Fair Franchising Difficult to Achieve
Jun 11, 2015 - Franchise Articles by Jeffrey M. Goldstein |Most franchise attorneys and franchise lawyers will agree that fair franchising is one of the most-used and least understood concepts in the franchise world. If you want to know the truth about fair franchising, sign up for our newsletter, Franchise Trends. Fair franchising is an elusive concept. Many of the best franchise lawyers in the world are not able to readily provide a definition of the term. Without the assistance of a frachise lawyer who represents only franchisees, it is very difficult to achieve fair franchising. As a franchisee, if you believe that your franchisor owes you fair franchising, you’ll be disappointed. Nevertheless, an experienced franchisee lawyer or franchisee law firm can still provide tremendouos support to franchisees seeking franchise agreement assistance. Indeed, franchise lawyers have frequently managed to make franchise agreements more acceptable. But you need to begin the dialogue with your franchise attorney before you sign a franchise agreement. As a franchise law firm, Goldstein has the expertise to analyze every aspect of proposed franchise agreements. Contact us online or call 202.293.3947 to evaluate your franchise agreement and ensure you’re treated fairly.
Franchisees’ Weapons Used for Franchisee Terminations
Jun 10, 2015 - Franchise Articles by Jeffrey M. Goldstein |Franchisees' Weapons Used for Franchisee Terminations By: Jeffrey M. Goldstein 202 293 3947 goldlawgroup.com Washington, DC jgoldstein@goldlawgroup.com New Jersey is normally considered a ‘good state’ for franchisee terminations and franchise lawyers who represent only franchisees and dealers. This case, however, shows that on any given day, and despite the sophistication of legal representation, franchisees are subject to being blown out of the water on almost any ground. In this case, we see the Court use two relatively potent pro-franchisee legal weapons – the New Jersey Franchise Protection Act and the common law covenant of good faith and fair dealing – to bludgeon the franchisees to a legal death. Plaintiffs (franchisees) acted as independent insurance agents for Allstate under Exclusive Agency Agreements (“EAs”). Plaintiffs sought damages contending, inter alia, that Allstate wrongfully terminated their EAs and breached the implied covenant of good faith and fair dealing. The parties cross-moved for summary judgment, and the judge ruled against the franchisees concluding that: (1) applying the New Jersey Franchise Practices Act (“the Act to the insurer-agent relationships would interfere with the regulatory framework set out in New Jersey’s insurance code; (2) the relationship between Allstate and plaintiffs did not constitute a franchise under the Act; and (3) Allstate’s termination of the EAs did not contravene the implied covenant. First, the Court rejected the franchisees’ contention that the Act applies to their EAs based upon the Court’s finding that there was a direct and unavoidable conflict between the insurance laws and the franchise laws. […]
Massage Envy Franchisee Wage Violations
Jun 10, 2015 - Franchise Articles by Jeffrey M. Goldstein |By: Jeffrey M. Goldstein (202) 293-3947 jgoldstein@goldlawgroup.com Massage Envy escapes franchisee wage violations liability. Vicarious franchise liability is a pervasive problem for franchisors nowadays. In Vann, an Individual, o/b/o Himself and All others Similarly Situate v. Massage Envy Franchising LLC, 2015 WL 74139 (S.D.Cal. 2015), the United States District Court for the Southern District of California dismissed claims against a massage franchisor, Massage Envy Franchising, LLC (“MEF”), for alleged violations of California minimum wage laws. Mr. Vann, one of the plaintiffs, worked as a massage therapist at two different California Massage Envy franchises, one of which was in Chula Vista, California (“Spa Chula Vista”), which was owned by Charis Group. In essence, the franchisor argued that MEF is not an employer of Mr. Vann and cannot be liable for any wage and hour violations made by a franchisee. Under California Labor Code section 1194, an employee who received less than the legal minimum wage is entitled to recover the unpaid balance. Only an employer has a duty to pay wages. The federal court’s ruling, using an analysis previously applied by California and some other states’ courts, focused on the degree of control that the franchisor had and exercised over the franchisee (Charis Group), which in turn directly employed the plaintiff. In so doing, the Court pointed out that: · MEF provided franchisee Charis Group with an Operations Manual that “contain[ed] mandatory and suggested specifications, standards, operating procedures and rules that [MEF] periodically prescribe[s] for operating a [franchise].” · Pursuant to […]
Franchise Renewal – Pitfall For Franchisees
May 7, 2015 - Franchise Articles by Jeffrey M. Goldstein |FRANCHISE RENEWAL: THEY’VE GOT YOU COMING AND GOING Franchise Renewal has always been a hot topic in the franchise world. Not surprisingly, most, but not all, of the legal history on the franchise renewal issue shows franchisees to be the definitive losers. Historically, in most instances, franchisees have argued that a right to renew should always be available, regardless whether such a right exists in the franchise agreement, and franchisors have contended that no such right should exist, unless it is explicitly provided for in the franchise agreement. Wrongful non-renewal cases are frequently handled by the franchise attorneys at Goldstein Law Firm. Absent the applicability of state or federal franchise legislation, the underlying legal principles that govern most franchise renewal disputes include: (1) any contract, including a franchise agreement, will remain in effect until the end of the term identified in that agreement; (2) unless the agreement contains a right to renew, neither of the parties has a right to renew; (3) if the agreement does contain a right to renew, and the electing party chooses to renew, the agreement will be renewed only on the terms identified in the agreement. Where no renewal provision is explicitly included in the franchise agreement, and where no state or federal statute can be used to imply such a renewal right, the court will usually never imply such a term. The common law has a clear and definitive penchant for limiting the duration terms of contracts absent the parties’ expressed crystal clear intention to provide for renewals. […]
