Author Archives: The Franchise Counsel

About The Franchise Counsel

Thomas J. Kent, Jr. is "The Franchise Counsel," one of America's leading attorneys in the area of franchise law. Tom focuses on the representation of emerging growth and middle market franchisors located in the U.S. and internationally. Tom is the founder of Kent Franchise Law Group, LLC.

Plan Ahead for New Jersey’s Equal Pay Act, Effective July 1, 2018

May 18, 2018

New Jersey has enacted the strongest equal pay legislation in the country, the Diane B. Allen Equal Pay Act (“Allen Act”). The Allen Act expands New Jersey’s equal pay protections not only based on gender, but for all protected classes, and goes into effect on July 1, 2018.

Equal Pay for Substantially Similar Work Is Required

The Allen Act prohibits employers from paying members of a protected class[1] “at a rate of compensation, including benefits, which is less than the rate paid by the employer to employees who are not member of the protected class for substantially similar work.” “Substantially similar” work is determined based on a “composite of skill, effort and responsibility.”

Employers may not reduce an employee’s rate of pay to comply with this requirement. Nor may employers take into consideration the employee’s geographic location when determining compensation rates, as the Allen Act requires that the comparison of wage rates be “based on the wage rates at all of the employers’ operations or facilities.”

There Are Limited Exceptions

Limited exceptions may be used to justify a different rate of compensation. The exceptions include if the differential is made pursuant to a seniority or merit system, or if the employer can demonstrate that bona fide factors other than the characteristics of the protected class account for the entire wage differential, such as education, training, experience, or the quantity or quality of production, among other requirements[2].

Damages and Limitations Period

Damages available to employees include an award of three times the amount of any monetary damages suffered by the employee. Liability will accrue each time an employee receives a paycheck that is subject to an illegal wage differential. Employees may be able to obtain backpay for up to six years for continuous violations.

No Retaliation or Waivers

Employers are prohibited from retaliating against employees and prospective employees for, among other things, requesting, discussing or disclosing to another employee or former employee, an attorney from whom the employee seeks legal advice or a government agency, information regarding the job title, occupational category and rate of compensation of the employer’s employees or former employees, or the race, gender, ethnicity, military stats or national origin of the employees or former employees.

Employees may not be required to sign a waiver of this as a condition of employment or otherwise be required to agree not to make or respond to such requests. Nor may employees sign waivers agreeing to shorten the statute of limitations or waive any of their rights under the New Jersey Law Against Discrimination.

Reporting Requirements for Contractors

Employers who contract with the State of New Jersey or any agency or instrumentality of the State, regardless of the employer’s location, will be subject to reporting requirements. If the contract is for the provision of qualifying services[3], the required data includes compensation and hours in the form of pay bands for each establishment of the employer. If the contract is to perform any public work, similar information must be provided through certified payroll records.

Plan Now for July 1, 2018

Below are some things employers should think about doing in advance of the Allen Act’s July 1, 2018 effective date:

  • Conduct a compensation audit, with the assistance of counsel, to determine whether adjustments to compensation and/or job descriptions need to be made.
  • Train human resources personnel, managers and recruiters on the Allen Act.
  • Review and amend your employee polices to notify employees of the Allen Act’s protections and ensure your policies comply with the Allen Act’s requirements.
  • Identify your contracts with New Jersey public bodies that will be subject to the Allen Act’s reporting requirements and make sure there is a system in place to gather the data that must be provided.

For more information on the Allen Act, please contact the Kent Franchise Law Group attorney with whom you regularly work.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, see the disclaimer.

[1] Protected class member status includes “race, creed, color, national origin, nationality, ancestry, age, marital status, civil union status, domestic partnership status, affectional or sexual orientation, genetic information, pregnancy, sex, gender identity or expression, disability or atypical hereditary cellular or blood trait of any individual, or liability for service in the armed forces.”

[2] To take advantage of the “bona fide factors” exception, employers must also show that:  (a) the bona fide factors do not perpetuate and are not based on a compensation differential founded on any characteristic of members of a protected class;  (b) each factor  is reasonably applied; (c) one or more of the factors account for the whole wage differential; and (d) the factors are job-related with respect to the position and based on a legitimate business necessity. If it is demonstrated that there are alternative business practices that would serve the same business purpose without producing the wage differential, a factor based on business necessity does not apply.

[3] “Qualifying services” are the “provision of any service to the State or any other public body except for public work.” See N.J. Rev. Stat. C.34:11-56.26 for the definition of “public work.”


