Tag Archives: start a franchise

Texas moves on joint employment issue

On May 14, 2015 the Texas House passed Senate Bill 652 which states that a franchisor is not the employer of its franchisees or its franchisee’s employees. The bill is in response to recent actions by the National Labor Relations Board and the Board’s expansion of the standards of joint employment in the franchise setting.

The bill would amend Texas law to establish that unless a franchisor exercised direct control over a franchisee or franchisee’s employees beyond what is necessary to protect the franchisor’s brand, the franchisor will not be deemed an employer of a franchisee or a joint employer of the franchisee’s employees. The legislation is similar to the joint employment standard previously utilized by the National Labor Relations Board. The Texas bill addresses employment issues in the context of employment discrimination, wage payment, minimum wage and workers compensation.

The issue of joint employment has been front and center in franchising since the NLRB issued complaints against McDonald’s USA, LLC and franchisees of McDonald’s, as joint employers of the franchisee’s employees, alleging various labor law violations.  The complaints are based upon the NLRB’s new standard that by possessing the ability to exercise control over a franchisee’s employment policies (whether exercised or not), the franchisor becomes a joint employer.  This standard is a departure from the 30-year-old standard that treat two companies as joint employers only if both exercise a significant degree of control over the same employees.

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Filed under Franchise Insight, Franchise Law, In The News, The Franchise Legislation Monitor

Tipped Minimum Wage Increase Likely?

A recent debate over federal minimum wage requirements began in November 2013 with the introduction of a bill by Senator Tom Harkin, a Democrat from Iowa. Originally titled the Fair Minimum Wage Act, it was reintroduced on April 8th as the Minimum Wage Fairness Act. Aside from making several changes to existing federal law when it comes to worker pay, the most visible prong of which has been an increase of the federal minimum wage from $7.25 to $10.10 for workers covered by the Fair Labor Standards Act, the proposed bill would also phase in increases to the minimum hourly wage for the nation’s estimated 3.3 million tipped workers to about $7.07 over the course of 6 years from the current federal minimum of $2.13, then indexing it to inflation and finally pegging it to 70% of the non-tipped minimum wage.

There isn’t much dispute that Senator Harkin’s proposed legislation is well-intended, though economists are divided when it comes to the anticipated effects that such a law would have on low-wage workers and the economy as a whole. But whether and to the extent the nation’s waiters, bartenders, and casino dealers are in the same proverbial boat as their non-tipped “low-wage” co-workers is another matter entirely.

Some of the biggest supporters of the bill such as Restaurant Opportunities Centers United argue that the increases will lift low-wage workers out of poverty, particularly women with children, and reduce the reliance by those workers on food stamps, thus effectively reducing taxpayer burdens for welfare programs. In contrast, the restaurant industry has pointed out that the mean hourly wage of tipped workers, including tips, currently stands at $10.10 (according to the Bureau of Labor Statistics) almost $3.00 above the existing minimum wage and equal to the minimum wage proposed by the bill. Restaurant operators therefore argue that this issue is much ado about nothing and a solution in search of a problem.

Further, industry organizations like the National Restaurant Association point out the obvious strain these kinds of increases can have on employers, particularly small businesses which employ the bulk of minimum wage workers, when restaurants already operate on incredibly slim margins of about 3-5%. The result, they argue, would be a reduction in workers’ hours, slow hiring, increased prices for consumers, and the limitation of business expansion. In an uncertain political and economic climate already unsteadied by implementation of the 2010 Affordable Care Act, restaurant employers are understandably alarmed by the potential further erosion of their bottom line.

What’s next? Currently the proposed bill remains under review in the Senate, but odds are low it will pass. Local lawmakers, however, have been addressing the issue within their own states, with more than half of states having minimum wages above the federal minimum or which will take effect soon, and according to the New York Times twenty-four states have already set minimum wage for tipped workers above the federal minimum of $2.13. Seven more states require employers pay tipped workers the same minimum wage as their non-tipped counterparts. Pennsylvania is one of the states which currently pegs minimum wage to the federal minimum for non-tipped workers and to $2.83 for tipped workers. Recently, two Democratic state senators from Southeastern Pennsylvania (Daylin Leach, D-Montgomery, and Mike Stack, D-Philadelphia) introduced a bill which would raise minimum wage for all workers in Pennsylvania to $12 per hour. However, none of the four Democrats in the primary race for Pennsylvania governor have expressed support for a hike quite so high. State treasurer Rob McCord, U.S. Rep. Allyson Y. Schwartz, and York County businessman Tom Wolf all support the wages proposed by the federal bill, with tipped minimum wage pegged to 70% of non-tipped wages, while only environmental protection secretary Katie McGinty has cited support for paying tipped and non-tipped workers the same minimum wage, though set to what amount has been unclear. Governor Tom Corbett has already signaled he does not support a minimum wage hike, making passage of any legislation during his term or any reelection term highly unlikely.

