Monthly Archives: December 2012

2013 Legal Trends That Will Impact Franchising

One doesn’t need a crystal ball to predict the paramount legal trend in 2013 – much more legislation affecting both franchisors and franchisees.  In 2013, watch out for an avalanche of new laws proposed or implemented, at both the federal and state levels, that will dramatically impact franchise businesses in the areas of tax, health care, labor and employment and franchise relationships.  In 2013, franchisors will need a comprehensive legal strategy to guide them through the morass of new legislation and regulation that puts sustainability at great risk.

One particularly thorny area of new legislation attempts to redefine the relative legal status of franchisors and franchisees. 2012 saw legislative efforts in various states including California, Vermont and Massachusetts that layer additional restrictions upon franchisors.  For example, legislation introduced in California known as “The Level The Playing Field For Small Business Act of 2012” would significantly expand the protections afforded to franchisees under California’s Franchise Relationship Act and California’s Franchise Investment Law. The legislation, which adopts the central themes of the Universal Franchisee Bill of Rights, has crystallized debate on several fundamental differences between franchisors, franchisees and their respective industry trade associations. I believe this legislation will be the foundation for efforts in other states to introduce or expand legislation.

The proposed franchise legislation in Massachusetts and Vermont have many similarities and consistent themes that echo the Universal Franchisee Bill of Rights. For example, the bills all contain provisions that would afford franchisees protection from “encroachment” by franchisors. In the Vermont and California bills, franchisees would have a cause of action against a franchisor for placing a new outlet in “unreasonable proximity” of an existing location if the new outlet has an adverse effect on gross sales. Of course, “unreasonable proximity” is not a defined term, leaving the determination of reasonableness to lawyers and judges in litigation that would likely follow passage of either bill. In Massachusetts, the proposed law states simply that if a franchisor develops a new location which has an adverse impact on the gross sales of an existing franchisee, the franchisor may be liable for damages. Note, there is no mention of proximity to an existing location! This ambiguity can only serve to tee up litigation in Massachusetts.

Another common theme in the bills is freedom of association. That is, the bills provide that franchisees would be free from prohibitions from associating with trade associations and that franchisors could not retaliate against franchisees for such association. While freedom of association seems fundamental, California’s bill moves the ball further and would prohibit franchisors from “refusing to recognize and deal fairly with and in good faith with any independent franchisee association.” Can you say protracted litigation?

Stay tuned, we’ll work hard to stay ahead of the curve on these issues in 2013 so Franchisors can take proactive measures to address the ever changing landscape of franchise business.

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Filed under The Franchise Legislation Monitor

Tom Kent Named as One of 30 Noteworthy Lawyers to Change Firms in 2012

Tom Kent was recently noted by “The Philadelphia Business Journal” as one of the 30 noteworthy lawyers, in the region,  who changed firms in 2012.

The details of the firm change were reported in June.

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Filed under In The News

California Legislators Forget That Some Franchisors Are Small Businesses Too.

California Flag - Franchise LawEarlier this year, legislation was introduced in California with the snappy title, “The Level The Playing Field For Small Business Act of 2012”. The law would significantly expand California’s Franchise Relations Act and California’s Franchise Investment Law by placing further restrictions upon Franchisors and creating new potential claims for franchisees.

For example, the proposed California legislation would extend civil liability for damages for any violation under the Franchise Investment Law to parties who “directly or indirectly control a person liable” under the Act, including every principal, partner, executive officer and/or director associated with the franchisor.

At the core of this proposed legislation is the perception that the franchisor/franchisee relationship is inherently inequitable, placing the franchisee at a tremendous disadvantage. The contrary view is that the franchise relationship is one based in a contract that an individual franchisee may choose to enter, or not. Of course, one needs to be mindful that all franchisors are not international behemoths. In fact, approximately 60% of US based franchisors have less than 30 units.

Although the proposed legislation ultimately failed to gain sufficient support to become the law in California, expect to see it resurface in 2013. On whatever side of this issue you find yourself, there will be a number of legislative efforts to address in 2013, as more and more states introduce legislation patterned on this California initiative.

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Filed under The Franchise Legislation Monitor

Will Franchise owners change their plans for expansion?

It’s decision time. As the clock continues to tick toward 2014 and the implementation of the Patient Protection and Affordable Care Act, franchise owners are taking action. Whether it is abandoning plans for expansion or scaling back employee hours, the new tax and health care law has many franchise owners in survival mode. No matter the strategy to deal with the new law and it’s associated costs, one thing is for certain, everything changes in 2014. The WSJ examines the issue.

What do you think of the developments?

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Filed under Franchisors & Obamacare