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Friday
Jun092017

Los Angeles Ensures Employees Know Their Rights. Employers, Take Notice.

Employment Defense

 

by Amy I. Huberman

818-907-3014

 

 

 

If Los Angeles was a person rather than a city, you could practically hear her telling employers, “It’s ON.

Minimum Wage Notice Los AngelesThe warning comes by way of a massive ad campaign to remind members of the working public they have certain rights regarding minimum wage and paid sick time – just in case employers fail to comply with these legal mandates. Witness the latest bus stop ads for example, in big, bold lettering, which sends a not-so-subtle reminder to Los Angeles workers. This one is right outside our offices on Ventura Boulevard in Encino:

In case you can’t read the graphics on the bus stop wall, here’s what it comes down to: As of July 1, 2017 which is less than a month away, ALL employers with workers in Los Angeles will need to increase wages. 

For employers with 25 or fewer employees, that means raising minimum hourly pay to $10.50 per hour. For companies with 26 or more employees, minimum hourly rates will increase to $12.00 per hour.

The chart below illustrates the scheduled increases through 2021 – after 2021, minimum hourly wage rates will be based on Consumer Price Index for Urban Wage Earners, according to the Los Angeles Ordinance. 

Los Angeles Minimum Wage & Sick Pay

48 Hours Paid Sick  Leave in Los Angeles

Employees who perform at least two hours of work in a particular week in the City of Los Angeles are entitled to a greater amount of paid sick leave than California law mandates, pursuant to the City of Los Angeles Paid Sick Leave ordinance. These employees must be provided with one hour of paid sick leave for every 30 hours worked, or 48 hours each year. Larger companies (26+ employees) should have begun compliance last July. This July 1st, the rules apply to employers with 25 or fewer employees as well.

Ban the Box Penalties

The Fair Chance Initiative for Hiring Ordinance (FCIHO, a/k/a Los Angeles’ “Ban the Box” initiative) has been in effect since January 22nd of this year. This means that employers may not inquire about a job candidate’s criminal history until AFTER an initial offer of employment has been made.

There are strict rules regarding the “Fair Chance Process” and withdrawing job offers, should a criminal history be discovered.  Employers should proceed with caution. Go to Hiring and Firing in Los Angeles: Fair Chance Initiative Update, for more information.

Starting July 1st of this year, fines will  be imposed on employers who violate the rules According to the city’s Administrative Fine Schedule, they amount to $500 for the first violation, $1,000 for the second, and $2,000 for the third and subsequent violations.

These are the current rules specific to employers in Los Angeles, or employers headquartered elsewhere but have employees performing work within Los Angeles. Other cities (San Francisco comes to mind) may have stricter regulations.

Employers should follow a general rule of thumb: local laws tend to be stricter than county ordinances, which tend to be stricter than California regulations, and state regs tend to trump federal law. That isn’t always the case of course. But employers should always follow the higher standard.

Amy I. Huberman is an Employment Defense Attorney.

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
Jun082017

There's an App for That: Franchisors Fight Slumping Sales, Millenials

Franchise LawyerChair, Franchise & Distribution Practice Group

by Barry Kurtz

818-907-3006

 

How has the gourmet burger gone awry? According to Fox, the better burger business dropped five percent in foot traffic at quick-serve restaurants last year, primarily because consumers are opting to “DIY” their food at home.

But why would customers go through the hassle of firing up the grill when it’s so much easier to belly-up to a counter and place an order? For many, double-digit burgers just cost too much.

Franchisors are taking notice, and making adjustments.

Some are offering premium toppings to compete with the fancier restaurant chains. Others like McDonald’s plan to try using non-frozen beef or offer more “Signature Crafted” items alongside the menu mainstays. Franchises like Wendy’s are sticking to lower price point items, knowing the average consumer just can’t spend $6.00 per day on lunch, according to the article.

Chains in fast food (Burger King), quick-serve (Habit) and full service, sit-down style restaurants (Red Robin) are offering rewards programs to encourage brand loyalty through discounts and freebies. These strategies may help bring back those customers wanting to save money.

But there’s another reason diners are cutting back on eating out: Physically going to restaurants just costs too much in time and stress. Some even characterize it as a “dying tradition” that eats up too much of the work day. Just consider the coordination of schedules, the drive to the restaurant, a hunt for parking, the wait for a table, the wait for service…all of that time adds up. It’s daunting.

