San Fernando Valley Los Angeles Attorneys
Navigation Two
Phone Number

Entries in burger franchise (3)

Thursday
Jun292017

Donut Holes in Franchise Relationship; and McDonald's Shakes Damages re OT Policy

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
gwintner@lewitthackman.com
msoroky@lewitthackman.com

 

JUNE 2017

 

Franchise Lawyers

Sam Wolf Selected

Congratulations to Samuel C. Wolf, one of two attorneys in Southern California designated a "Rising Star" in Franchise Law, by Super Lawyers Magazine. Sam was nominated by attorney peers and passed the independent research process patented by the magazine.

For details, click: 2017 Up-and-Coming Southern California Attorneys and Rising Stars

Joint Employer Liability – A Recent Wave of Reprieves

"While joint employer liability remains a looming, omnipresent facet of the franchise industry, franchisors have enjoyed a recent wave of reprieves. . ."
- by Matthew J. Soroky

Read: State Bar of California Business Law Section, Franchise Law Committee E-Bulletin

 

FRANCHISOR 101:

Donut Franchise Relationship Dissected by Court

 

The parent of Dunkin' Donuts was named along with Starbucks and about 80 other coffee sellers, distributors and retailers in a 2010 lawsuit alleging violations of California's Proposition 65 and Safe Drinking Water and Toxic Enforcement Act. Dunkin Brands, Inc. ("DBI") claimed it doesn't itself buy, sell, roast, distribute or even possess coffee in California, and therefore should not have to put warnings on its coffee. But its argument failed on summary judgment, and DBI will go to trial with its co-defendants in August.

Businesses with 10 or more employees are required to place warnings on products containing chemicals that may cause cancer. Plaintiff, the non-profit watchdog group Council for Education and Research on Toxics ("CERT"), wanted defendants to add warnings to coffees that contain the carcinogen acrylamide.

DBI contended it had franchised all coffee operations to subsidiaries, while it just oversaw its corporate organization, and did not control or produce coffee. CERT pointed to the franchisee subsidiaries' reliance on DBI to operate, arguing that DBI "directs its employees to do all of the acts for all of the subsidiary companies." It claimed that DBI's subsidiaries "intentionally have no employees" to avoid the minimum-employee threshold and that actions by employees at DBI's direction expose Californians to acrylamide in Dunkin' Donuts coffee.

The Court agreed with CERT's argument, determined DBI's "franchise" structure to be "smoke and mirrors," found that selling coffee is not required for liability, ruled the law is to be construed broadly to protect public health, and found DBI's control over its subsidiary franchisees necessarily gave DBI control over product warnings. DBI's list of day-to-day aspects of its franchisees that it did not control - which did not include "product labeling" - only raised an inference that control over subsidiaries could be used to prevent them from selling coffee in violation of Prop 65.

Dunkin' Donuts' loss on summary judgment shows how courts and government may subordinate the protections provided by franchise relationships to perceived public health or other public interest concerns.

Council for Education and Research on Toxics v. Starbucks Corp., et al., BC435759 (L.A. Super. Ct., filed Apr. 13, 2010)

FRANCHISEE 101:
McDonald's Shaking Damages for OT Policy

In Los Angeles Superior Court, McDonald's claimed victory when 6,600 workers seeking $41 million in back pay and penalties came away with less than 2% of the amount sought in a claim that the fast-food giant cheated them out of overtime at almost 120 company restaurants. While the workers are sure to appeal the judge's calculation method, the ruling provides franchisors and franchisees a roadmap for minimizing penalties under California's Private Attorney General Act ("PAGA"). The Act deputizes workers as private attorneys general to pursue state labor code violations.

Earlier, McDonald's Restaurants of California, Inc. ("McDonald's") was found liable for shorting overnight workers on overtime pay. McDonald's timekeeping policy assigned all hours in a shift to the day the shift started. Overnight workers whose shift started on Day 1 and who then started another shift sometime on Day 2 often worked over eight hours in a 24-hour period but did not get overtime pay.

Several factors contributed to McDonald's success at the damage phase of trial. The judge was persuaded by McDonald's expert, while finding the workers' expert unreliable for excluding certain time records from his analysis. McDonald's also persuaded the court its violation was not willful; McDonald's believed its policy was a fair and legal way to compute overtime and there had been no complaints prior to the suit. McDonald's successfully avoided draconian fines and PAGA penalties, but it did not escape all liability. The workers were awarded $775,000.

