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Franchise Law

Feature Story:

Avoiding Litigation Over System Changes »

By Cheng Cohen

Franchised brands are increasingly focused on implementing significant system changes. This trend is largely driven by maturing brands whose "makeovers" are necessary to keep the brand attractive and relevant, and by technological advances that are essential to operating efficiencies.
The biggest hurdle to system change often is franchisees who balk at the cost and time involved in making the change. Several recent lawsuits illustrate that when this happens there is a real risk of becoming embroiled in resource-draining litigation.

For example, Wendy's recently brought suit against its fourth-largest franchisee, who had challenged Wendy's right to require extensive remodeling to its restaurants and upgrades to the POS system...

Feature Story:

Multi-Unit Offerings & FDDs: New Guidelines Aim For Clarification »

By Tom Pitegoff

A new set of regulatory guidelines for franchisors provides clarity on how to present franchise opportunities to prospective buyers.

On Sept. 16, state regulators with the North American Securities Administrators Association (NASAA) issued guidance clarifying the distinctions between single-unit, area representative, and area development offerings and calling for uniform terminology when describing these arrangements in the FDD.

The FDD explains to prospective franchise buyers in plain English their obligations, fees, start-up costs, and the like. It also provides information about the franchisor and the assistance it will provide, in a uniform format that meets the requirements of both federal and state laws. NASAA wants to ensure that the disclosures in the FDD that deal with multi-unit franchise offerings are clear to prospective franchisees...

Feature Story:

What The NLRB's Joint Employer Position Means For Franchisors »

By Marlén Cortez Morris

On July 29, 2014, the General Counsel of the National Labor Relations Board (NLRB) announced in a very brief statement that he was authorizing the issuance of formal unfair labor practice complaints against McDonald's and some of its franchisees in 43 cases involving employees of the franchisees. Without explanation, the General Counsel stated that the complaints alleging violations of the National Labor Relations Act (NLRA) will proceed against both the franchisor and its franchisees as "joint employers" if a settlement is not reached. The General Counsel's statement has been labeled an "attack" on franchising and has led to uncertainty about what it means.

General Counsel's statement is not law
The General Counsel wants the NLRB to abandon a 30-year-old standard and adopt a new, broader standard for determining the existence of joint employment status for purposes of the NLRA...

Feature Story:

How A Franchisor Can Use Outside Counsel To Save Legal Fees! »

By Carl Khalil and Sada Sheldon

We live in a world where law firms commonly have billable hourly quotas that their attorneys must meet, and substantial hourly rates as well. Yet, franchisors have a goal seemingly inconsistent with this framework: to minimize outside counsel fees. Can these seemingly opposite purposes be reconciled? Yes, and the way to do so is for franchisors to ask outside counsel to assist them in those areas that can competently be handled by the client after being set up by outside counsel. Here are some of those areas.

• Ask counsel for the templates to do the Michigan and Utah annual filings.
Perhaps it makes good sense for outside counsel to file the annual Michigan and Utah Notices the first time a franchisor intends to offer or sell franchises in those states...

Feature Story:

Social Media Marketing Contests: Know The Law Or Pay The Price »

By Michael Daigle and Gina Malandrino

Despite all its advantages, technology has made it harder to capture consumers' attention and easier for them to bypass advertising messages. Television viewers use DVRs and TiVo to fast-forward through commercials, while paid services like On Demand and XM/Sirius satellite radio eliminate commercials altogether. So how can a company effectively market its business in this modern media world? The answer for many companies is social media, and for many, it's pairing social media with contests and sweepstakes.

The possibilities are endless and run the gamut from traditional random sweepstakes drawings to popularity contests. A system of doggy day care centers and boutiques might, for example, devise a Facebook promotion that allows people to submit pictures of their dogs...

Feature Story:

146 Franchisors Cross-Examine Their Legal Services »

By Jim Mulcahy

At last fall's Franchise Leadership & Development Conference in Atlanta, nearly 150 franchisees responded to a survey conducted by MulcahyLLP about their interface with outside counsel and legal issues. Here are some highlights of what those franchisors had to say. How does your law firm stack up?

Do you believe you are receiving more or less value for legal services over the past 5 years?

More than two in five (41.8%) responded that they're getting "much more" or "somewhat more" value from their law firms, while about one in three (31%) saw no change. Only 3 in 100 believe they're getting "somewhat less" value.

Approximately what percentage of your annual expenses on legal services are spent in these categories?

Compliance accounts for about one in every three dollars of franchisors' annual spending for legal services, with preventive counseling and transactional spending accounting for another 45%...

Feature Story:

Dot-Complicated: New Domain Names Bring Opportunities, Concerns »

By Kerry Pipes

In January 2012, ICANN began accepting applications for new top-level domain names. We asked franchise attorney Keith Klein to provide additional information about this and relevant information for pursuing a customized top-level domain name. Klein is a partner at Bryan Cave LLP and is certified by the California Board of Legal Specialization as a specialist in franchise and distribution law.

Q: New top-level domain names are now for sale. What should franchisors know?
A: Currently, Internet domains consist of 22 generic top-level domains (gTLDs), such as .com, .org, .net, etc.; and more than 250 country code top-level domains (ccTLDs), such as uk, .mx, .jp, etc. Starting in January 2012, ICANN, the nonprofit organization that governs Internet domain names, began accepting applications for new gTLDs...

