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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.

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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.

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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 […]

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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. 

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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

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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

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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 […]

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Three Common Franchise Myths A myth is an invented story, idea or concept. Sometimes myths are used to support and justify particular ideas, institutions, and traditions. In two recent columns I’ve identified and discussed three pervasive franchise myths, including: “If you buy this franchise, you’ll be our partner.” “If you buy this franchise, you’ll be rich.” “If you buy this franchise, you’ll benefit from our experience and expertise in successfully operating franchises.” As I previously noted, the first two myths are existentially mysterious in that, one would have thought that, over the course of history, as these myths were passed from one generation to the next, they would have been exposed and debunked. They have not been. And, with regard to the latter myth, incredibly, legal standards have evolved that allow and incentivize franchisors to perpetuate it. In essence, courts have refused to recognize a claim for franchisor malpractice. In this regard, given the force and nature of the “economic loss rule”, it is not likely that this myth will be discredited in the near future. Given the longevity and vitality of these myths, it is not surprising to learn that they cause incredible damage to franchisees, sometimes entirely destroying franchisees’ families, savings, and futures. If you believe that you’ve fallen for one or more of these myths, time is not in your favor. You should promptly seek the advice of an experienced franchisee lawyer who will be able to accurately devise a legal strategy to protect you and your […]

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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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Gas Station Franchise Termination — In Swaziland Fuel Franchisor: “Your gas station franchise is terminated and you must vacate the premises immediately.” No; this was not a petroleum franchisor in the USA, but a gas distribution franchisor in Swaziland. After the gas station franchise termination in Swaziland, the franchisee lawyer for the gas station, in a discussion with the press and in his pleadings, made arguments almost identical to those that would have been, and are made, by franchise lawyers in the USA: “He is arguing that he feels like he has been given a raw deal in the sense that he is now made to lose the business and property without compensation.” “The Supreme Court merely made an assumption that the franchise agreement was for a three year term ignoring the words used in the clause and thereafter ordering the ejectment of the applicants without compensation.” The franchisee’s lawyer said in an affidavit: “The court failed to an interpretation of Clause 6.1 of the agreement.” “He spent E6.5 million in the business so he was pleading with the court to let him continue operating the filling stations. He said if the court ruled in favour of Galp Swaziland, he should be compensated or at least be given an opportunity to sell his businesses.” “He said the respondents of the matter displayed a lackadaisical attitude in this regard because they believed the applicants had no ownership over the business but they were just mere managers of the filling stations they operated.” […]

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