Franchisor and franchisee operators of 24/7 locations in California, of any brand, should use care to comply with wage and hour laws, especially given the uptick in California of PAGA claims against employers. McDonald's has shown that experienced franchise and employment counsel can help treat workers fairly and limit exposure both in and out of the courtroom.

Sanchez et al. v. McDonald's Restaurants of California Inc. et al., BC499888 (L.A. Super. Ct., filed Jan. 24, 2013)

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 2017. All Rights Reserved.

Tuesday
Dec292015

10 Ways to Reduce Vicarious Liability Risks; and Paying Attention to Contractual Statutes of Limitation

Franchise 101 News

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com
swolf@lewitthackman.com
gwintner@lewitthackman.com

Franchise Lawyers

December 2015

 

National Award: Best Law Firms 2016 (Franchise Law)

We were named one of U.S. News & World Report's 2016 Best Law Firms for franchise law. According to the publication, the selection is based on rigorous scrutiny of client and lawyer evaluations -- at least one attorney from the firm must be eligible for Best Lawyer ranking in a particular practice area within a specific region. David Gurnick has been selected to the Best Lawyers in franchise list for the past four, consecutive years: Franchise Law National Ranking

 

Barry Kurtz in Los Angeles Business Journal

"First time restaurant licensors sometimes struggle to help partner companies get off the ground. At the same time, they sometimes realize too late that their partners lack skills to run the business." For more information regarding Los Angeles's popular gourmet marketplace and cafe, Joan's on Third, read: Eateries Fed Up

 

Tal Grinblat, David Gurnick and Nicholas Kanter in Valley Lawyer

"Individuals and businesses are becoming increasingly vulnerable to electronically posted falsehoods, invasions of privacy, revenge and other negative content... There are several strategies and legal tools for victims and lawyers to fight back." Read Online Negativity: How to Fight Back, for details.

 

FRANCHISOR 101:
10 Ways Franchisors Can Reduce Vicarious Liability Risks

 

Franchise Vicarious Liability 

The U.S. Department of Labor says McDonald's is liable for actions of franchisees. In the last three months a California federal court said McDonald's could be liable for a franchisee's alleged failure to pay overtime and provide meal and rest breaks.

But another California federal court dismissed similar claims against the franchisor of ARBY's. In 2014 the California Supreme Court said Domino's Pizza was not liable for misconduct by a franchisee's manager. The decision was close, decided by a 4-3 vote. All of these cases concern franchisor liability for acts and omissions of franchisees.

There are several theories on which a franchisor may be liable for acts of omissions of a franchisee.

One is the claim that the franchisor has so much control over the franchisee as to be, in effect, a principal or employer, with the franchisee being an agent. Another is the claim that the franchisor let the franchisee appear to the public or to employees to be an agent or branch of the franchisor. A third theory, developed in recent years, is that the franchisor exercises control over the franchisee's employees, and is therefore their joint employer along with the franchisee they work for.

Here are ten steps franchisors can take to reduce the risk of being liable for actions of their franchisees:

1. Choose or change the franchise company's name to something different from the name of the franchise. If the franchise brand is "Apex Advisors" or "Bubble Balloon Parties" the franchisor could be AA Franchising, LLC or BBP, Inc., or another formulation. Many lawsuits simply use the name of the franchise as the Defendant. By using a different name, a franchisor will reduce the risk of being inadvertently named as a defendant.

2. Require each franchisee to use and inform others of its/their/his/her true name. Franchisee business cards, stationery, checks, signage, advertising, menus, service lists, memos, and other materials should state the true name of the person or company that operates the franchise. Require each franchisee to display a plaque, for example: "This Apex Advisors Franchise is independently owned and operated by Sarah and Johan Jones." Other ways are to present certificates of training, longevity (years of ownership) and awards that state the independent owner's name.

3. Require the franchisee to display a sign in the employee area, possibly on the doorway to the work and customer area, reminding employees who owns the franchise. For example: "This franchise is independently owned by Sarah and Johan Jones. We appreciate your service and want to remind you that you are employed by us, not Bubbles Balloons." The franchisee should state a similar message on communications to service providers, inventory suppliers, utilities, chambers of commerce and other trade associations.

4. Review the franchise agreement, operating manual and operating policies to remove controls or requirements that are not essential to goodwill of the brand. For example, restricting the activities of franchisees' employees when they are not at work; specifying the color scheme of the employees-only area, or designating suppliers for a franchisee's holiday party are matters that do not protect the brand, and should be removed from the operating manual.

