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Jun212018

Why Today's SCOTUS Decision May Impact Franchisor Royalties

Franchise & Distribution Law

 

 

by Taylor M. Vernon

818-907-3027

 

Today, in South Dakota vs. WayFair, Inc., et al.,  the United States Supreme Court (“Court”) overturned long-standing precedents that required an out-of-state Seller to have a physical presence in a state  to collect sales tax from consumers in that state.

Online Purchase Sales Tax - SCOTUS Decision

The South Dakota law (Senate Bill 106 enacted in 2016) being challenged by giant online retailers, Wayfair, Inc., Overstock.com, Inc., and Newegg, Inc. – none of which had a physical presence in South Dakota – requires out-of-state retailers to collect and remit sales tax “as if they had a physical presence in the state.”

The Court found that the South Dakota law did provide due process, commerce clause and small business safeguards because it:

  1. Applies only to sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State,

  2. Forecloses the retroactive application of this requirement, and

  3. Provides means for the law to be appropriately stayed until its constitutionality has been clearly established.

The Court acknowledged the new economic realities of e-commerce, that when combined with a judicially created “physical presence” rule, provided a tax shelter and an incentive to do business out-of-state, giving an unfair advantage to e-commerce over in-state retailers. The Court’s decision largely focused on the substantial nexus requirement between the out-of-state seller and the states in which they made on-line sales and found that the physical presence requirement was arbitrary in today’s digital economy.

SCOTUS’s Impact on Franchisors

While the largest economic hit will be to e-commerce giants, such as the ones that challenged the law, this case also has potentially huge implications for franchisors and franchise systems.

Franchisors may need to rethink their e-commerce platforms with regard to the granting or withholding of rights to franchisees to sell goods out of state. More importantly, this case could permit states to tax franchisors on royalties paid by their out-of-state franchisees for the use of marks and intellectual property, which could be a significant financial burden for the primary revenue stream of a franchise system.

Franchisors should begin consulting their franchise and tax attorneys on the potential implications of this decision, as well as any needed modifications to their business model and franchise agreements to account for this change in the law.

 

Taylor M. Vernon is an attorney in our Franchise and Distribution Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Friday
Jun152018

Killer Coffee? California May Exempt Coffee Industry from Prop 65 Warning Requirements

Environmental Litigation AttorneyEnvironmental Litigation

Stephen T. Holzer

818.907.3299

 

We told you about the lawsuit brought against nearly 100 food industry companies regarding the lack of Prop 65 warnings in restaurants and stores selling coffee. The problem is the potential presence of acrylamide when coffee is roasted or brewed – one of the many chemicals known to the State of California to cause cancer or reproductive damage.    

Under California law, businesses with 10 or more employees must post Prop 65 warning signs and labels on the premises or on food packaging, warning consumers of possible exposure to these health risks.

In May of 2018, a Los Angeles Superior Court finalized a tentative ruling stating the Defendants (which include major chains like Starbucks, Dunkin’ Donuts and others) failed to show that acrylamide in coffee posed no significant risk.

But there’s something new brewing: The Office of Environmental Health Hazard Assessment (OEHHA) may try to sweeten an otherwise bitter situation. The Office is proposing adding a new section to Article 7 of Title 27 of the California Code of Regulations section 25704. The new section would state that exposures to acrylamide from coffee pose no risk of cancer.

The catch is the proposal has to undergo a public hearing in August 16, 2018 in Sacramento, and a written comment period that ends at the end of August. Written comments can be sent to:

Ms. Monet Vela

Office of Environmental Health Hazard Assessment
P. O. Box 4010
Sacramento, California 95812-4010

Telephone: 916-323-2517
Fax:  916-323-2610

Email: monet.vela@oehha.ca.gov

Coffee retailers, restaurant owners, distributors, importers and resellers who don’t want to label packaging or post signage at their place of business regarding acrylamide in coffee should act quickly.  

But these same businesses and nearly every other one in California are also reminded that the Prop 65 text on signs and labels needs as of August 30, 2018 to change on other products that contain potentially toxic substances. Please read OEHHA’s New Prop 65 Warnings for the specific requirements.

 

Stephen T. Holzer is the Chair of our Environmental Practice Group and a Shareholder in our Business Litigtion Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Friday
Jun012018

What are the Rights of a Non-Paying Month-to-Month Tenant?

Business LitigationReal Estate Litigation Attorney

by Nicholas Kanter
818-907-3289

 

When a month-to-month tenant stops paying rent and a landlord initiates an unlawful detainer lawsuit, does the tenant maintain tenancy rights in the premises pending the resolution of the lawsuit? The answer to this question (“no”) was unsettled until the Court of Appeal’s recent decision in Multani v. Knight.

Multani involved a lawsuit by a former tenant (Multani) against her former landlord (Knight) for breach of the covenant of quiet enjoyment, private nuisance and other causes of action arising from a sewage leak that damaged the premises (including equipment in the premises) that Multani leased from Knight. Prior to Multani’s lawsuit, Knight filed a lawsuit for unlawful detainer against Multani for failure to comply with a 3-day notice to pay rent or quit. At the time Knight served the 3-day notice to pay or quit, Multani was occupying the premises pursuant to a month-to-month tenancy. Knight ultimately prevailed in the UD.   

