Is Your Franchise Territory Exclusive, Protected, or Non-Existent?
Jun 24, 2016 - Blog by Jeffrey M. Goldstein |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” […]
Should You Hire an Attorney to Review Your Franchise Agreement and FDD?
Jun 22, 2016 - Blog by Jeffrey M. Goldstein |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 […]
Does Your State Have a Franchise Law that Protects Franchisees?
Jun 20, 2016 - Blog by Jeffrey M. Goldstein |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 […]
NLRB Memo: Franchisor is not Joint-Employer under the NLRA
Apr 4, 2016 - Blog by Jeffrey M. Goldstein |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.
Franchisor Liability for Erin Andrews
Mar 24, 2016 - Blog by Jeffrey M. Goldstein |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.
Recent Hotel Franchisee Cases
Mar 10, 2016 - Blog by Jeffrey M. Goldstein |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 […]
Minnesota Franchise Lawyer’s Franchise Review Dooms Fraud Claims of Franchisees
Jan 21, 2016 - Blog by Jeffrey M. Goldstein |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.
Insurance Entrepreneurs Wanted for Franchise Industry in Face of Joint Employer Risk
Jan 19, 2016 - Blog by Jeffrey M. Goldstein |Insurance Entrepreneurs Wanted for Franchise Industry in Face of Joint Employer Risk January 20, 2016 http://www.insurancejournal.com/magazines/coverstory/2016/01/11/394052.htm Okay; maybe I’m missing something. The underlying purpose of insurance is to assess and manage risk. And, altho insurance companies many times prefer to establish insurance programs for situations in which there is there is little to no risk, creative, aggressive and successful underwriters are capable of building profitable programs in the face of tangible heightened risk. That’s how they made and make money, and that’s how the insurance industry historically evolved and competes. But, according to Mr. Betterley, this rule doesn’t apply to the franchise industry? As he states: “The reality is that insurers are becoming cautious because the exposure [due to joint employer franchisor liability] has changed,” Betterley said. “In the past if there was a request to add the franchise the underwriting assessment would be presumably that the risk is minimal and yes probably they would. Now they have to look at it and say, ‘No, wait a minute there’s real exposure here.' Well, can’t somebody re-assess the risks, cost it out, and build a program to reflect these new franchise industry realities and risks? Not according to Mr. Taffae who, in the article, stated “There’s just no way to underwrite it …” Hard to believe. http://www.insurancejournal.com/magazines/coverstory/2016/01/11/394052.htm
Franchise Fraud and the Wizard of Oz — Minnesota Franchise Lawyers Watch Out January 17, 2016
Jan 15, 2016 - Blog by Jeffrey M. Goldstein |Franchise Fraud and the Wizard of Oz — Minnesota Franchise Lawyers Watch Out 1/20/16 The United States District Court for the District of Minnesota on January 12, 2016, in In Moxie Venture L.L.C., et al. v. The UPS Store, Inc., 2016 U.S. Dist. LEXIS 3603, hammered the final nail in the coffin of franchisee fraud claims under the Minnesota Franchise Act by ruling that as a matter of law a franchisee could not argue that it was misled by a franchisor’s fraudulent representations since the franchise agreement contained a franchise fraud disclaimer. Minnesota franchise lawyers should take notice; Minnesota franchise law is under attack. https://www.linkedin.com/pulse/article/franchise-fraud-wizard-oz-jeffrey-m-goldstein/edit
Perpetual Termination Jockeying in the Hotel Franchise World Jan. 2016
Dec 21, 2015 - Blog by Jeffrey M. Goldstein |Perpetual Termination Jockeying In the Hotel Franchise World Jan. 2016 By: Jeffrey M. Goldstein 202 293-3947 Seemingly, more than in other franchise niches, hotel franchises seem to be signed-up and then discarded by schisophrenic hotel franchisors. On any given day any particular hotel can be a ‘perfect fit’ for the brand, and, then, 6 months later, after initial fees have been paid to the franchisor, and after another newer or larger potential replacement property coincidentallybecomes available in that market, the initial hotel is deemed a ‘terrible fit.’ Usually observers justifiably focus on the negative financial impact of questionable terminations on the hotel owners (franchisees) themselves, without too much consideration regarding the impact on the hotel brands. Below, however, it is difficult, after reading the article, to come away with a good view of the franchisor, Ramada. Further, it looks like Ramada is having to get into the weeds itself to deal with the unhappy guests whose vacations have been scuttled by the termination. Why was the owner of the hotel allowed initially to purchase the brand? How realistic (financially and temporally) was the list of repairs demanded by the franchisor on the hotel owner? What assistance did Ramada directly provide to the owner to help it meet the chalenges? How swiftly did Ramada meet the requests for assistance that were made by the franchisee for assistance? Resort ‘not up to scratch’ The Gold Coast Bulletin (Australia) December 9, 2015 Wednesday, GoldCoast Edition Copyright 2015 Nationwide News Pty Limited All Rights Reserved Section: NEWS; Pg. 3 Length: 432 words Byline: JENNY […]