5. Remind franchisees in writing of all operational aspects of the business in which they are the decision-maker. Examples include site selection (franchisor does not select site but only consents to site selected by franchisee), lease negotiation, where and how to advertise, recruiting personnel, deciding who to hire, setting compensation, conducting reviews and giving raises, setting and scheduling hours, choosing which publications to advertise in, choosing which charities to support, setting prices, managing inventory, whether to extend credit; how much credit to extend; and declining to do business with some customers.

Store and location decor is an area where franchisors may consider allowing franchisees more flexibility. A McDonald's or other franchise can still be recognizable as part of the chain, even if the franchisee has wider discretion to customize or individualize many aspects of layout and decor.

6. State in the franchise agreement that the franchisee is responsible for safety of customers, workers and vendors who are at the premises and require the franchisee to be attentive to these matters.

7. Make sure the franchise agreement has indemnity language requiring the franchisee to indemnify the franchisor for any claims arising from the franchised business including employment claims by the franchisee's employees against the franchisor.

8. The franchisee should be required to purchase liability insurance and name the franchisor and franchisor's management and personnel as additional insureds under the franchisee's insurance.

The franchisor should require the franchisee to annually provide a copy of the full policy, so in the event of a claim the franchisor can tender it directly to the insurer. In addition, the franchisee should be required to purchase employment practices liability insurance with a co-defendant endorsement in favor of the franchisor.

9. In the franchise agreement require the franchisee to cooperate in the defense of any vicarious liability claim.

10. Franchisor personnel should not give directions or instructions to employees of the franchisee. For example, in an inspection visit of a franchisee's location, franchisor personnel should call the franchisee's attention to any deficiencies, but should not presume to instruct an employee of the franchisee to make any changes. The employees work for the franchisee, not for the franchisor. Employees should not come to view the franchisor as their supervisor.

In the Arby's and McDonald's cases mentioned above, Arby's was found not liable because Arby's did not make decisions about hours, breaks, or hiring and firing of the franchisee's employees. In the McDonald's case, the court found McDonald's might be liable, because the franchisees' employees said they believed McDonald's was their employer, partly because they wore McDonald's uniforms, served McDonald's food in McDonald's packaging, received paystubs and orientation materials marked with McDonald's name and logo, and applied for their jobs through McDonald's website.

The above are some steps a franchisor can take to reduce the risk of being sued and of being liable for acts and omissions of a franchisee. This article does not list every possible step that can be taken, but provides a good place to start.

 

FRANCHISEE 101:
Pay Attention to Contractual Statutes of Limitation

Many franchise agreements include a contractual limitation period or time limit when parties can bring a claim for relief. Though the franchise agreement is often written by and for the franchisor, these limitations can help or hurt either party.

Recently a court in Ohio ruled that a contractual time limit for claims, barred an action by the franchisor. The franchisor, Buffalo Wings and Rings, sent a notice to its franchisee in early 2011 describing claims. More than one year later, the franchisor filed a lawsuit.

At the franchisee's request the court dismissed the action, ruling that the franchisor's claim was barred by the one year limitation period stated in the franchise agreement. The Buffalo Wings and Rings case is a reminder to franchisors and franchisees, to be thoughtful of both statutory and contractual time limits for bringing claims, and is a reminder that a statutory or contractual time limit may be a successful defense to a claim by the other side. 

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 2015. All Rights Reserved.

 

Tuesday
Oct282014

Venue and Choice of Law Provisions Not Enforceable in California

Franchise 101

bkurtz@lewitthackman.com
dgurnick@lewitthackman.com
tgrinblat@lewitthackman.com

October 2014

 

American Bar Association Franchise Legal Seminar

Barry Kurtz, David Gurnick, Tal Grinblat and Bryan H. Clements attended the American Bar Association's annual legal seminar for franchise attorneys. The seminar provides an opportunity for attendees to focus on industry-wide legal concerns. Barry Kurtz co-chaired a special industry relationship workshop on beer distribution, oil and gas and automobile dealership law.

David Gurnick Named one of the Best Lawyers in America 2015

David Gurnick was recently selected by his peers for inclusion in The Best Lawyers in America 2015, for Franchise Law. The list was published in a special supplement to the Wall Street Journal earlier this month. Click: Best Lawyers to see the listing. 

Los Angeles Franchise Panel Discussion

Barry Kurtz participated in a panel discussion and Q&A for potential franchisors, franchisees, business attorneys and accountants in Southern California regarding the A-Zs of franchising a business, buying a franchise, accessing capital, and other topics. The breakfast event was hosted by The Los Angeles Business Journal on October 3rd. 

