A Legal Blog for Franchisors

News from Around the World: South Korea and Indonesia

Posted in Around the World, Franchisor, International Franchising

South Korea

Will Woods of Baker & McKenzie gave an update on the 14 February 2014 amendments to the Korean Fair Franchise Transactions Act. A few of the changes that took effect in February are retroactive and will apply to contracts already in place at the time of the amendments.

Retroactive amendments include:
• franchisors must have ‘just cause’ to require upgrades or improvements to franchised locations; • franchisors are required to share the cost of required upgrades: 20 per cent if relocation or expansion is not required, 40 per cent cost share if relocation or expansion is required; and

• franchisors are prohibited from requiring franchisees to operate their business during hours that are deemed ‘unreasonable’, and a franchisee may reduce their hours under certain circumstances, including illness that prevents the franchisee from operating the business during night time hours.  Continue Reading

News from Around the World: Germany

Posted in Around the World, Franchisor, International Franchising

Editor’s Note: This series of posts we’re calling “Around the World” come from a larger piece written by Shannon McCarthy and published in the October 2014 edition of the International Bar Association’s International Franchising Newsletter. Updates were provided by speakers at the Annual IBA/IFA Joint Conference that took place in Chicago in May 2014.

Dr. Dagmar Waldzus of Buse Heberer Fromm gave us an update on a couple of recently-decided cases, but first provided a framework for understanding these latest trends. Germany is a civil law country and has no franchise law legislation; however the German Civil Code obligates all contracting parties to act in good faith: ‘an obligor has a duty to perform according to the requirements of good faith, taking customary practice into consideration.’

While there are no statutory pre-contractual disclosure requirements, guidelines for pre-contractual franchise disclosure or communications come from other commercial areas of law such as M&A, consumer protection, product liability and franchise law. Additionally, the Code of Ethics of the German Franchise Association applies to all members.

Continue Reading

Washington DFI Proposed Rule Changes

Posted in Franchisor, Legislation, Washington FIPA

The Washington State Department of Financial Institutions recently published proposed changes to the agency regulations governing delivery of an FDD subject to Washington’s Franchise Investment Protection Act. The new provision would expressly permit franchisors to deliver an FDD over the internet or by other electronic means. The current rule is silent as to the method of delivery of an FDD.

The rules would require a franchisor to deliver the FDD as a single document that only consists of information required by NASAA’s 2008 Franchise Registration and Disclosure Guidelines. An FDD cannot contain links to external websites or content, and the recipient must be able to download, save, and print the FDD.

Franchisors wanting to take advantage of electronic delivery will be required to keep records that prove delivery was made in compliance with the rule and make those records available on demand by the administrator of the Securities Division.

A full copy of the proposed rule can be found here, and would amend WAC 460-80-300.

A public hearing on the proposed rules is scheduled for March 25, 2015 and the Securities Division is accepting comments through that same date.

NLRB’s General Counsel Provides a Glimpse of His Thinking on “Joint Employer” Standard

Posted in Franchisor, Policy

On July 29, the NLRB’s General Counsel Richard Griffin announced that he would allow administrative actions to proceed against McDonald’s as a “joint employer” of a franchisee’s employees. Since then, the NLRB has been asked to explain the rationale for that decision. While no formal explanation has been provided, POLITICO’s Brian Mahoney recently reported that Griffin informally discussed his views in a talk at the University of West Virginia law school. A video of that talk is available here. Griffin’s comments are revealing, and he acknowledges that his decision created a lot of “noise.”

In his talk, Griffin indicates that he is advocating that the NLRB adopt the test for joint employer in effect before the mid-1980’s. He concedes, however, that even under the old test (which he refers to as the “traditional test”), a franchisor would not be regarded as a joint-employer if its controls were implemented to protect brand uniformity and quality, the types of control necessary under the Lanham Act to protect the franchisor’s trademark, and essential in any franchise system to ensure consistency across the franchisor’s chain. As he notes in his address, while advocating for change, “[i]n that area we have a problem legally for our theory.” “So here we are arguing for a return to the traditional standard,” Griffin said, “and here are these cases that under the traditional standard find no joint employer in the franchisor-franchisee relationship.”

He noted that franchisors should be treated differently now because technology has allowed franchisors to affect the employer-employee relationship in ways unanticipated by prior Board decisions.

Now there all kinds of ways that franchisors, in real time, can keep track of everything happening at the franchisee level. So for example, there are programs where a national franchisor…has on its mainframe computer real time information about every franchisee’s gross sales, and at the same time they have real time information about the minute-by-minute labor costs going on [at a] particular franchisee. And they have programs that run algorithms that say once these costs get to a certain percentage of these [other] costs, you gotta start sending people home. That type of involvement in the hours and terms and conditions of employment…goes beyond protecting [the franchisor’s brand], and in those instances where those things are present, we think the franchisor ought to be named and held responsible as a joint employer.”

Griffin noted that the “status of [the McDonalds] cases right now is, no complaints have actually issued.” “There are ongoing discussions with the parties about whether to resolve those cases; about, if they’re not resolved, how to try them; and those discussions are not at a conclusive point.” He otherwise declined to elaborate further on the future of franchise cases “because there’s a lot of potential litigation issues there.”