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Thursday
Aug232018

Franchise 101: Run for the Border(line) Wage Claim; and Your Neighborhood Inspector

Franchise & Distribution Law Practice Group

Best Lawyers 2018 BadgeSouthern California Tier 3 Best Lawyers in Franchise Law 2018 bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
msoroky@lewitthackman.com
kwallman@lewitthackman.com
tvernon@lewitthackman.com

 

 

August 2018

 

Attorney of the Year 2018

Barry Kurtz was recognized at the San Fernando Valley Business Journal's annual Trusted Advisors Awards event as the Valley's Attorney of the Year , receiving a Client Service Excellence Award . This is the third time Barry was similarly honored. He received Trusted Advisor recognitions previously in 2012 and 2015.

Read: San Fernando Valley Business Journal's Trusted Advisors

Franchise Law Journal - David Gurnick & Samuel C. Wolf article

"Although franchising is a relatively modern business method, the existence of one-sided agreement is nothing new. From time immemorial, laws and courts have been called upon to protect weaker parties against overreaching..."

Read: Unconsionability in Franchising

Valley Lawyer - David Gurnick & Matthew J. Soroky article

"In 2013, motor fuel was available at about 150,000 locations across the United States. This was a 25 percent decline from two decades earlier when the number of gas stations exceeded 202,000. The number of gas stations is expected to continue to fall and there are many reasons why..."

Read: Gas Station Franchises: Federal & California State Regulations

 

FRANCHISOR 101:
Run for the Border(line) Wage Claim

Taco Bell Wage Claim

The Ninth Circuit Court of Appeals upheld summary judgment in favor of Taco Bell on class claims that employees should be paid under California law for time spent on company premises eating employer-discounted meals during meal breaks.

California law requires employers to relieve nonexempt employees of all duties during required meal periods or pay the employee a meal premium. Taco Bell’s meal break policy let employees, on a voluntary basis, buy discounted meals, but the meals had to be eaten in the restaurant. Taco Bell’s requirement sought to prevent employees from giving the food to friends or family, which Taco Bell considered to be theft.

The plaintiff, a former Taco Bell employee, brought a class action against Taco Bell claiming she was entitled to be paid for time spent on Taco Bell's premises eating discounted meals during her meal breaks. The former employee argued that because Taco Bell required the discounted meal to be eaten in the restaurant, she was under Taco Bell’s control, making the time compensable.

A lower court disagreed, finding that Taco Bell’s meal policy satisfied California law. This was because Taco Bell relieved employees of all duties and relinquished control over their activities during meal breaks. In upholding this ruling, the Ninth Circuit noted that under the discounted meal policy, employees were free to use meal break time as they wished, and an employee had to stay on premises only if the employee voluntarily chose to buy a discounted meal. The Ninth Circuit found the requirement to eat the discounted meal on premises did not amount to control over the employees’ working conditions.

In California, an employer must relinquish control over nonexempt employees during meal breaks. Franchisors and franchisees that employ nonexempt employees should have their meal break policies, and any changes to the policies, reviewed by counsel before implementation.

Rodriguez v. Taco Bell Corporation, No. 16-15465 (9th Cir. July 18, 2018)

FRANCHISEE 101:
Your Neighborhood Inspector

Home Inspection Service Non-Compete

A Tennessee federal judge granted a preliminary injunction in favor of AmeriSpec, a national franchisor of property inspection services, enforcing a one-year post-termination covenant not to compete against its former franchisee.

The franchise agreement expired May 1, 2017. The franchisee did not sign a new franchise agreement or notify AmeriSpec of any intent not to renew. After expiration, the franchisee continued to operate using AmeriSpec’s trademarks and business systems and continued to pay franchise fees to AmeriSpec.

In February, 2018, the franchisee opened a competing inspection business, advertising that “Your Local AmeriSpec is now American Property Inspections.” AmeriSpec then wrote to the franchisee, complaining that he was violating the agreement’s non-compete clause, demanding that he stop operating the competing business and providing him thirty days to cure. After the franchisee did not respond to the letter, AmeriSpec sued.

