Category Archives: Franchise Basics
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.
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:
- The franchisor has agreed in writing to assume that role.
- 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.
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.
Earlier this week, a Washington federal judge rejected the argument of the International Franchise Association that Seattle’s new minimum wage law unfairly targets franchise owners in Seattle. The new law will raise the minimum wage in Seattle to $15 per hour over the next several years. The focus of the IFA’s court action was not whether the city had the power to raise the minimum wage, but the way the increase is to be implemented. Small businesses will be allowed to implement the increase over a seven year period while large businesses (500 employees or more) must implement the increase in only three years. However, the law places franchise owners in the large business category regardless of the number of employees the franchisee actually employs. On its face, the law seems to unfairly burden franchise owners simply because they operate using the business format and trademarks of the franchisor. As franchisees know, ownership of an independently owned franchised business does not equate to being a “large business” employing 500 people. In fact, most franchised businesses are small, locally owned and lack the resources of companies who employ 500 or more people. The IFA stated that it will continue its’ fight against a law that it perceives to unfairly discriminate against franchise owners.
On February 12, 2015, the Philadelphia City Council passed legislation mandating paid sick leave in Philadelphia. Mayor Michael Nutter signed the legislation into law later that day. The law, effective 90 days after signing, requires businesses with 10 or more employees to guarantee at least one hour of paid sick leave for every 40 hours worked. Franchised businesses within Philadelphia, particularly those in the restaurant industry, lobbied against the bill saying that it will discourage businesses from moving to the city and deter current companies from expanding. Efforts to increase the threshold number of employees from 10 to 15 or 50 ultimately failed. However, the new law in Philadelphia may be short lived as Pennsylvania considers paid leave preemption in House Bills 1807 and 1796 filed earlier this year. Both bills would ensure local municipalities cannot pass piecemeal paid leave requirements on businesses in Pennsylvania. Twelve other states have already passed similar preemption bills.