San Fernando Valley Los Angeles Attorneys
Navigation Two
Phone Number

Entries in joint employer (9)

Wednesday
May252016

States Protect Against Joint Employer Liability; and Combatting Franchisor's Harmful New Policies

Franchise 101 News

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

 

May 2016

 

Franchise Lawyers

Barry Kurtz in The Business Journals

 

"...Is the business sustainable in the marketplace? To be sustainable, the business concept should be unique enough to withstand competition, and also...”

Click to read: Guidelines When Considering Buying a Franchise

IFA Legal Symposium

 

Barry Kurtz, David Gurnick and Tal Grinblat attended the International Franchise Association's 49th Annual Legal Symposium in Washington D.C. The conference provides an opportunity to gain insights into many of the legal challenges faced by franchisors around the world. This year's symposium featured Philip Miscimarra of the National Labor Relations Board, who spoke on the NLRB's recent decisions regarding joint employer liability.

 

FRANCHISOR 101:
State Bills re Franchisor Joint Employer Liability

With franchisors deeply concerned about joint liability for franchisee employees, more states are passing laws trying to prevent that from happening. Here are some states and measures that have passed:

Texas enacted Senate Bill 652, providing that: "[A] franchisor is not considered to be an employer of: (1) a franchisee; or (2) a franchisee's employees." 

Michigan passed House Bills 5070 - 5073, stating: "[A]s between a franchisee and franchisor, the franchisee is considered the sole employer of workers for whom the franchisee provides a benefit plan or pays wages." 

Utah passed House Bill 116, stating, "[A] franchisor is not considered to be an employer of: (i) a franchisee; or (ii) a franchisee's employee."  

Wisconsin enacted Act 203 stating: "[A] franchisor ... is not considered to be an employer of a franchisee ... or of an employee of a franchisee."

Indiana approved House Bill 1218, which provides: "a franchisor ... is not considered to be an employer or co-employer of: (1) a franchisee ... or (2) an employee of a franchisee." 

Georgia enacted Senate Bill 277, providing: "[N]either a franchisee nor a franchisee's employee shall be deemed to be an employee of the franchisor for any purpose."

The Virginia legislature attempted to pass House Bill 18, stating that "[N]either a franchisee nor a franchisee's employee shall be deemed to be an employee of the franchisee's franchisor." But, the governor vetoed the bill.

These state laws will not protect franchisors from all claims. For example, various claims based on federal law may not be affected. But passage shows which states are friendlier to franchises and want to retain and grow their franchise industries.

 

FRANCHISEE 101:
What to Do About Franchisor’s Harmful New Policies

Franchisees aren't always excited when their franchisor introduces a new policy. But if a new policy overreaches and might doom a franchisee's business, can it be stopped before it starts?

Automotive Technologies, Inc. ("ATI") is the franchisor of "Wireless Zone" stores. These stores sell Verizon Wireless cell phone products and services. The franchisor, ATI, received sales commissions from Verizon that it passed on to franchisees who made the sales. ATI also paid performance incentive payments ("PIPs") to franchisees when they sold certain phones. When ATI announced it would stop paying the PIPs or start taking a 5% royalty from commissions before passing them on, a group of franchisees sued. They claimed the new policy was a breach of contract, unjust enrichment, and unfair practice, and asked the court for a preliminary injunction to stop the new policy.

The court ruled that to immediately stop ATI from applying its plan, the franchisees had to show they would be irreparably harmed - that is, they would lose "substantially all of their businesses." Based on financial information from the franchisees, the court found they could suffer no more than a 2% loss of revenue from ATI's new policy, and were not at risk of losing their businesses. The court denied the preliminary injunction.

Franchisors and franchisees may disagree on what is best for a franchise system, and the wisdom of a particular course may be known only in time. The case shows that franchisees must meet a high bar before a court will cut off a proposed new policy implemented by the franchisor in good faith.

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 2016. All Rights Reserved.

Friday
Apr292016

Joint Employer Liability: Wins, Losses, Lessons; and Understanding Merger/Integration Clauses

Franchise 101 News

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

April 2016

 

Franchise Lawyers

FRANCHISOR 101:
Wins, Losses & Lessons in Joint Employer Liability

As joint employer liability continues to develop, plaintiffs seeking deep pockets continue to claim, with some success, that franchisors are joint employers, responsible for actions of their franchisees' employees. In April, a jury found Domino's Pizza (DP) liable for $10.1 million for a delivery driver's car accident that caused a man's death.

In the accident a franchisee's employee drove in front of an oncoming truck. The truck swerved, crashing into a median to avoid the DP driver. The truck driver was left quadriplegic and later died. The jury found that the delivery driver caused the accident, and that DP controlled the franchisee's operation enough to be liable. DP's attorney argued that DP did not control hiring or firing of the franchisee's employees.