Feature Story:

Fractional Franchise Exemption – Hidden Opportunity Or Hidden Risks? »

By Beata Krakus

Many entrepreneurs and business owners embrace the idea of franchising their business and leap into the franchise model with great hopes and expectations. Yet the regulatory burdens and costs that accompany franchising sometimes come as a surprise and lead to a franchise plan cool-off. Sometimes holding off until the business is more established and has better access to capital is the right thing to do, but under the right circumstances the business may still achieve its goal of franchising while avoiding franchise disclosure and registration requirements.

Aspiring franchisors should ask themselves two questions: (1) Is my franchise program suitable as an add-on to an existing business?; and (2) Am I willing to limit myself to only franchisee candidates with experience in my business line? If the answer to both questions is “Yes,” the fractional franchise exemption may come to the rescue!

Of the different exemptions and exclusions available under federal and state disclosure laws and rules, the fractional franchise exemption rarely gets much attention...

Feature Story:

Reputation Management: The Importance Of Protecting Your Brand Online »

By Keith Klein

Q&A with Bryan Cave attorney Keith Klein

Online marketing, social media, and social commerce have created an environment that places an increased burden on franchise marketing departments. The task of effectively managing a brand's image is now so daunting that it has spawned an entirely and relatively new sub-industry called reputation management. We asked franchise attorney Keith Klein to provide some advice. Klein is a partner at Bryan Cave LLP and is certified by the California Board of Legal Specialization as a specialist in franchise and distribution law.

Define "reputation management" and its relevance to franchising.Reputation management is Internet terminology for online brand management. It evolved as a result of the increasingly pervasive nature of consumer reviews about products and services through social media and customer review sites...

Feature Story:

Franchise Relationship Regulation: Can Federal Preemption Cure Today's Inefficiencies? »

By Rupert M. Barkoff

In the previous issue, I presented observations about defects I perceived in the U.S.'s system of franchise sales regulation. The essence of my position was that having duplicative regulation at the federal and state levels adds significant costs to the regulatory system--with little improvement in the regulatory environment.

In this column, I focus on another area of franchise regulation: franchise relationships. These include termination and non-renewal issues, and limitations imposed by franchisors on franchisees with respect to assignments of franchises, sourcing of products, and franchisee involvement in franchisee associations.

The history of franchise relationship abuse to some degree parallels the history of franchise sales abuse...

Feature Story:

Renewing FDDs: What Franchisors Should Consider »

By Terrence M. Dunn

For many franchisors with a December 31st fiscal year, now is the time to start preparing to renew their franchise documentation. The FTC rules require that the franchise disclosure document (FDD) must be updated within 120 days of the expiration of a franchisor's fiscal year. Registration states, such as New York, have an identical requirement. As a franchisor prepares to do so, that process presents an opportunity to review and improve franchise documentation, particularly the franchise agreement.

Over the past year, developments in the law and in business, particularly the technology associated with doing business, require franchisors to consider significantly revising and enhancing their franchise agreements. Some of the more interesting concepts that should be considered include:

Feature Story:

Franchise Litigation: Can You Pass This Quiz? »

By Jonathan Solish

Like it or not, litigation comes to virtually all franchise systems. Take a moment to see how savvy you are on franchise litigation issues based on real-world cases.

1. A California hotel franchisee has repeatedly breached the franchise agreement and receives numerous cure notices. A final cure notice is sent out and the franchisee does not cure. The franchisor files suit, but then learns that it sent its final cure notice to the wrong address. Is the franchisor:

Feature Story:

State Regs Under The Microscope: Weighing The Cost/Benefits Of Overlapping Regulation »

By Rupert M. Barkoff

I begin this column by stating where I am going with this piece. I am going to put franchise sales legislation and regulation under the microscope, and ask the penetrating question of whether it is, or is not, necessary. (Similar questions should be asked about franchise relationship legislation, but I will leave that for a future column.)

First, a quick history lesson. Franchise legislation is celebrating its 40th anniversary this year. Back in 1970, neither the federal government nor any state had laws that governed franchise sales generally. The California Franchise Investment Law, enacted that year, was the prototype for franchise sales regulation. (Twenty-four states also have statutes governing the sale of business opportunities, which by definition frequently are broad enough to cover franchises, but that, too, is a subject for discussion on another day...

Feature Story:

Investing In Yourself, Part 2 Of 2 »

By Lane Fisher and F. Joseph Dunn

Creative financing strategies to open (and re-open) franchise locations

In the race to boost sales in a tight economy, franchisors are offering many different kinds of financial incentives to attract potential franchisees and to help their existing franchisees survive and expand. Last month, the authors provided an overview of today's economic environment, along with details on what Chick-fil-A, Saladworks, and Friendly's are doing to help franchisees obtain the funding they need. This month, they describe the programs under way at five more franchisors.

Don Fox, CEO of Firehouse Subs, says that when they created Capital 94 (an affiliated financing company), it was with the intent of supplementing the financing needs of the best franchisees in their system...

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Titans of Technology    

Franchise Update Magazine

Issue III, 2015

Premium Services

Franchise Leadership & Development Conference Business Opportunity

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Oct. 14-16, 2015 Intercontinental, Atlanta, GA. Over 350 franchise...

Michael H. Seid & Associates Business Opportunity

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MSA provides domestic and international franchise advisory services to...

Shelton & Power,LLC Business Opportunity

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Shelton & Power is a franchise law firm founded in 2009. We pride...

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