other suppliers for resale to the public at retail service stations in New Jersey. Exxon’s zone pricing scheme divided New Jersey into approximately 100 zones and charged retail gas stations different wholesale prices for gas depending on the station’s zone placement. Because Exxon’s zone pricing scheme favored certain stations and disfavored other stations, including the plaintiffs, the franchisees claimed they were forced to charge higher retail prices to cover their operating expenses. Some of these wholesale price differences were so significant that they resulted in wholesale prices in some zones exceeding the retail prices in other contiguous zones. Further exacerbating the financial plight of the franchisees was Exxon’s questionable […]

Read More

Is your franchisor your joint-employer under the labor laws? Currently pending before the US Congress is a bill that would prevent the NLRB from applying the NLRA to franchising. There is currently great uncertainty over the question of whether a franchisor can be held accountable for its franchisees’ labor and employment obligations under the NLRA. On the one hand, the NLRB is currently seeking to hold McDonald’s, as a franchisor, liable for violations of the NLRA; on the other hand, the NLRB’s Office of General Counsel has issued an Advice Memorandum in the Freshii case concluding that the fast-casual restaurant chain Freshii did not qualify as a joint employer for its franchisee’s unfair labor practices violations. Although resolution of the joint-employer dispute has the potential to impose real costs on franchising as a distribution model, it is not likely that the upshot will threaten the existence of franchising, as argued by some franchisor advocates.

Read More

https://www.asianhospitality.com/trends-n-issues/Terrorist+attacks+to+peepholes+/2530 THE DEADLY TERRORIST attack in Pakistan on the Marriott Islamabad Hotel in 2008; the filming of Erin Andrews in her hotel room through a peephole at the Nashville Marriott in 2008; the alleged contraction of Legionnaires’ Disease from the whirlpool tub and swimming pool at the Sheraton Hotel North Charleston in 2009. How are these dreadful events related? They are connected by similar lawsuits in which injured hotel guests sought, unsuccessfully, to impose damages liability on the franchisors.

Read More

Court Not Interested in Terminated Franchisee’s Excuse for Failing to Pay Franchise Fees By: Jeffrey M. Goldstein, Esquire (202) 293-3947 goldlawgroup.com Franchisees and dealers facing a termination grounded on a failure to pay franchise fees frequently make one of three arguments: (1) the franchisor waived the right to insist on the prompt payment; (2) the amount of the arrears was not material; or (3) the franchisor’s wrongful conduct caused the franchisee’s inability to pay. Courts, however, have little patience for such attempts by franchisees to justify the non-payment of fees. Indeed, from a legal standpoint, there is no worse position for a franchisee than to have been terminated for a failure to pay. A recent case in the United States District Court for the District of Puerto Rico clearly demonstrates how most courts deal with a franchisee terminated for failure to pay. Kemco Food Distributors, Inc. v. R.L. Schreiber, Inc., 2016 U.S. Dist. LEXIS 27349 (D.P.R. February 29, 2016). Kemco is notable as it shows that the franchisee was treated harshly despite the existence of an applicable general state franchise statute providing some protection to franchisees from the economic power of franchisors. In the Kemco case, Schreiber, a family-owned and operated food manufacturing company in South Florida, designated Kemco as its exclusive distributor in Puerto Rico, contingent upon Kemco's remaining current on its payments to Schreiber. The evidence showed that Kemco made untimely payments for every invoice that was issued from January 1, 2014 through the termination of the relationship. […]

Read More

RIDING THE CIRCUITS FOR HOTEL FRANCHISEE CASES: Good news and bad news for THI franchisee defaulted for failure to appear in Court: [Judge: “I will enter a default judgment. THI is awarded $327,213.03, comprising: (i) $207,414.71 in outstanding fees; (ii) liquidated damages of $76,500; (iii) $34,711.60 in interest on the LDs.” However, the Judge in his discretion denied THI’s request for $164,768.40 in trebled damages for post-termination Lanham Act violations. Travelodge Hotels v. S.S.B. Assoc. 7/27/15]; Court cuts Super 8 Franchisor slack for its failure to prosecute: [Judge: “The Court finds that reinstatement of  (Super 8’s) Complaint would result in little, if any, prejudice to the defendants. The defendants do not appear to have incurred any expense or inconvenience in defending this litigation. In any event, the delay between dismissal and the motion for reinstatement—less than 5 months—is too slight to detrimentally affect the proceedings.” Super 8 v. Kusum 7/29/15]; Appeals Court reverses trial court’s refusal to allow Red Lion Franchisee to use Washington State Franchisee Bill of Rights: [Judge: “We conclude the best interpretation of FIPA's bill of rights is the same as our interpretation of California's analogous Equipment Dealers Act. In the case now before us, the franchisor is incorporated in Washington and has its headquarters in Washington, and the franchise agreement provides for the application of Washington law. We hold that FIPA's bill of rights applies to this dispute even though the franchise is located outside Washington.” Red Lion Hotels v. MAK 2012]; Although Franchisor shows infringement […]

Read More

Terminated Franchisee Beats the Odds and Sidesteps Injunction 3/6/16 By: Jeffrey M. Goldstein Goldstein Law Firm goldlawgroup.com (202) 293-3947 jgoldstein@goldlawgroup.com   In a recent decision by the United States District Court for the District of Colorado, the Court denied the plaintiff franchisor’s motion for a preliminary injunction, showing that, in rare situations, it is possible for a terminated franchisee to escape the lethal injunctive pincers of the Lanham Act, the federal law that is frequently relied upon by franchisors to shut down a franchisee’s operations during termination disputes. The Intelligent Office System, LLC v. Virtualink Canada, LTD., 2016 U.S. Dist. LEXIS 20374 (USDC Col. February 18, 2016). In Virtualink, IO was a Boulder-based LLC that had developed methods for establishing, operating, and promoting "virtual" offices, in which customers were enabled to split overhead costs by "sharing" the use of office personnel, office equipment, and office space. On February 1, 2006, IO and the Franchisee Virtualink Canada, LTD (“Virtualink”) entered into a 20-year "Master License Agreement" (“MLA”). Pursuant to the MLA, Virtualink was permitted to use IO’s "licensed methods" to license subfranchisees in most of Canada. In exchange, Virtualink agreed to unremarkable reciprocal franchisee obligations, including: (1) paying IO a percentage of the gross royalty receipts it collected from subfranchisees in Canada; (2) using IO's standards and specifications in developing new subfranchisees, including using IO’s form franchise agreement; and (3) hitting specified minimum "sales and opening goals" of virtual office centers in each year of the 20-year agreement. The Franchisor began […]

Read More

Franchisor advocates who are constantly yelling ‘the sky is falling’ in the face of new franchise legislation should take great  solace in recent Minnesota federal court decisions that have blasted gaping holes in the Minnesota Franchise Act. Ironically, the MFA, which was enacted to provide heightened legal protection to franchisees and dealers, is itself serving as the fulcrum for the erosion of some legal rights that franchisees had before the MFA was passed. See Minnesota Franchise Lawyer’s Franchise Review Dooms Fraud Claims of Franchisees and Franchise Fraud and the Wizard of Oz, in Pulse, both by Jeffrey Goldstein. 

Read More