But the plaintiff's attorney focused on overall control by DP, noting that it extended even to particular conduct of delivery drivers, like requiring them not to use radar detectors or carry more than $20 cash. The attorney persuaded the jury that the franchise agreement's description of the franchisee as an "independent contractor" was just an effort by DP to avoid this kind of liability, and did not describe the actual relationship, in which the franchisee was actually DP's agent.

Click to read: Wiederhold v. Domino’s Pizza, 2-11-CA-001589

By contrast, when an employee of a landscape service franchise sued the franchisee and franchisor for discrimination, harassment, and retaliation, the court found that the franchisor was not her employer and could not be liable. The court explained that the franchisor, Mountain View Lawn Care, did not exert control over the plaintiff's employment, since the franchisor did not:

1. Have the ability to hire or fire the plaintiff;
2. Supervise or discipline the plaintiff;
3. Provide the equipment or uniform used by the plaintiff;
4. Possess employment records for the plaintiff;
5. Train the plaintiff or any of the franchisee's employees;
6. Employ anyone with similar duties to the plaintiff's;
7. Receive the sole benefit of the plaintiff's work;
8. Do anything to show that it intended to be the plaintiff's employer.

Click: Wright v. Mountain View Lawn Care, LLC

Juries are less predictable, as shown by the Domino's Pizza case, but a franchisor can improve its prospects of avoiding joint employer liability by following the factors outlined in Mountain View.

FRANCHISEE 101:
Understanding Merger/Integration Clauses

Before a final agreement is signed there are often oral discussions, negotiations, and representations. There may be written memorandums of understanding or letters of intent. But, when the final agreement has a "merger" or "integration" clause, in many states it is as if anything that came before never happened.

After various disputes between Chrysler Group and its distributor in Greece, the parties entered into a settlement agreement. The agreement said the distributor would now sell only Chrysler's "Lancia" branded vehicles. Before they signed the agreement, Chrysler represented to the distributor that it planned to expand the Lancia line over the next few years. When that expansion didn't happen, the distributor sued Chrysler for fraud.

The settlement agreement did not mention expansion of the Lancia line but did have a "merger/integration clause." That clause said the agreement superseded all other agreements between the parties. As a result, regardless of any representations allegedly made by Chrysler, the court denied the distributor's claim.

A merger clause may resemble the following:

Entire Understanding: This Agreement contains all of the terms and conditions agreed on by the parties with reference to its subject matter. This Agreement supersedes and replaces all prior agreements, arrangements, negotiations, representations and understandings among the parties, whether written or oral, concerning its subject matter.

An agreement with a clause like this will be the last, and only, word on the subject in those states that give force to these clauses. Before signing an agreement that contains such a clause, be certain that the agreement also contains every part of the final deal as you understand it.

Details: Lancia Jeep Hellas S.A. v. Chrysler Group Int'l LLC, Mich. Ct. App.

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 2016. All Rights Reserved.

Friday
Jan292016

DOL on Joint Employer Liability; and CA Expands Franchisee Protections

Franchise 101 News

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

January 2016

 

Franchise Lawyers

Barry Kurtz, David Gurnick & Tal Grinblat: Super Lawyers 2016

Three of our franchise law attorneys were selected as 2016 Super Lawyers, in the Franchise/Dealership category. Only 11 attorneys in all of Southern California were so named. Among them, Barry Kurtz, David Gurnick and Tal Grinblat have a combined 23 years of Super Lawyer recognitions. All three attorneys are also Certified Specialists in Franchise & Distribution Law, per the State Bar of California Board of Legal Specialization. 

Tal Grinblat Co-Authors Legislation

As Co-Chair of the Franchise Law Committee, Tal Grinblat wrote an Affirmative Legislative Proposal (ALP) to enable franchisors wishing to test California markets to exhibit at trade shows without first registering as franchises. The ALP was approved by the Trustees of the California Bar and will now be introduced as a bill in Sacramento by Assembly Judiciary Committee Member Brian Maienschein. Click: BLS-2016-01 for further information. 

San Fernando Valley Business Journal Quotes David Gurnick re PizzaRev

"It's important for a franchiser to develop critical mass in a particular market before expanding into neighboring regions..." Read: Chain Offers Slice for further details.

Barry Kurtz Presentation at Southwestern University

Barry Kurtz co-presented a seminar regarding business law at his alma mater, Southwestern University. The one hour presentation, "Transactional Law in Practice" was geared towards law students and graduates of the school. Mr. Kurtz is an active member of the Alumni Association Board of Directors, which co-sponsored the event.