Ladies of the Night – Franchise Underreporting
May 7, 2015 - Franchise Articles by Jeffrey M. Goldstein |LADIES OF THE NIGHT AND FRANCHISEE UNDERREPORTING What is franchise underreporting? If you have to ask, and you’re a franchisee, you’re probably not doing it. But, then again, maybe you are; unwittingly. In its simplest incarnation, franchisee underreporting occurs when a franchisee “reports” to his franchisor less income or sales than what he actually makes or earns. Franchise underreporting is a very dangerous area of franchisee wrongdoing, and courts have little sympathy for franchisees who fail to report all revenues. Historically franchisors have focused almost exclusively on trying to sell as many franchises as possible, not on trying to augment their revenues through under reporting investigations. Not only were audits time-consuming and expensive, but they engendered considerable bad-will in the franchise community. Soon, however, audits became “the in-thing.” A cottage industry was born. A savvy franchisor law firm said: “Hey; wait a minute. If I’m able to guarantee my franchisor client that by using my new “auditing program” it will be able to at least cover my lawyer’s fees with the increased revenues from the alleged franchisee under reporters this will be a ‘win-win’ situation; at least for everyone but the falsely accused franchisee under reporter. Some franchisors, including one of the very biggest coffee and doughnut franchisors in the world, in consultation with leading “statistical wizards” from mathematical departments of major universities, thereafter devised cutting-edge forensic models capable of easily identifying underreporting. These models were so effective and potent that they were able to definitively identify underreporting even where none […]
Accountability in a Franchise Advertising Fund
May 7, 2015 - Franchise Articles by Jeffrey M. Goldstein |Disclosure And Accountability In Franchise Marketing Or Advertising Fund There should be greater Franchisor disclosure and accountability concerning the expenditure of marketing and reservation fees collected from Franchisees that are held in a franchise advertising fund. On an annual basis, Franchisors should disclose how the marketing and reservation fees are spent, including identifying the specific products and services that are paid for with the fees. A Franchisor should not profit directly from the marketing and reservation fees it collects from the Franchisees, or use such fees to pay for marketing and advertising related to a Franchisor’s sale of hotels. Franchisors should have their books and records audited on an annual basis concerning the collection and disbursement of marketing and reservation fees, and should share the results of the audits with the Franchise Advisory Councils (FACs), or the designated audit committees of the FACs. Putting the Cards on the Table Almost all franchise agreements establish advertising and marketing funds into which franchisees make regular periodic payments. Some franchise agreements also require franchisors, in addition to their franchisees, to make contributions to these funds, and others do not. In contrast to most other obligations of franchisors in franchise agreements, the duties and obligations assumed by franchisors in administering and spending monies in the fund are delineated with much greater certainty. This is for two reasons. First, UFOC disclosure rules require that franchisors describe in their disclosure documents all aspects of their advertising programs by answering a list of very detailed questions, including: […]
Franchise Trademark Infringement
May 7, 2015 - Franchise Articles by Jeffrey M. Goldstein |FRANCHISEES: WATCH OUT FOR THOSE SIGNS AFTER TERMINATION OR EXPIRATION If you've decided to end your status as a franchisee, you should be concerned about potential franchise trademark infringement. Maybe you are unhappy with the ability of your brand to attract business, or maybe you are tired of splitting your revenues with the franchisor each month. Regardless of your reasons to end the franchise affiliation, if you intend to continue operating your business as a non-franchise, you will need to protect yourself after the break-up from claims by your former franchisor that you are not entitled to operate your business under any circumstances, franchised or independent. Many times, such claims by a franchisor arise when a departing franchisee opts to continue using his old franchise signage, which the departing franchisee has altered in only minor respects. While it is understandable that many former franchisees may be inclined to continue using existing signage and logos (especially considering that these items frequently cost tens of thousands of dollars), it is important that the former franchisee, in such circumstances, take adequate precautions to assure that the signage is not confusingly similar to the former franchisor’s marks. In most cases this will require the franchisee to entirely replace the former franchisor’s signage. In a very recent case, the United States District Court for the Middle District of Florida ruled on a dispute that arose when a former Howard Johnson franchisee continued to use a modified version of his former franchise signage. Specifically, the franchisee modified […]