In defending Multani’s affirmative claims, Knight argued that at the time of the sewage leak (which was after Knight initiated the UD), Multani had no legal right of possession, and therefore could not prevail on her claims, which were dependent on legal possession of the premises. The Court of Appeal held:

[T]he implied month-to-month lease terminated when [Multani] failed to pay rent.  Further, even if [Multani’s]  failure to pay rent, in itself, did not terminate the statutorily-implied lease, it nevertheless constituted a material breach of the lease…Here, Knight’s service of a three-day notice to pay rent or quit and her initiation of an unlawful detainer action when [Multani] failed to comply with the notice indisputably establishes Knight’s election to terminate the implied lease. Thus, even if [Multani’s] initial failure to pay rent did not terminate her month-to-month tenancy, her failure to comply with the three-day notice to pay rent or quit, followed by Knight’s filing of an unlawful detainer action, terminated the implied lease and [Multani’s] legal right to possession of the premises.

The implied covenant of quiet enjoyment arises from a lease. And a claim for private nuisance can only be maintained by one whose property rights have been invaded. Because the service of the three-day notice to pay rent or quit and initiation of the UD terminated Multani’s tenancy rights, including her right to possess the premises, the Court found Multani could not prevail on her claims.   

Multani holds that a month-to-month tenant who fails to pay rent no longer has tenancy rights once an UD action for non-payment of rent is initiated. However, the case leaves open the question of whether the tenancy right terminates earlier, i.e., before the UD action is filed, but after the tenant stops paying rent.    

Nicholas Kanter is a Shareholder in our Real Estate and Employment Practice Groups.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Friday
May252018

Court of Appeal Limits Applicability of the ABC Test

Wage and Hour Defense Attorney Employment Defense Litigation

 

by Sue M. Bendavid & Nicholas Kanter

In Dynamex, the California Supreme Court decided to adopt an “ABC” test to determine whether workers are properly classified as independent contractors. This raised a number of questions concerning how (or if) the test should apply to claims beyond those at issue in Dynamex.

In a modified opinion filed May 18, 2018, the Court of Appeal in Curry v. Equilon Enterprises, LLC answered the question of whether the “ABC” test applies beyond the independent contractor context (Equilon, d/b/a Shell Oil Products US, or Shell).

Curry found that the public policy reasons relied on in adopting the “ABC” test do not apply to other contexts, such as joint employment. The Curry Court held:

[T]he Supreme Court’s policy reasons for selecting the “ABC” test are uniquely relevant to the issue of allegedly misclassified independent contractors. In the joint employment context, the alleged employee is already considered an employee of the primary employer; the issue is whether the employee is also an employee of the alleged secondary employer. Therefore, the primary employer is presumably paying taxes and the employee is afforded legal protections due to being an employee of the primary employer. As a result, the policy purpose for presuming the worker to be an employee and requiring the secondary employer to disprove the worker’s status as an employee is unnecessary in that taxes are being paid and the worker has employment protections.

In conclusion, the “ABC” test set forth in Dynamex is directed toward the issue of whether employees were misclassified as independent contractors. Placing the burden on the alleged employer to prove that the worker is not an employee is meant to serve policy goals that are not relevant in the joint employment context. Therefore, it does not appear that the Supreme Court intended for the “ABC” test to be applied in joint employment cases.

In so holding, Curry rejected the plaintiff’s argument that “ABC” test’s definition of “suffer or permit to work” should be applied to determine whether Shell was a joint employer.

One significant result of this holding is the alleged employee, not the alleged joint employer, will continue to bear the burden of proving joint employment.

 

Sue M. Bendavid and Nicholas Kanter are California employment defense attorneys.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
May242018

FAA and NLRA: Can't We All Just Get Along?

Lawyer for EmployersEmployment Defense

 

by Tal Burnovski Yeyni

818-907-3224

 

On Monday, the U.S. Supreme Court issued a long-awaited decision confirming the enforceability of class action waivers in employment arbitration agreements.

The background: 

As previously written, in 2016 the Ninth Circuit held that class action waivers in employment arbitration agreements were unenforceable. The decision created a circuit split with the Seventh Circuit aligning with the Ninth. The Second, Fifth and Eighth Circuits however, have been validating class action waivers. Predictably, the matter was brought before the U.S. Supreme Court to “clear the confusion.”

In essence, the employees argued the National Labor Relations Act (NLRA) – which provides employees the right to act together and unionize – invalidates class and collective action waivers in arbitration agreements.  

The Supreme Court disagreed and held the class and collective action waivers are enforceable. Among other reasons, the Supreme Court opined there was no congressional intent for the NLRA to repeal the right to arbitrate under the Federal Arbitration Act and the NLRA does not include the right to engage in class action proceedings – due to the fact that when the NLRA was adopted class action proceedings “were hardly known”.

For now, employers can include class action waivers in arbitration agreements. There are many pros and cons for arbitration that employers should consider very carefully.

California employers are further advised that not all collective proceedings can be waived, as the state does not allow waiver of PAGA claims in arbitration agreements. Also, a pending bill threatens to prohibit CA employers from making it a condition of employment that employees agree to arbitrate.

Although class action waivers are permitted, unconscionability or lack of consideration may invalidate an arbitration agreement as a whole. Therefore, employers are advised to see the advice of counsel prior to implementing arbitration agreements in the workplace.   

  

Tal Burnovski Yeyni is an attorney in our Employment Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.
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