David Gurnick Speaks at San Fernando Valley Bar Association

David Gurnick participated in the San Fernando Valley Bar's MCLE Marathon, giving a 90 minute presentation entitled "Online Negativity: How to Fight Back." The marathon is held each year, and provides an opportunity for area lawyers to earn continuing education credits.

FRANCHISOR 101:
Department of Labor Weighs in on Joint Employer Liability

 

Recently, some plaintiffs - employees of franchisees - have tried to hold franchisors responsible for unpaid overtime and other claimed violations by franchisees they work for. They use the theory that franchisors are their joint employer, along with the franchisee who hires, pays and directs them.

In the latest development of the changing standard for joint employer liability, the U.S. Department of Labor (DOL) issued an Administrator's Interpretation ("AI") stating the analysis the DOL plans to apply in these cases.

The AI first distinguishes "horizontal" and "vertical" joint employment. Horizontal is where an employee works at the same time for two separate but related or overlapping employers. Vertical means the work an employee does for one direct or "intermediary employer" also benefits another company, the "potential joint employer." The benefit exists because the direct or intermediary employer provides services benefitting another company that may include labor and some employer functions, like hiring and payroll. The DOL believes a franchise is vertical, in which the franchisee is an intermediary employer that makes the franchisor a potential joint employer. In the DOL's view, a franchisee provides a labor force that benefits the franchisor by getting the franchisor's product, whether foods or merchandise or services, to consumers.

The AI says that a vertical joint employment analysis "must be an economic realities analysis and cannot focus only on control." It provides seven factors to be considered in determining if an employee "is economically dependent on the potential joint employer." The factors suggesting economic dependence, and joint employment, are:

1. The employee's work is directed, controlled, or supervised by the potential joint employer.

2. The potential joint employer may hire, fire, or modify the employee's employment conditions.

3. The employee's work that benefits the potential joint employer is full-time, of long duration, or permanent.

4. The employee's work is repetitive or rote, requiring little skill or training.

5. The employee's work is an integral part of the potential joint employer's business.

6. The employee works on premises owned or controlled by the potential joint employer.

7. The potential joint employer performs administrative functions for the employee that would typically be performed by an employer, like handling payroll or providing transportation.

Some of these factors resemble the relationship between a franchisor and employees of its franchisees. But in a set of frequently asked questions accompanying the AI the DOL states that "the existence of a franchise relationship, in and of itself, does not create joint employment." Which franchise relationships do create joint employment will be developed in future guidance and decisions. 

Read: U.S. Department of Labor Administrator's Interpretation No. 2016-1

FRANCHISEE 101:
California Expands Protections for Franchisees

California Assembly Bill 525, passed into law in 2015 applies to franchise agreements entered into or renewed on or after January 1, 2016. It expands and provides new protections for franchisees. Franchisees subject to California now benefit from the following provisions:

1. A franchisor may not terminate a franchise agreement for minor infractions; but may terminate only if the franchisee failed to substantially comply with lawful requirements imposed on the franchisee by the franchise agreement. The franchisor must give notice and at least 60 days opportunity to cure the default.

Exceptions: in certain severe events, such as franchisee bankruptcy or abandonment of the franchise business, a franchisor may give notice of immediate termination without an opportunity to cure.

2. On termination or non-renewal of a franchise, the franchisor must buy from the franchisee all inventory, supplies, equipment, fixtures, and furnishing purchased or paid for by the franchisee under the terms of the franchise agreement. The franchisor must pay for the items at the price paid, minus depreciation, and must buy any items the franchisee purchased from the franchisor or its approved suppliers and sources.

Exceptions: The franchisor need not buy items that were personalized, or that the franchisee was not contractually required to purchase. The franchisor need not purchase anything in certain situations, such as where a) termination or non-renewal is mutually agreed with the franchisee, b) the franchisor allows the franchisee to remain in the principal place of the franchise business, or c) termination or non-renewal is due to the franchisor's "nondiscriminatory decision" to completely withdraw from all franchise activity in the relevant geographic market area where the franchise is located.

3. A franchisor may not prevent a franchisee from selling or transferring the franchise to someone else, so long as that party would qualify under the franchisor's then-existing standards for the approval of new or renewing franchisees.

Exceptions: A franchisor may refuse to consent to a transfer or sale if the franchisee and buyer, transferee, or assignee do not comply with the transfer conditions specified in the franchise agreement. Also, the franchisor may still have a contractual right of first refusal, allowing it to purchase the franchise itself before allowing it to be transferred or sold to an outside party.

With these new laws in effect, added onto already existing protections for franchisees in the context of termination and nonrenewal, California is among the nation's most franchisee-friendly states.

Source: California Assembly Bill 525

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 2016. 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.

 

Page 1 2
LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120