California Bar Business Law Leadership Conference

Tal Grinblat, representing the State Bar of California Franchise Law Committee, participated in a two day leadership conference hosted by the Business Law Section in Dana Point, California. The conference addressed steps to improve the Committee, sponsorship of legislation, and the promotion of the Business Law Section of the Bar. 

Barry Kurtz published in The Los Angeles Business Journal

Franchising is a flexible, tried and true method of distributing products and services and offers business owners an alternative avenue to expand... To read more, click: Is Franchising the Right Model for Your Business?

 

FRANCHISOR 101:
Venue and Choice of Law Provisions Not Enforceable in California


Attorney for Franchising 

In 2013, Pepe's Franchising, a U.K. company, entered into a Master Franchise Agreement with Frango Grill, based in California, granting the right to operate and franchise Pepe's restaurants in California. The Agreement's venue clause required all disputes to be brought in London, where Pepe's was headquartered, and required U.K. law to apply.

In 2014, Frango sent a letter to Pepe's stating its intent to rescind the Master Franchise Agreement. Frango sued Pepe's in Los Angeles alleging franchise law claims. Pepe's moved to dismiss the action or move it to London pursuant to the Agreement's venue clause. Frango, citing California's Franchise Relations Act (CFRA), opposed Pepe's motion, claiming the California statute trumped the Agreement's venue requirements. Section 20040.5 of the CFRA states that:

a provision in a franchise agreement restricting venue to a forum outside this state is void with respect to any claim arising under or relating to a franchise agreement involving a franchise business operating within this state.

Pepe's argued the CFRA should only apply when it would be unfair to apply the forum selection clause. The court ruled that the statute covers all venue restrictions, not just clauses imposed unfairly, and held that due to California's strong public policy, Section 20040.5 invalidated the agreed forum for resolving disputes. The court also held that California law would apply despite contrary provisions of the Master Franchise Agreement because Pepe's admitted that the laws of both jurisdictions were the same.

Furthermore, the court found that Pepe's sought to do business in California and registered its franchise disclosure document in California. Therefore, Pepe's should have contemplated that any franchisee dispute would be litigated in California.

When dealing with franchisees in multiple jurisdictions, a franchisor should not assume that its choice of law and forum agreement will be enforced. Review of the laws in jurisdictions where franchises are granted may be useful to assess risks related to the parties' selected forum and choice of law.

Franchisors should also consider the benefits of filing lawsuits preemptively against non-compliant franchisees in the jurisdiction stated in the franchise agreement to lessen the risk of litigating disputes in the franchisee's choice of forum.

To read about the case, click: Frango Grille USA Inc., v. Pepe's Franchising Ltd. 

FRANCHISEE 101:
Illusory Arbitration Provisions Not Enforceable in Indiana


Franchise Lawyer

In 2010, Steak 'n Shake, a franchisor of hamburger restaurants, adopted new pricing and promotion policies that required all franchisees to follow company mandated pricing on every menu item and to participate in all promotions mandated by the franchisor.

Three franchisees resisted this policy, claiming that all Steak 'n Shake franchisees enjoyed the right to set their own menu prices and participate in corporate pricing promotions at their option since 1939. They sued the franchisor in federal court.

One month later, Steak 'n Shake adopted an arbitration policy requiring franchisees to engage in non-binding arbitration of all disputes at Steak 'n Shake's request. Then Steak 'n Shake moved to stay the federal lawsuit and compel arbitration based on a provision in its franchise agreement that granted Steak 'n Shake the right to initiate a system of non-binding arbitration and mediation at any time.

The court denied Steak 'n Shake's motion, holding that the arbitration clause was illusory and unenforceable because there was no limit on Steak 'n Shake's ability to arbitrate at its whim and, as a result, it was purely optional. An illusory promise is one that makes performance entirely optional with the promisor.

On appeal, Steak 'n Shake argued that the arbitration provision was not illusory. The appellate court disagreed, holding that Steak 'n Shake did not satisfy an essential requirement needed to compel arbitration: a clear agreement to arbitrate. The appellate court found the arbitration agreement was illusory because performance of the arbitration provision was optional to Steak 'n Shake and the provisions were so vague and indefinite that the material terms could not be determined.

All parties can benefit from reviewing the franchise agreement's arbitration provisions to determine whether to proceed in a dispute through litigation or arbitration. Though an agreement may require arbitration, if its terms are illusory or ambiguous, it may be possible to pursue claims in court.

For more information, click: Appellate Court's opinion for Steak 'n Shake Enterprises, Inc.

 

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 2014. All Rights Reserved.

 

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120