The franchisee argued that the franchise agreement expired May 1, 2017, meaning the one year post-term non-compete expired May 1, 2018 and was no longer enforceable. The court rejected this argument, finding that the parties operated under the franchise agreement or an implied contract with the same terms, until April 7, 2018 – thirty days after AmeriSpec wrote to the franchisee. The court found no evidence of the franchisee communicating intent not to renew the franchise to AmeriSpec. The court concluded that the parties created an implied contract based on conduct, that the non-compete covenant was enforceable and AmeriSpec would be irreparably harmed without injunctive relief.

Franchisees considering operating a competing business should pay close attention to the non-compete provisions of their franchise agreements and should consult their legal counsel about the implication of such provisions before starting such an endeavor.

Amerispec, L.L.C. v. Omni Enters., Inc., 2018 WL 2248459 (W.D. Tenn. May 16, 2018)

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2018. All Rights Reserved.

Tuesday
Jul312018

Franchise 101: No Poach for You; and Cannbiz Accounting

Franchise & Distribution Law Practice Group

Best Lawyers 2018 BadgeSouthern California Tier 3 Best Lawyers in Franchise Law 2018 bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
msoroky@lewitthackman.com
kwallman@lewitthackman.com
tvernon@lewitthackman.com

 

 

July 2018

 

Webinar: Ready to Franchise? Here’s What You Need to Know

Franchising is one, key way to expand a business, but it's not the only way. Those looking to grow their business and expand their brand through franchising should consider their options carefully. In this webinar, Tal Grinblat, Certified Specialist in Franchise Law (State Bar of California Board of Legal Specialization) and Katherine L. Wallman, an 11 year veteran in both corporate and franchise law, will discuss:

  1. Five Elements of a Successful Franchise System
  2. Steps to Begin Franchising
  3. State Registration Requirements
  4. Franchise Relationship Laws
  5. And much more…

Attorneys and Accountants attending this webinar may be eligible for CLE or CPE continuing education credit. Please add ESQ or CPA after your last name in the registration form if seeking credit. Click RSVP to register for this event.

FRANCHISOR 101:
No Poach for You

Franchise agreements commonly prohibit the franchisee from soliciting or hiring workers employed by the franchisor or other franchisees. This may take the form of “no-hire” or “no-switching” clauses that prohibit hiring each other’s employees, or “non-solicitation” clauses that prevent a franchisee from soliciting another franchisee’s employees. These “anti-poaching” covenants have come under government scrutiny, due to the concern that they unfairly hold down wages for millions of employees working in quick and full-service restaurant, automotive and other franchised industries.

Eleven state attorneys general are investigating several national franchisors for anti-poaching provisions in their franchise agreements. The Washington attorney general's office obtained agreements from seven major brands to no longer enforce such language and to remove the clauses from their franchise agreements. At the federal level, the Federal Trade Commission and Antitrust Division of the U.S. Department of Justice issued joint guidance that they consider “naked” no-poach or no-hire provisions to be illegal restraints of trade. U.S. senators Elizabeth Warren and Cory Booker introduced legislation this year, the End Employer Collusion Act, to prohibit anti-poaching provisions in franchise agreements. Class action lawsuits on behalf of affected employees have been filed across the country against fast-food franchisors McDonald's, Pizza Hut, Jimmy John’s and Carl's Jr. in state and federal courts.

Lewitt Hackman attorneys have represented clients faced with such concerns. Attorneys with the firm have advised franchisor and franchisee clients on legality, structuring, effects and enforcement of no-hire and anti-solicitation clauses and we have achieved successful results for clients litigating these clauses in multiple courts.

Franchise systems recognize that anti-poaching provisions protect franchisees’ investments by avoiding having trained quality employees solicited away by fellow franchisees. The movement challenging these clauses argues that they keep employees from being offered hire wages. Sometimes the clauses can be overbroad. Some provisions apply to only management employees, while others cover all workers. Some apply to current and former employees. Some prohibit franchisees from soliciting each other’s employees or the franchisor’s employees.

Many franchisors are evaluating increased risks of continuing to use these provisions in the current climate. In light of increased scrutiny, franchisors should consult counsel to carefully review any anti-poaching provisions in their agreements to evaluate whether to keep or remove them, and if maintained, ensure they are not overly restrictive, and assess how they can be tailored to achieve pro-competitive benefits without raising the specter of anti-competitive practices.

FRANCHISEE 101:
Cannabiz Accounting

Tax service franchisor, H&R Block, was recently vindicated in having terminated a franchisee for violating an in-term non-compete covenant. A United States District Court granted the franchisor summary judgment in Devore v. H&R Block Tax Services. LLC.

