Franchise & Distribution Law Update, Spring 2010
SPRING 2010 E-ALERT
Most companies are faced with issues regarding social media policies and social networking on a daily basis. In the franchise context, these issues are compounded by the fact that franchisees may be operating their own social networking sites, accounts, and blogs, and using the franchisor trademarks and trade names while doing so. Even when franchisees are using this type of social networking responsibly, franchisors face issues surrounding brand consistency and confusion. Add in the use of social networking sites or tools by franchisees to complain about the system, disparage others, or to utilize trademarks or trade names in an infringing manner, and it becomes clear that franchisors should adopt a social media policy in order to provide structure and guidance to the way in which social media will work for the franchise system.
If you are like most franchise systems, you have considered adopting a social media policy to incorporate into your operations manual. However, when it comes down to actually drafting the policy, many franchisors are stumped at how to tackle the social media world in written form. In the April 2010 issue of Franchising World, I discuss the legal and practical considerations in developing a social policy, and provide practical advice and content as to what should be included in such a policy.
In addition, if you have not yet incorporated specific language into your franchise agreement and franchise disclosure document addressing the use of social media, now is the time to do so.
Contact Larkin Hoffman's franchise and distribution practice group to review your franchise agreement and franchise disclosure document with these issues in mind.
Domain Name Registration Should be Part of Business Strategy
Non-Competition Agreements Being Examined by Georgia Legislature
Georgia voters will vote on the proposal on the statewide ballot in November.
Maryland Amends Franchise Law to Get Rid of First Personal Meeting Requirement
The new legislation in Maryland will become effective October 1, 2010.
Franchisees Found to be Employees as Opposed to Independent Contractors in Massachusetts
In Awuah v. Coverall North America, Inc., Coverall franchisees brought a claim alleging that Coverall, the franchisor, misclassified its franchisees as independent contractors and committed unfair or deceptive trade practices. Most states adopt a three-part test in order to determine whether an individual providing services is an employee or an independent contractor, and putative employers need only show that one prong of the test is satisfied to classify an individual as an independent contractor. However, under Massachusetts law, individuals performing services are classified as employees if the putative employer cannot meet all of the following tests:
(1) the individual is free from control and direction in connection with the performance of the service (in contract and in fact);
(2) the service is performed outside the usual course of the business of the employer; and
(3) the individual is engaged in an independently established trade or business of the same nature involving the service performed.
The court made its decision solely on the second prong of the analysis, finding that Coverall did not prove that it is in a different business than that of its franchisees. Coverall argued that its business is different than that of its franchisees as it is in the business of franchising, while the franchisees are in the cleaning business. However, the court found that because Coverall spent time, skill, effort and money training franchisees, providing them with uniforms and identification badges, contracting and billing with customers, and receiving royalties on the services that the franchisees provide, Coverall sells cleaning services, the same services provided by its franchisees.
As a result, the plaintiff franchisees were found to be employees in Massachusetts. The implications of this decision mean that the franchisor may be liable for unpaid wages and benefits, including health insurance, worker’s compensation, overtime pay, insurance, FMLA, and many other rights afforded to employees that are not similarly provided to independent contractors.
In light of this decision, the International Franchise Association has begun lobbying the Massachusetts Legislature to amend the law to recognize franchising as a distinct business model. However, franchisors should carefully examine their franchise agreements, disclosure documents, and marketing materials, and consider ways in which to separate the franchisor’s business from that of the franchised business, including the manner in which the franchisor provides support to its franchisees.
Health Care Reform: New Calorie Labeling Laws Will Apply to Franchises
Rep. John Kline Visits Anytime Fitness’ Corporate Headquarters
Fittante Presents on the "Accidental Franchise"
The IFA Legal Symposium will be held on May 16-18 in Washington, D.C. At the Symposium, Larkin Hoffman's Jim Susag will be speaking on "The Importance of Enforcing Post-Termination Rights in a Down Economy." Pam Merkle and Cyndi Klaus will be leading roundtable discussions on "Subfranchisor Disclosure Requirements" and "The Upsides and Downsides of Litigation," respectively.
Larkin Hoffman will be hosting the next Twin Cities Women's Franchise Network event on May 12 from 5:30 to 7:30 p.m. (CST). This event will feature motivational speaker Deirdre Van Nest, as well as networking with women in the Twin Cities franchise community.
Joe Fittante will co-present a live webcast as a part of the Minnesota CLE Franchise Law Series on Friday, May 14, 12:00 to 1:00 (CST). His session is entitled "Look Before You Leap - Navigating the Franchise Disclosure and Registration Maze." It will examine required pre-sale disclosure on a federal and state level, and state registration laws applicable to franchisors.
Non-Compete Cases: Does Anyone Really Win?
This article is especially important because it highlights the practical advice that we give our clients with regard to non-compete agreements and claims, based on real world experience.
In the March 2010 issue of the LJN's – Franchising Business & Law Alert, Cyndi Klaus and Meredith Bauer discuss developments in antitrust law relative to franchise and distribution agreements. One recent case examines unlawful price discrimination under the Robinson-Patman Act, which prohibits manufacturers from discriminating in price among similarly situated purchasers, so as to lessen competition or create a monopoly.
The second recent case discusses illegal tying arrangements under the Sherman Act. Claims such as these have arisen in the franchise context in relation to required purchasing arrangements.
For more information about Larkin Hoffman’s Franchise and Distribution practice group, visit our homepage by clicking here.
Cynthia M. Klaus
Pamela N. Merkle
Meredith A. Bauer
Andrew F. Perrin