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The “Protect Florida Small Business Act” (SB 750) Has Died in the Florida Senate’s Judiciary Committee

Although Florida Senate’s Regulated Industries Committee passed SB 750 by a 7-2 vote, the judiciary committee refused to schedule it for a hearing. SB 750 was aimed at “protecting” Florida franchisees from franchisors who are currently allowed to terminate their franchise rights without cause or warning, but it drew criticism from franchise associations.

The International Franchise Association (IFA) strongly opposed the bill and opined that the government should not get involved in what is essentially a private business contract. The IFA believed that this bill would undermine franchising in Florida and cause franchisors to sell their franchises elsewhere in the United States, where they could better protect their brand.

The Coalition of Franchisee Associations (CFA) supported the bill and the protections it would have provided to franchisees. The CFA felt that this bill would not put a damper on franchising in Florida because the state is a desirable place to do business.This marks the end of SB 750 for the 2017 legislative session in Florida.

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Wisconsin Senate Bill 422 addresses joint employment

On March 2, 2016, Governor Scott Walker(R), of Wisconsin, signed Wisconsin Senate Bill 422 into law. This law is important to franchisors because, under this new law, franchisors are not considered employers of their franchisees or their franchisees’ employees for purposes of state employment laws relating to worker’s compensation, unemployment insurance, employment discrimination, minimum wage, and wage payments, unless the following applies:

  1. The franchisor has agreed in writing to assume that role.
  2. The franchisor has been found to have exercised a type or degree of control over the franchisee or the franchisee’s employees that is not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademarks and brand.

As of now this law is only applicable in Wisconsin. However, it is good news for franchisors. It is in direct contrast to recent publications by several federal agencies ( e.g., NLRB) which have tried to make it easier for franchisors to be considered joint employers with their franchisees. Hopefully, other states will follow suit and pass similar state laws.

As always, we will keep up to date on any developments in this area and keep you informed.

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Changes to the California Franchise Relations Act

On October 11, 2015, California Governor Jerry Brown signed California bill AB 525 into law, amending the California Franchise Relations Act, and imposing additional constraints upon the franchisor-franchisee relationship. The new restrictions are not retroactive, but will apply to any franchise agreement that is entered into or renewed on or after January 1, 2016 or to franchises of an indefinite duration which may be terminated without cause.

First and foremost, the new law makes it more difficult for franchisors to terminate a franchise agreement for good cause. The law changes the definition of “good cause” for termination from “failure of the franchisee to comply with any lawful requirements imposed upon the franchisee by the franchise agreement” to “failure of the franchisee to substantially comply with any lawful requirements imposed upon the franchisee by the franchise agreement.” Additionally, once the franchisee is given notice of the failure, the franchisee is allowed sixty (60) days to cure the failure, which doubles the thirty (30) day requirement in the prior law.

Next, the new law prohibits franchise agreements from preventing the sale or transfer of the franchise as long as the buyer is qualified under the standards the franchisor uses to approve new or renewing franchisees. Under the new law, the franchisor must provide the franchisee the standards it uses for approving new or renewing franchisees. Once notified by the franchisee of the pending transfer, the franchisor has sixty (60) days to approve or disapprove the sale or transfer.

Finally, subject to certain exclusions, the new law requires franchisors who terminate or fail to renew a franchise to purchase all of the inventory, supplies, equipment, fixtures, and furnishings acquired under the terms of the franchise agreement. Additionally, if it is found that the franchisor improperly terminated the agreement or failed to renew, the franchisor will be liable for damages, including “the fair market value of the franchised business and the franchise assets, and any other damages caused” by the violation.

Please do not hesitate to contact me if you wish to discuss how this new law may impact your franchise.

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Franchise legislation introduced in the US Congress

Two bills were introduced in the US Congress last week that would significantly impact the franchise relationship as well as the ability to obtain financing from the SBA in order to acquire a franchise.  The first bill, The Fair Franchise Act (H.R. 3196), addresses some of the same issues covered by many state relationship laws such as non-renewal, transfer of franchise units and termination.  The bill would prohibit mandatory arbitration and requires the franchisor to act in “good faith.”

The second bill, the SBA Franchise Loan Transparency Act (H.R. 3195) would require the Franchisor to provide specific financial information to prospective franchisees in order to obtain SBA financing.  The thinking behind H.R. 3195 is that by providing prospective franchisees with additional financial information regarding a franchise system, the prospective franchisee will be able to make a better, well-informed decision regarding the purchase of a franchise.

While the first bill is a re-tread of many state relationship laws, the second bill, H.R.3195, would appear to add significant procedural requirements to an already heavily regulated process in order to obtain SBA financing.  The International Franchise Association has already voiced its opposition to both bills while the Coalition of Franchisee Associations praised the Fair Franchise Act.  I will monitor these bills as they move through the legislative process.

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