The franchisee in this case let its office manager and prior operator of the franchised business share business space to offer tax return preparation services alongside a separate cannabis consulting business. The previous operator, Gordon Gates, agreed to a portion of the purchase price over a three-year “earn out period” and to stay on as office manager of the H&R Block until the price was paid in full. During the three years, the franchisee permitted Gates to operate “Cannabiz Accounting” from the H&R Block office. But revenue generated by Cannabiz Accounting for tax services was not reported to the franchisor. H&R Block eventually discovered the franchisee’s arrangement with Gates and initiated termination proceedings. The franchisor also demanded an accounting and payment of royalties due as a result of the breach, and the franchisee’s employment agreements of its supervisors and tax return preparers.

Gates’ relationship with the franchisee was found to be a violation of this prohibition against engaging in a competing business. The non-compete provision prohibited the franchisee from “directly or indirectly” engaging “in any business which offers any product or service the same or similar to” income tax preparation services “within 45 miles of the Franchise Territory.”

The Court rejected franchisee's argument that it did not engage in the competing Cannabiz Accounting business. Plaintiffs claimed they did not control Cannabiz Accounting, nor did they profit from the business. But the Court found that sharing the office space with a competing business definitely breached the franchise agreement with H&R Block; and that the franchisee also breached by failing to provide the accounting and employment agreements that H&R Block demanded in its termination notices.

The franchisee was not entirely without recourse. H&R Block must still defend the franchisee’s secondary claim that it tortiously interfered with the franchisee’s lease by breaking into the office to change the locks. This conduct, the Court found, was separate and distinct from H&R Block’s otherwise lawful act of termination.

A franchise agreement’s in-term non-compete covenant is typically broad enough to prohibit all forms of direct and indirect competition with the franchisor. Franchisees may be surprised to learn there are other, more subtle ways a franchisee may indirectly breach this covenant.

Devore v. H&R Block Tax Services, LLC, Case No. CV 16-946 DSF (AFMx) (C.D. Cal. Mar. 29, 2018)

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2018. All Rights Reserved.

Tuesday
Jun262018

Franchise 101: Supreme Tax Implications; and Class NOT in Session

Franchise & Distribution Law Practice Group

Best Lawyers 2018 BadgeSouthern California Tier 3 Best Lawyers in Franchise Law 2018 bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
msoroky@lewitthackman.com
kwallman@lewitthackman.com
tvernon@lewitthackman.com

 

 

June 2018

 

Rising Stars in Franchise/Dealership Law

Congratulations to Samuel C. Wolf and Matthew J. Soroky, both designated Rising Stars for 2018 in franchise and dealership law, by Super Lawyers Magazine. Sam and Matt were first nominated by peers of the bar, evaluated by a third party research team, and then reviewed by a panel of highly credentialed panel of outside attorneys. As few as 2.5% of the original nominees are then named Rising Stars.

Webinar: Ready to Franchise? Here’s What You Need to Know

Franchising is one, key way to expand a business, but it's not the only way. Those looking to grow their business and expand their brand through franchising should consider their options carefully. In this webinar, Tal Grinblat, Certified Specialist in Franchise Law (State Bar of California Board of Legal Specialization) and Katherine L. Wallman, an 11 year veteran in both corporate and franchise law, will discuss:

  1. Five Elements of a Successful Franchise System
  2. Steps to Begin Franchising
  3. State Registration Requirements
  4. Franchise Relationship Laws
  5. And much more…

Attorneys and Accountants attending this webinar may be eligible for CLE or CPE continuing education credit. Please add ESQ or CPA after your last name in the registration form if seeking credit. Click RSVP to register for this event.

FRANCHISOR 101:
Supreme Tax Implications

Online Goods Services Tax

On June 21 the U.S. Supreme Court reversed prior case law and let states tax online retailers that do not have physical presence in the state. The ruling also has significant implications for franchise systems that sell products and franchise their brands in multiple states.

Online retailers Wayfair, Overstock.com, and Newegg do not have a physical presence in South Dakota. They challenged a South Dakota law that requires out-of-state retailers to collect and pay sales tax “as if they had a physical presence in the state.” The Court’s precedent held that whether an out-of-state seller had to collect and pay taxes on sales to the state’s consumers depended on whether the Seller had a physical presence in the state. The Court upheld state taxes if they: 1) apply to an activity with a substantial nexus with the taxing state, 2) are fairly apportioned, 3) do not discriminate against interstate commerce, and 4) are fairly related to the services the state provides.