And some blame the millennials, who, believe it or not, prefer to cook at home more than their parents did. They also rely more on fast, cheaper meals provided by grocery stores, grocery delivery services, and a new wave of hi-tech, time-saving web based applications for curbside pickup or delivery.

Speed seems to be key here. Denny’s just launched Denny’s on Demand, allowing customers to place orders for pickup or delivery, and pay for those orders. Forget 30 minute pizza delivery. In the land "Down Under", Dominos is working on making and delivering pizzas in 10 minutes or less.

Jack in the Box recently teamed up with DoorDash to deliver curly fries and tacos to home addresses. McDonald’s hopes to drive up profits through UberEats, now available in 100 test markets across the country. Eat24 and Yelp will help web visitors find fast food delivery services within their zip codes.

All in all, apps seem to be the way of the future for restaurants craving more business. Some eateries in the Los Angeles area are claiming anywhere from a 2 to 35 percent increases in sales due to expanded digital assets. But what should franchisors know about the legal ramifications of going hi-tech?

A Franchisor’s Mobilization Plan

Some recent litigation in the dawn of digital gastronomy points the way. Franchisors should ensure they hire the right developers to reduce the risk of litigation. Important aspects to consider include:

Accessibility: This is a big issue, as ADA (Americans with Disabilities Act) suits are on the rise. Sweetgreen, Inc., a Washington D.C. based salad chain faced a class action lawsuit filed on behalf of visually-impaired plaintiffs. The app Sweetgreen had developed to allow customers to order online for faster pickup worked great for those who could see. But those customers who were impaired or blind weren’t able to customize their orders as easily, and spent extra time refining their choices at the restaurant. For this group, the app wasn’t time-saving at all.

Intellectual Property Rights: It’s common for developers to borrow code already written, rather than reinvent the wheel every time they build a new site or app. The same applies to graphics and text. However, developers are being targeted more and more often for trademark, copyright or patent infringement. Franchisors should ensure the developers own all elements used in the project, have the licensed rights to use all elements, or that the developers assume all responsibility should IP litigation be initiated.

Privacy: This one’s always an issue, as anything that connects to the internet can be hacked. Just ask Starbucks, which attributes a third of its sales to purchases made through its app. The franchise also claims that less than one percent of its app users have actually been hacked, and that the fault lies with users employing simplistic passwords. Whether those claims are true or not, the hacking is turning out to be a bit of a social media challenge for the coffee franchise.

Third Party Partnerships: Customers are generally unaware when they place an order online through their favorite restaurant’s website that the food will actually be delivered through a third party delivery service. Zoomer is one example, and plaintiffs allege the company violated the federal Telephone Consumer Protection Act and other laws when the delivery service sent customers unauthorized texts after placing food orders with partner restaurants. Granted, it’s the delivery service that is facing the lawsuit – but franchisors should be wary of using any third party service that will annoy customers. Or break the law.

As for the non-digital logistics, remember the practicalities: People who order online generally don’t want to communicate with the restaurant – they want to get in and out quickly, or just have food delivered without fuss. Consider more short-term parking or curb service for pickups; counter space, windows or staff dedicated just to online orders; and whether or not it’s better to employ your own delivery staff or contract out.

Most importantly, make sure the app works, and that it works well – there’s no point in developing an app that doesn’t allow customers to order, customize selections, and pay. Useless apps without these features tend to get slammed in reviews. And the critics are harsh, as seen in the example to the right.

Barry Kurtz is a State Bar of California Certified Specialist in Franchise & Distribution Law.

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.

Monday
Jun052017

Franchisors, Got Claims? Don't Let Them Spoil Like Bad Cheese

Franchise LawyerChair, Franchise & Distribution Practice Group

by Barry Kurtz

818-907-3006

 

This is the tale of two restaurants, each facing trademark infringement claims under the Lanham Act brought by two, separate franchisors. The franchisees’ restaurants had three things in common: First, cheese is a key ingredient in their respective menus (which detail is only critical to cheese-lovers, but we like lists of three). Second and more importantly, time was a key ingredient in their respective defenses.

