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IFA’s 45th Annual Legal Symposium Photo Album–IFA Addresses Current Business and Legal Environment

In kicking off the 45th Annual Legal Symposium, International Franchise Association President Steve Calderia, CFE, reminded attendees that “The issues we face at the federal and state levels and the legal issues we face within franchise development are without question more complex and complicated which makes this conference more important than ever.”
The crowded JW Marriott ballroom was proof that many things have changed in 45 years, including attendance growing from 30 to 40 franchise leaders to topping nearly 500. However, Washington and the states must focus on pro-growth, pro-business strategies “if franchise businesses and all businesses are to grow, create jobs and get the country on the path to economic recovery,” said Caldeira.
Helping franchise leaders gain better perspectives of the significance of how social media is driving their businesses in communicating with their various audiences was Spaeth Communications President Merrie Spaeth who warned of the dangers for franchisors to their brands of harassment via YouTube and other social media channels.
Through more than nearly two dozen interesting, sometimes grimace-producing and often funny clips, Spaeth showed that it was critical for small businesses to know their audience, prepare a message and to know how to quickly distribute the message.
“Engage your audience,” Spaeth recommends. With the multitude of alternative channels now available, your audience will engage themselves if you do not set the terms of the debate about your brand. In the event of a crisis involving your company, your company has a window of about 30 minutes to respond she said. Effective communicators can look directly at the camera and deliver an effective message that is “rehearsed, but not scripted.”

JUDICIAL UPDATE-
Top 5 Lessons Learned from Recent Franchise Cases

The symposium’s Judicial Update went beyond the legal holdings to examine the effects the court cases will have on the industry. The written paper for the Judicial Update reported on over 300 cases. Earsa Jackson, CFE, a partner with Strasburger & Price, LLP and Leonard MacPhee, a partner with Perkins Coie LLP, conducted the Judicial Update session and below are summaries they’ve provided on the top five lessons franchises can take from the cases:

1. Noncompetition covenants may be enforceable against nonsignatory. Noncompetition covenants may be enforced against nonsignatories who act in active concert or participation with a signatory to a noncompetition covenant to perpetuate a violation of the covenant. Jackson Hewitt, Inc. v. H.E.A.T. Enterprises, LLC, 2011 WL 6347883; 2011 U.S. Dist. LEXIS 144759 (D.N.J. Dec. 15, 2011).

2. Always police your marks. Franchisors must ensure they are properly monitoring the use of their marks. Whether there is one franchisee or 1,000, a franchisor is responsible for policing its marks. Failure to police marks may result in grant of a naked license and loss of rights to marks. Original Rex, LLC v. Beautiful Brands Intern’l LLC, Bus. Franchise Guide (CCH) ¶ 14,628 (N.D. Okla. May 27, 2011).

3. Miscalculation of estimated start-up costs might rise to level of fraud. When estimated start-up costs in the disclosure document are so out of sync with actual start-up costs, a franchisor could be liable for fraud. A court will consider the discrepancy between projection and the actual amount of start-up costs, whether the projection is based on mere speculation or on concrete facts within franchisor’s possession and whether the cost projection is contrary to any facts within franchisor’s possession. A Love of Food I, LLC v. Maoz Vegetarian USA, Inc., 795 F. Supp. 2d 365 (D. Md. 2011).

4. Truth is defense to alleged earnings claim. A properly written disclosure document, plus truth of statements at issue, served as complete defense for a franchisor alleged to have made an improper financial performance representation through the UFOC stating that “if you buy more you’ll get more.” Since the statement was substantially true based on the way the janitorial franchise system was set up, such representation did not rise to level of fraud. Teng Moua v. Jani-King of Minnesota, Inc. 810 F. Supp. 2d 882 (D. Minn. Aug. 30, 2011).

5. Jurisdiction and other factors impact whether employer/employee relationship established. Jurisdictions that find a franchise agreement creates a presumption that the relationship is not one of employment, as well systems with franchisees who have their own employees, make it less likely the court will find franchisees misclassified as employees. See Awuah v. Coverall North America, Inc., 952 N.E.2d 890 (Mass. 2011) (employee); Juarez v. Jani-King of California, Inc. 2012 WL 177564 (N.D. Cal. Jan. 23, 2012) (not employee).

Jackson can be reached at Earsa.Jackson@strasburger.com and MacPhee at macphee@perkinscoie.com.

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