The new decision ruled that physical presence is not necessary. Now the “closely related” requirement applies. The Court acknowledged that requiring physical presence amounted to a judicially created tax shelter. It let businesses operate without physical presence in as many states as feasible to avoid taxes. The Court ruled this was unconstitutionally arbitrary as it treated identical economic actors differently.

Next, the Court said that in today’s economy, virtual presences should be subject to the same sales tax for the same items. Finally, the Court explained that the physical presence requirement was a burden on states’ ability to collect taxes and fund public functions and it put an unfair tax burden on consumers who bought goods in their state. The Court ruled that it was a mistake to give online retailers an arbitrary advantage over competitors that must collect sales tax from consumers. The Court ruled that the South Dakota law did require a substantial nexus before making out-of-state retailers liable for collecting and paying state sales tax.

This decision could lead to states taxing franchisors on royalties from out-of-state franchisees, for the use of marks and intellectual property. This could be a significant financial burden for franchise systems. Franchisors should consult their franchise and tax attorneys on the potential implications of this decision and assess what modifications to their business model and franchise agreements may reduce the impact of the decision. Franchisors might also rethink their e-commerce platforms with regard to granting or withholding rights to franchisees to sell goods out-of-state.

Read: South Dakota vs. WayFair, Inc., et al.

FRANCHISEE 101:
Class Not in Session

Class Action Arbitration Clauses

In May, the U.S. Supreme Court held that mandatory arbitration agreements containing class action or collective action waivers must be enforced as written.

The challenge to enforceability was that the National Labor Relations Act (“NLRA”) says employees can seek relief on a class basis. The Court examined three appeals involving workers whose employment agreements required all disputes to be arbitrated. The agreements required individualized arbitrations and barred employees from pursuing claims as a class or collective action.

The Court ruled that the NLRA does not override another law, the Federal Arbitration Act (“FAA”). The FAA requires courts to enforce agreements to arbitrate. The Court said the FAA treats arbitration agreements as valid, irrevocable, and enforceable. The Court directed lower courts to respect and enforce the parties’ chosen arbitration procedures and “rigorously to enforce arbitration agreements according to their terms.”

The employees invoked a clause of the FAA that lets courts refuse to enforce arbitration agreements. They claimed the NLRA decreed that the employees’ waivers of class and collective action was illegal.

The Court rejected this argument. The Court interpreted the FAA clause narrowly, stating that it “offers no refuge” for defenses that apply only to arbitration. The Court noted that the aggrieved employees did not claim they were forced to sign the arbitration agreements by fraud or duress or other unconscionability, so there was nothing to render the contracts unenforceable. Instead, the employees objected that their agreements required them to waive rights to class or collective actions.

The Court’s ruling said that lower courts may not let a contract defense “reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent.” According to the decision, the FAA required the court “to enforce, not override, the terms of the arbitration agreements before us.”

The Epic Systems case provides support for franchisors whose franchise agreement arbitration provisions prohibit class or collective actions by franchisees. Such provisions may be invalidated only “by an act of fraud or duress or in some other unconscionable way.” Franchisees should pay attention to any arbitration clause in their franchise agreement that bars class actions. Where such a clause is presented to a potential franchisee, it may be worth trying to negotiate the right to pursue class action proceedings against the franchisor.

Read: Epic Systems Corporation v. Lewis

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2018. All Rights Reserved.

Wednesday
May302018

Franchise 101: Pain at the Pump; and Pizza Franchisor Gets Burned

Franchise 101 News

Best Lawyers 2018 BadgeSouthern California Tier 3 Best Lawyers in Franchise Law 2018 bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
msoroky@lewitthackman.com
kwallman@lewitthackman.com
tvernon@lewitthackman.com



 

 

May 2018

  

International Franchise Association’s Legal Symposium

Barry Kurtz, Tal Grinblat and David Gurnick attended the 51st Annual IFA Legal Symposium this month. The symposium addresses current laws, regulations and business challenges impacting franchise systems throughout the world.

We are Growing!