The third common element is that both defendants won. Here's why:

Both restaurateurs employed a laches defense. The Laches Doctrine is an old but often used defense employed when an unreasonable amount of time has passed between a supposed transgression by the defendant and a legal complaint is made by the plaintiff. Here are the details:

Delays May Cause Grouchy-ness

In Groucho's Franchise Systems, LLC v. Grouchy's Deli, Inc. (d/b/a  Grouchy's New York Deli and Bagels and referred to as "Deli" to avoid confusion), an 11th Circuit Court of Appeal upheld the trial court's ruling that the franchisor's (Groucho's) claim was barred by laches.

To sum up, Groucho's has been doing business in South Carolina since 1941, opened 20 additional locations over time, and finally registered its trade name in 1997. The Deli opened its restaurant in 2000 in Georgia.

In 2004, Groucho's sent the Deli a letter alleging the Deli was infringing on the franchisor’s registered mark. The letter further stated the franchisor planned to open a location in Atlanta sometime in the future, and that upon that occasion, would take legal action to stop the Deli's infringement. The Deli registered its own mark in 2005 and opened a second location. Thereafter, both concepts expanded their operations.

In 2013, Groucho's sent the Deli another letter, asking the Deli to change its name because of the risk of confusion between Groucho's and Grouchy's.  The Deli did not respond, and Groucho's franchisor followed up with a warning about a lawsuit. This time the Deli replied that there was no likelihood of confusion. Groucho's finally filed a lawsuit in 2014.

Among other allegations, Groucho's claimed trademark and service mark infringement in violation of the Lanham Act, unfair competition, unjust enrichment, and that the Deli's name would cause market confusion. The district court granted summary judgment for the Deli.

The 11th Circuit Court stated that a laches defense requires proof of three elements:

1. There must be a delay in asserting a claim;

2. The delay must not be excusable; and

3. The delay must cause the defendant undue prejudice.

The Court further opined that during the decade in which Groucho's waited to challenge the Deli's service mark; the Deli built business value around its own mark; registered its mark without opposition; and opened another restaurant which it later sold, licensing the buyer at the time to use the Deli's recipes and proprietary property. In short, the Deli "rel[ied] to its detriment" on Groucho's silence. The Court also characterized Groucho's behavior as "tortoise-like", and upheld the district court's decision.

If Groucho's wanted a successful shot at protecting its name, the franchisor should have taken legal action in 2004.

Franchisor Cheesed Off…Eventually

In Noble Roman's Inc. v. Hattenhauer Distributing Company, time plays a role again.

Noble Roman's of Indiana franchises pizza outlets and submarine sandwiches. Hattenhauer owns convenience stores and gas stations in Washington and Oregon. In 2006, the parties entered into franchise agreements to sell pizza and sandwiches at Hattenhauer locations – Hattenhauer agreed to only use ingredients that conform to the franchisor's specifications.

During an audit in 2014, Noble Roman's discovered Hattenhauer underreported sales. The franchisee disputed the claims and refused to pay royalty fees. Noble Roman's also claimed the franchisee was using inferior cheese rather than the franchisor's proprietary cheese, since 2011. In its 2014 lawsuit, Noble Roman's added unfair competition and breach of contract to its other claims.

Let's allow the cheese claim to stand alone:

Noble Roman's alleged the franchisee's use of subpar cheese violated the Lanham Act "because it deceived customers into paying full price" for a product that was not, in essence, a Noble Roman's product. The franchisor also claimed injury because it lost control of products sold under its trademark.

Hattenhauer on the other hand, claimed the franchisor knew about the cheese switch since 2010, because the franchisor received monthly reports from the approved supply distributor indicating that Hattenhauer was not buying its cheese.

In considering the facts, the court determined that the harm was not to customers who ate bad cheese, but to the franchisor, who may have been perceived by those customers to be serving bad cheese, which the court characterized as a claim for injury to personal property.

That being the case, the court then pointed out that the statute of limitations for personal property was two years in Indiana and found that Noble Roman's four year delay on its cheese claim was unreasonable, and that Hattenhauer was prejudiced by this delay. The court granted summary judgment for Hattenhauer regarding the trademark infringement claim.

Both cases reveal the harm caused to a plaintiff by sitting on its claims.

Barry Kurtz is a State Bar of California Certified Specialist in Franchise & Distribution Law.