Franchisor Encroachment
May 7, 2015 - Franchise Articles by Jeffrey M. Goldstein |Franchisor Encroachment: Beware of Your Franchise Agreement As with most issues in franchise law that end up in litigation, your chances of prevailing in court against your franchisor on a claim that the franchisor has violated your exclusive territory may be wholly dependent on the specific language that you and your lawyer were successful in having included in your franchise agreement. Also, as you will see below, the legal analysis that must be undertaken to negotiate a franchise agreement to fully protect a franchisee from all types of potential encroachment is too complex and esoteric to be performed adequately without expert legal assistance. I have encountered prolific cases where the franchisee, whose business has been decimated by encroachment, has told me that he “thought” that the language he had personally negotiated and included in the franchise agreement granted him an exclusive territory. In many of these cases, contrary to the beliefs of these franchisees, the franchise agreements contained no language whatsoever regarding an exclusive territory. In other cases, even where the franchise agreement did contain some language relating to an exclusive territory, the language actually gave the franchisor explicit permission to open competing franchises anywhere that the franchisor chose to put them. Although the specific language in a franchise agreement addressing or relating to an exclusive territory often differs for each franchise brand (and many times even within the same brand), it is possible to categorize “exclusive territory” language into four general types: (1) language that grants a franchisee only […]
Advertising Funds and Hotel Franchises
May 7, 2015 - Franchise Articles by Jeffrey M. Goldstein |DISCLOSURE AND ACCOUNTABILITY OF ADVERTISING FUNDS IN HOTEL FRANCHISES There should be greater Franchisor disclosure and accountability concerning the expenditure of marketing and reservation fees collected from Franchisees. On an annual basis, Franchisors should disclose how the marketing and reservation fees are spent, including identifying the specific products and services that are paid for with the fees. A Franchisor should not profit directly from the marketing and reservation fees it collects from the Franchisees, or use such fees to pay for marketing and advertising related to a Franchisor’s sale of hotels. Franchisors should have their books and records audited on an annual basis concerning the collection and disbursement of marketing and reservation fees, and should share the results of the audits with the Franchise Advisory Councils (FACs), or the designated audit committees of the FACs. Putting the Cards on the Table Almost all franchise agreements establish advertising and marketing funds into which franchisees make regular periodic payments. Some franchise agreements also require franchisors, in addition to their franchisees, to make contributions to these funds, and others do not. In contrast to most other obligations of franchisors in franchise agreements, the duties and obligations assumed by franchisors in administering and spending monies in the fund are delineated with much greater certainty. This is for two reasons. First, UFOC disclosure rules require that franchisors describe in their disclosure documents all aspects of their advertising programs by answering a list of very detailed questions, including: what media the franchisor may use; whether media […]
Unenforceable Oral Franchise Applications
May 7, 2015 - Franchise Articles by Jeffrey M. Goldstein |UNCERTAIN FRANCHISOR PROMISES SPELL DOOM FOR FRANCHISEES Unenforceable oral franchise applications lead to much frustration and disappointment in the franchise purchasing cycle. Potential franchisees wishing to purchase a franchise are required to complete an application approval process before a franchise agreement is executed. In turn, franchisors initially will notify the potential franchisee that the application and “approval” papers will contain explicit language explaining that the franchisor’s “approval” of the franchisee, in itself, does not create a binding franchise agreement. In addition, since a contract is not enforceable unless certain key provisions are spelled out in specific terms, the franchisor will sometimes express its approval in general, vague language so that it will not be obligated to the franchisee before a written agreement is signed. Therefore, an “approved” franchisee who has not yet signed a written franchise agreement is probably not in a binding franchise relationship. In Conner v. Hardee’s Food Systems, Inc., the applicants for a fast-food restaurant franchise learned this lesson the hard way. In that case, Hardee’s Food Systems, Inc. (“Hardee’s”), the franchisor, had contacted the franchisees about a franchise opportunity with the company. After the parties discussed the opportunity, Hardee’s presented the franchisees with an approval process “checklist” consisting of two components: an application portion and a development portion. During the application phase, the franchisees asked Hardee’s representatives several times whether Hardee’s intended to develop company-owned stores in Sevier County, Tennessee, the region in which the franchisees hoped to place their store. The Hardee’s representatives repeatedly assured the […]