Taylor M. Vernon joined our Franchise & Distribution Practice Group as an Associate. Taylor earned his JD at the UCLA School of Law in 2011 and a B.A. in History from the University of Texas at Austin. Taylor's practice focuses primarily on franchise, distribution, licensing and corporate transactions. With seven attorneys, we now have one of the largest franchise & distribution practice groups in the western United States.

FRANCHISOR 101:
Pain at the Pump

Pumped Up Franchisor

In Curry v. Equilon Enterprises LLC, a California court ruled, and the Court of Appeal affirmed, that a class-action wage and hour lawsuit against Shell Oil could not go forward because the service station manager bringing the suit was not an employee of Shell. The manager was employed by the company that contracted with Shell to operate the station.

Franchise Distribution Attorneys

Shell granted leases and operating agreements giving operators a rental interest in service station convenience stores and carwashes. Operators kept all profits from the convenience stores and carwashes. Shell paid the operators to run the station fuel facilities.

ARS had a contract with Shell to operate multiple stations. The plaintiff managed two locations. She was hired by an ARS employee, trained by ARS employees, reported to ARS employees, and supervised ARS employees. ARS designated the plaintiff as an exempt employee and set her salary.

The plaintiff brought a class-action suit against ARS and Shell, claiming she and other managers were misclassified as exempt employees, were denied overtime pay and were denied meal and rest breaks. The plaintiff also claimed that ARS and Shell were joint employers.

Definition of Employer

The appellate court noted three alternative definitions of what it means to employ someone:

  • To exercise control over wages, hours or working conditions;

  • To suffer or permit to work;

  • To engage.

The court said the first definition did not apply because Shell did not control the plaintiff's wages, hours or working conditions. ARS was responsible for training the plaintiff. ARS alone determined that she would be exempt from overtime requirements, where and when she would work, and her compensation and health benefits. And ARS controlled what the plaintiff did on a daily basis. The second definition did not apply because Shell had no authority to hire or fire the plaintiff.

As to the third definition, the court said "to engage" referred to the multifactor test used to determine if a worker is an employee or independent contractor. Under this test as well, the plaintiff was not employed by Shell. She was engaged in a distinct occupation. She was not supervised by Shell. Shell did not require a particular skill set for individuals hired by ARS. And Shell did not control her length of employment or compensation.

Read: Curry v. Equilon Enterprises LLC

Soon after this case was decided, the California Supreme Court, in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, announced a new three-part test for determining if an individual is an employee or independent contractor for claims under California's Wage Orders. To show that a worker is an independent contractor, a business must establish each of three factors: (A) the worker is free from control and direction of the hiring entity in performing the work, under the contract for the work and in fact; (B) the work is outside the usual course of the hiring entity's business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business. Failure to establish any one of these factors means a worker will be classified as an employee.

The Supreme Court's decision will impact how many industries do business, and many businesses will need to re-examine their use of independent contractors, and their current agreements, to determine if re-classification is needed.

FRANCHISEE 101:
Pizza Franchisor Gets Burnt

Pizza Oven

A recent case from Indiana demonstrates consequences to a franchisor that deviates from the contractually agreed audit method. In Noble Roman's Inc. v. Hattenhauer Distributing Co., an Indiana federal court granted a pizza franchisee (Hattenhauer) summary judgment on its franchisor's underreporting claim.

In 2014, Noble Roman's audited non-traditional franchisees who paid royalties based on reported sales. These audits included two of Hattenhauer's locations. The audits relied on a review of Hattenhauer's purchases from its distributor and estimates of Hattenhauer's rate of waste, product mix, and pricing to estimate gross sales. Noble Roman's did not review Hattenhauer's books and records or verify the information in the distributor reports.

Based on the audits, Noble Roman's concluded that Hattenhauer's locations underpaid royalties. Without giving prior notice, Noble Roman's tried to electronically withdraw funds from Hattenhauer's bank account to cover the unpaid royalties. Hattenhauer's bank rejected the attempted transfers. Noble Roman's then made more attempts to withdraw the money, without providing Hattenhauer notice.

Noble Roman's sued Hattenhauer, claiming it breached the Franchise Agreements by underreporting sales and failing to pay proper royalties. Noble Roman's argued its audits were authorized under the Franchise Agreements. Hattenhauer counterclaimed, alleging that Noble Roman's breached the Franchise Agreements by improper calculation of gross sales and unauthorized attempts to withdraw money. Hattenhauer argued that, pursuant to the Franchise Agreements, it was required to pay royalties on actual gross sales, not on sales that Noble Roman's believed it should have achieved.

