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.
Does your business issue gift cards? Do you outsource management of your gift cards to a third party or subsidiary? If so, a recent whistleblower lawsuit filed in Delaware underscores the need to carefully re-examine your gift card program or risk significant fines – up to 125 percent of unredeemed gift card balances plus three times the amount otherwise due to the state in which your company operates.
The lawsuit was unsealed recently after having been filed in June 2013 against 33 large retailers, the National Restaurant Association, and Card Compliant, Inc. The lawsuit claims that Card Compliant (and its predecessor) conspired with the other defendants to circumvent Delaware’s law that unredeemed gift card balances are to be turned over to the state as unclaimed property. State of Delaware ex rel. French v. Card Compliant, LLC, et al., N13C-06-289 (Superior Court of Delaware, New Castle).
All states have laws which govern unclaimed property, and some, like Delaware, consider the unredeemed balance of gift cards to fall within the definition of unclaimed property after a specified period of inactivity. Delaware further requires the retailer to remit the value of that balance to the state once the specified period has expired. Other states do not consider unredeemed gift card balances to be unclaimed property or don’t require it to be remitted to the state. Thus, whether or not a business is obligated to turn over those balances to the state depends entirely on which state it calls home, generally the one in which it was formed.
To ensure your business doesn’t inadvertently fall within the sights of state law enforcement due to the failure of what may otherwise seem to be a perfectly legitimate gift card program, here are a few tips to mitigate your risk:
- Review all programs which provide for the issuance of gift cards, promotional certificates, and merchandise credits to ensure they comply with your state requirements, which would generally be those of the state of your corporate formation.
- If you use a subsidiary to manage these programs, analyze its form and substance. Ensure that it operates from an independent economic standpoint and isn’t merely a shell. Ensure proper intercompany agreements are in place and all formalities are followed.
- Check if your state has a voluntary disclosure program where you can report and remit unpaid amounts which you may find are subject to the state’s unclaimed property laws. Organizations formed in Delaware have until June 30, 2014 to do so.
- If you have a business relationship with a third party service provider, review your agreements and analyze whether they require amendments to minimize your exposure to potential fines and penalties.
Please contact our office with any questions.
Once again, franchised businesses will grow faster than the rest of the economy, driving job creation as entrepreneurs seize upon franchise opportunities. According to the International Franchise Association, Franchised businesses will outpace the general economy in 2014. The IFA released the following statistics:
- Franchises are expected to add nearly 200,000 new jobs in 2014.
- The number of franchise businesses is expected to rise by 12,915 units in 2014, bringing total establishments to 770,368.
- Within franchising, business services, commercial and residential services, and quick service restaurants are expected to be drivers of job creation.
The significance of franchising in our economy is clear. Let’s hope that 2014 does not see a continuation of cumbersome state and federal regulations impeding the ability of franchised businesses to spur economic growth.
Tom Kent was interviewed for an article recently published by Law 360 regarding large hospitality brands and the impact of the Affordable Care Act. Here is a link to the article;
According to this “New York Times” article, the best franchisee investors are hybrid entrepreneurs who mix risk & structure.
Franchisors spend a great deal of time trying to determine what kind of person will make the most successful franchisee for them. Once you get past the financial requirements, this piece in the “New York Times” suggests that frequently, the ideal franchisee investor is not a person who is an out and out entrepreneur. Rather, the more successful franchisees are those people who are entrepreneurial and yet they are comfortable working within the formula and structure of their franchisor. What do you think?