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
May262017

Franchisors: New Accounting Rules Will Significantly Impact Revenue Recognition

Franchise LawyerChair, Franchise & Distribution Practice Group

 

 

by Barry Kurtz

818.907.3006

 

 

An updated rule issued by the Financial Accounting Standards Board (FASB) will change when most franchisors may recognize revenue on their balance sheets from the collection of initial franchise fees.

Historically, initial franchisee fees were recognized as revenue upon receipt. Then, FASB Interpretation No. 45 mandated that initial franchise fees could not be recognized as revenue until the franchise unit opened for business. The result was additional cash on a franchisor’s balance sheet when the initial franchise fee was received, with a corresponding liability for the deferred initial franchise fee that remained on the books until a franchise unit opened for business.

Franchise Fee Accounting Sound Bad? It Gets Worse.

Recently the rules changed again. Effective as of December 17, 2017 for public companies, and December 15, 2018 for other franchisors, Accounting Standards Codification 606 issued by the FASB and the International Accounting Standards Board (IASB) will apply. The recognition of initial franchise fees will now have to be divvied up over the life of a franchise agreement.

For example, if an initial franchise fee is $10,000 and the term of the agreement is ten years, revenue will be recognized as $1,000 per year for ten years. This method will apply to multi-unit development as well – franchisors will not be able to recognize all initial franchise fees as revenue when the first location opens, but rather, as each location opens.  

The new rule could cause some problems.

Income will be reduced and liabilities will increase. The deferred liability will reduce the franchisor’s net worth and may trigger registration state restrictions on the franchisor’s ability to collect initial franchise fees when a franchise agreement is signed, which can adversely affect the system’s perceived value. Auditors may require franchisors to restate previous years’ financial statements, which could make a system look weaker as a going concern.

Additionally, restated financial statements could open the door to claims from unhappy franchisees that they were misled about a system’s financial condition. Growing franchise systems that rely on franchise sales for revenue could take a hit, as the system as a whole may be seen as less attractive to potential franchisees. 

Barry Kurtz is a State Bar of California Certified Specialist in Franchise & Distribution Law.

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.

Wednesday
May032017

Working Families Flexibility Act Means Little to California Employers

Lawyer for EmployerEmployment Defense

 

by Nicole Kamm

818.907.3235

 

 

The House of Representatives just passed U.S. H.R. 1180, a bill that could potentially give certain businesses and their employees more flexibility in federal overtime compensation. The Working Families Flexibility Act (WFFA) would allow employers to award workers compensatory (“comp”) time off, in place of overtime premium pay for hours worked over 40 in a week.

Federal and State Overtime RulesUnder this bill, employers may choose to offer this option, and employees may decide if they would rather receive regular overtime pay or take compensatory time off at a later date. This “banked” comp time may be cashed out at a later date should the employee decide s/he would prefer to have monetary compensation rather than the time.

From an employer perspective, this could result in significant savings in operational costs, though it could be more challenging in the administrative sense. But for employers with staff in California, this bill would have little practical effect.

What Does H.R. 1180 Mean for California Employers?

First, there’s no word on whether or not the WFFA will pass the Senate. In the past, similar bills often cleared the House only to be killed on the Senate floor. (A more business-friendly political administration may mean greater possible success this time around, however.)

Second, and more importantly, state laws are clear regarding California overtime requirements. California employers are mandated to pay overtime at time-and-a half or double-time, depending on how many hours/days are worked.

CA overtime requirements are as follows:

  • All hours worked in excess of 8 hours in a workday or 40 hours in a workweek are paid at the rate of one and one-half times the regular rate of pay.

  • The first eight hours worked on the seventh consecutive day of work in the workweek are paid at the rate of one and one-half times the regular rate of pay.

  • Hours worked in excess of 12 in any one workday and hours worked in excess of 8 on the seventh consecutive day of the workweek are compensated at a rate of two times the regular rate of pay.

Employers should ensure they have clear, written policies regarding overtime compensation. For example, all employees should be aware (preferably via an Employee Handbook outlining company policy) that:

  • Overtime hours must be approved in advance by supervisors.

  • Unauthorized overtime will be paid, but could result in discipline or even termination.
  • Hours worked on weekends do no automatically count as overtime.

  • Sick, vacation, holiday or other paid time off cannot be used to calculate overtime compensation (unless your “company” is the Los Angeles Fire Department!). 

Nicole Kamm is an Employment Defense Attorney

 

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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