The court rejected Noble Roman's argument, noting that royalties Noble Roman's sought to collect were not properly calculated and therefore were not owed-and that nothing in the Franchise Agreements gave Noble Roman's the right to collect unpaid royalties calculated based on an audit, by means of electronic withdrawals without Hattenhauer's consent.

Franchisors should pay particular attention to the contractual rights they can enforce against franchisees and not exceed those rights in the process of collection efforts.

Read: Noble Roman's Inc. v. Hattenhauer Distributing Co.

This communication published by Lewitt Hackman is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation. Copyright Lewitt Hackman 2018. All Rights Reserved.
Thursday
Apr262018

Franchise 101: Future Royalties & Beyond; and a Sweet Non-Compete

Franchise 101 News

Best Lawyers 2018 BadgeSouthern California Tier 3 Best Lawyers in Franchise Law 2018 bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
msoroky@lewitthackman.com
kwallman@lewitthackman.com



 

April 2018

 

Tal Grinblat in Franchise Times

Congratulations to Tal Grinblat named a Legal Eagle by the Franchise Times for the fifth, consecutive year. In addition to this designation, Tal is also a State Bar of California Certified Specialist in Franchise & Distribution Law, and a member of the Executive Committee of the Business Law Section of the California Lawyers Association.

Read: 2018 Franchise Legal Eagles

Franchise Distribution Attorneys

FRANCHISOR 101:
Future Royalties and Beyond

A Florida federal court refused to dismiss a franchisor's claim for past due royalties and lost future profits.

The case concerned an Interim Healthcare staffing franchise in Arizona. The franchisor issued a default notice based on the franchisee's failure to pay agreed royalties. After the franchisee failed to cure the default, the franchisor terminated the franchise agreement and sued for almost $400,000 in past due royalties and more than $1,400,000 in lost future royalties.

The franchisee moved to dismiss the claim for future royalties, arguing that future amounts were speculative and that the franchisor's act of terminating the agreement-rather than the franchisee's breach - caused any alleged future royalty damages.

The court rejected this argument, noting that although Florida courts are "hesitant" to award future royalties, the franchisor properly pled its claim by alleging breach of the franchise agreement, lost profits as a proximate result of the breach, that losses were contemplated by the parties based on the agreement's ten-year term, and that the claimed losses were not speculative as they were based on average weekly fees and number of weeks remaining on the agreement. The court noted that future profits can be recovered in Florida by demonstrating the loss with "reasonable certainty by competent proof" and that the franchisor would be held to that standard at trial.

Lost future royalties may be difficult to recover, but a properly detailed pleading can get the claim to trial rather than being dismissed early in the case. Franchisors should work closely with franchise litigation attorneys to strengthen the pleading of such claims.

Interim Healthcare Inc. v. Health Care@home, LLC, S.D. Fla.

FRANCHISEE 101:
A Sweet Non-Compete

A Florida federal court held that the non-compete provision in a chocolate shop franchise agreement was enforceable against an ex-franchisee operating a competing chocolate store at the former franchised location.

The franchisee was terminated for refusing to install the new point of sale system, which was required by the franchise agreement. After termination, the former franchisee continued to operate in the same location.

The franchisor sued to enforce the non-compete provision in the franchise agreement. The non-compete prohibited the former franchisee from operating a competing business within 25 miles of its former location or other franchised locations for two years.

The former franchisee argued that the non-compete provision was unenforceable under Florida law, claiming the franchisor failed to prove a legitimate business interest justifying the provision. The court was not persuaded. It found the franchisor had legitimate business interests in protecting its goodwill in the region surrounding the location and in protecting its ability to sell new franchises. The court concluded that the franchisor's interest in re-entering the market and efforts to bolster the goodwill associated with the franchisor's brand in the area of the franchisee's former location were legitimate business interests for enforcing the non-compete provision.

A franchisee leaving a franchise system should evaluate its legal rights before deciding to operate a competing business. A non-compete provision may or may not be enforceable in the state where the franchisee plans to operate. Knowing the enforceability of non-compete provisions in the franchisee's jurisdiction before operating a competing business can save time, money and headache.

Peterbrooke Franchising of America, LLC v. Miami Chocolates, LLC, S.D. Fla.

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