Meanwhile, a recent survey by the Lincoln Institute Spring 2014 Keystone Business Climate Survey of 378 Pennsylvania business leaders found while most opposed a minimum wage hike, 63% reported that the minimum wage in Pennsylvania has no impact on their businesses, “largely because their employees already earn above that standard.” In other words, many Pennsylvania businesses are already voluntarily paying more than the minimum wage, which raises doubts about both the purported beneficial impact for employees of an increased minimum wage and the necessity of mandating it at all.

While the federal and state climate regarding minimum wages remains uncertain, there is significant and vocal support from both sides of the issue, which from a strictly commonsense standpoint makes passage of any hikes in opposition to the status quo seem somewhat less likely. Nevertheless, it’s an issue we are watching closely for potential effects on our clients’ interests, particularly this year during the Pennsylvania governor’s race and federal election cycle.

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Filed under Franchise Basics, Franchise Insight, Franchise Law, Franchisors & Obamacare, In The News, Restaurant & Hospitality Law

Maine Small Business Investment Protection Act advances to the House of Representatives.

I noted in 2013 that one franchisor association executive characterized the pending Maine legislation as “the worst legislation we have seen in years.”  The Maine Act requires that franchisors must “deal fairly” and “in good faith” with franchisees.  While these concepts appear to advance a common sense approach, in reality, the broadly defined terms will create litigation in the court houses of Maine for years to come.  In my opinion, inserting ambiguity into a contract between two parties creates nothing but headaches in the form of litigation.  In addition, the Act would require franchisors to: provide franchisees additional time to cure defaults; renew franchise agreements without increasing royalty rates or imposing new fees; and compensate damaged franchisees for placing outlets within their territories. The Act would also limit the ability of a franchisor to enforce post-term covenants against competition and imposes a fiduciary duty upon franchisors when performing certain services for the franchisee, including the administration of the franchisor’s advertising fund.  While lobbyists for franchisor and franchisee trade associations stake out their respective positions, the real winners in the event this bill is passed will be plaintiff lawyers who will create causes of action that fall far outside the four corners of the franchise agreement.  It is anticipated that the House will vote on the legislation before April.  I’ll update this blog with any developments as the vote nears.

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Filed under Franchise Basics, Franchise Insight, Franchise Law, In The News, Restaurant & Hospitality Law, The Franchise Legislation Monitor

Franchise Businesses Projected to Outpace the Economy In 2014

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.

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Filed under Advertising & Franchise Law, Franchise Basics, Franchise Insight, In The News

Massachusetts Fair Franchise Act public hearing this week

In a year that has seen efforts in several states to impose additional restrictions upon franchisors, Massachusetts will close out 2013 with a hearing on its pending franchise legislation, the “Fair Franchise Act.”  In addition to the common themes in most state franchise laws (limitations on termination and non-renewal, opportunities to cure, notice provisions, etc.) the Massachusetts legislation provides this gem;

“A franchisee may terminate a franchise agreement for good cause shown, without penalty or fees.  Good cause shall include but not be limited to changes to the franchise system or the competitive circumstances of the franchise agreement created or expressly required by franchisor which would cause substantial negative impact or substantial financial hardship in the operation of its franchise.”

If the Massachusetts legislature wants to give trial attorneys in their Commonwealth a Christmas present, this is it…  A good franchise lawyer could take those two sentences and tie franchisors in knots for the foreseeable future.  If Massachusetts wants to impose a 90 day notice period prior to termination or non-renewal – fine; want to prohibit liquidated damage fees in excess of a six month multiplier? Great.  But please do not create legislation that is going to tee up frivolous lawsuit after lawsuit for years to come.  That is not “Fair” for anyone.

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