The Franchise Newsletter - Summer/Fall 2016 Issue

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Aggressive Defense in a Franchise Dispute May Create Opportunities for Favorable Settlement for Franchisors

By Jim Susag and Bryan Huntington

A common franchisee tactic in litigation with franchisors is to assert all conceivable claims under a multitude of franchise and dealership statutes, even where it is appears that the statutes have no application to the franchise relationship. Franchisees plead these “kitchen sink” claims for a number of reasons. For one thing, a franchisor presented with a complaint containing a large number of claims may feel a heightened sense of urgency to settle. Additionally, a particular state franchise statute may allow the franchisee to claim entitlement to punitive damages and/or recoupment of attorneys’ fees. Even if the franchisee’s entitlement to such special damages is infinitesimally small, the franchisee still hopes the mere threat of such recovery will increase the likelihood of a colossal settlement.

Australia Extends Unfair Contract terms Law to Small Businesses (Read Franchises)

By Bill Thornton

On Nov 12, 2016, amendments to Australian law will take effect rendering various franchise agreement provisions void. Examples include limitations on franchisor obligations, penalties for franchisee breaches or termination, and provisions permitting franchisors to modify their operations manual during the term of the franchise. Franchisors in Australia need to reexamine their franchise agreements to make sure they will comply with law.

Court Holds Franchisee Accountable for Acts That Harmed the Goodwill and Reputation of the Franchise System

By Nic Puechner

The U.S. District Court for the District of Arizona recently issued a decision supporting franchisors’ right to protect their legitimate business interests from franchisees who perform “overnight switches” to competing businesses. The court specifically held that enforcement of non-compete agreements are “necessary to protect [franchisors’] legitimate business interests, including [their] confidential information, trade secrets, and good will,” reasoning that “[t]he goodwill that [a franchisee] acquired from performing work as a . . . franchise belongs to the franchisor.”

Franchisors Take Note:

On December 1, 2016, the U.S. Department of Labor’s final rule changes with respect to overtime pay under the Fair Labor Standards Act (FLSA) will go into effect. The most significant change more than doubles the minimum annual salary for employers to treat their employees as exempt from overtime pay requirements under the FLSA, increasing the minimum annual salary from $23,660 to $47,476. These changes are not only relevant to franchisors’ own employment practices, but many franchisees also seek guidance from their franchisors about such changes. There is reason for franchisors to be circumspect about providing too much advice: taking a more active role in the franchisees’ terms and conditions of employment may increase a franchisor’s exposure to joint-employer liability. Franchisors should consult with counsel before deciding whether and how to address the new overtime regulations with their franchisees.

News & Press

Larkin Hoffman hosted its annual Women’s Networking Event on September 14, 2016 at U.S. Bank Stadium. There were more than 300 attendees. Maureen Bausch, the CEO of the Super Bowl LII Host Committee, was a guest speaker. If you are interested in attending this event next year, please contact Bobbie Wicklow to be added to the list of invitees. In addition, if you are interested in learning more about the event, or would like to be involved next year, you may contact Glenna Gilbert for more information.

Larkin Hoffman is a sponsor of the American Cancer Society Relay for Life occurring on September 24, 2016. This event raises awareness and financial support in the battle against cancer. The Firm has sponsored and participated in the Relay for Life for 21 years. In addition to the firm’s financial sponsorship and contribution, many attorneys and employees contribute money and/or time participating in the Relay. Twenty-seven members of the firm will be participating this year.

Charles Modell was published in the Franchise Times in September 2016. His article, titled “Show the Numbers to Sell More Units,” encourages franchisors to include appropriate financial performance representations in their disclosure documents to increase franchise sales.

Joe Fittante will be presenting “Griffin and Weil One Year Later – Has A Clearer Picture Of The Joint Employer Conundrum Come Into Focus?” at the upcoming American Bar Association Forum on Franchising, in Miami, Florida, in November 2016.

Sawan Patel will be presenting the “Regulatory Update” at the upcoming American Bar Association Forum on Franchising, in Miami, Florida, in November 2016.

Summer/Fall 2016 Issue

Our Professionals

Charles Modell, CFE

952-896-3341

Joseph Fittante, Jr.

952-896-3256

Mark Robertson

952-896-3264

James Susag

952-896-1572

Andrew Perrin, CFE

952-896-3394

William Thornton

952-896-1578

Sawan Patel

952-896-3242

Inga Schuchard

952-896-1534

Bryan Huntington

952-896-3370

Henry Pfutzenreuter

952-896-3325

Jill Henson

952-896-3296

Jan Jahn

952-896-3385

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Larkin Hoffman provides counsel to a wide variety of ‎organizations, from ‎small businesses and nonprofits to Fortune 500 companies, in ‎many areas of practice including ‎corporate and governance matters, litigation, real ‎estate, government relations, labor and employment, intellectual property, ‎information technology, ‎franchising and taxation. The firm also serves the needs of individuals in many ‎areas ‎including trusts and estates, personal injury and family law.

This newsletter is provided as a service to our clients and firm associates. While the information provided in this newsletter is believed to be accurate, it is general in nature and should not be construed as legal advice.