Duane Morris Franchise Law

May 3, 2019 by Duane Morris

A Warning for Franchises: Ninth Circuit Retroactively Applies California’s Independent Contractor Standard in Class Action

In Vazquez v. Jan-Pro Franchising International, Inc., a decade-old proposed class action against a franchisor, the Ninth Circuit ruled on May 2, 2019, that the recent California Supreme Court case Dynamex Ops. W. Inc. v. Superior Court of Los Angeles, 416 P.3d 1 (Cal. 2018) applies retroactively.

Vazquez is a warning for franchises and other businesses that use independent contractors to practically analyze their business models using the ABC test and consider whether amendments to contracts or changes to their business models are needed so that contractors and workers are not deemed to be employees.

View the full Alert on the Duane Morris LLP website.

October 10, 2016October 24, 2016 by Duane Morris

Trademark Update: No Standing to Seek Trademark Registration Cancellation

By Sheila Raftery Wiggins

When applying for a registration for a trademark, the applicant must affirmatively state that it knew of nobody else who had the right to use the same or confusingly similar trademark. Failure to do so is a violation of 15 U.S.C. 1120 (Civil Liability for False or Fraudulent Registration) and leaves the applicant open to an attack by another entity for trademark registration cancellation. The Eighth Circuit Court of Appeals (federal appellate court for Iowa) recently ruled that even if an applicant violated 15 U.S.C. 1120 by stating that it knew of nobody else who had the right to use the same or a confusingly similar trademark, the challenger must also show injury – monetary or non-monetary injury (i.e., loss of goodwill) – in order to seek cancellation of the trademark under 15 U.S.C. 1119. LESSON: No injury, then no standing to seek trademark registration cancellation.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.

August 16, 2016October 24, 2016 by Duane Morris

DOL Unveiled Alliance with Franchise Restaurant to Improve Wage-and-Hour Compliance

By: Sheila Raftery Wiggins

The U.S. Department of Labor unveiled its alliance with a sandwich franchisor to help improve the franchisee owners’ compliance with wage-and-hour laws. Under this agreement, the franchisor agreed to share data and swap ideas about promoting compliance with labor laws and co-developing training materials for distribution to franchisee owners. The agreement also includes a commitment to “explore ways to use technology to support franchisee compliance, such as building alerts into the payroll and scheduling platform that [the franchisor] offers as a service to its franchisees.” WARNING: Agreements like these may support a joint employer determination. Whether this agreement is truly a “recipe for success” is in the fine details.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.

June 9, 2016October 24, 2016 by Duane Morris

Native Advertising Is blurry, but Disclosures Must Be Clear

By: Sheila Raftery Wiggins

“Native advertising” is an advertisement that may blur the distinction between advertising and editorial, video or other content. For example, an advertisement may be integrated into a newspaper website, with a “headline” and then a few lines of text which looks like a regular story rather than looking like an advertisement.

Native advertising is so effective with consumers that it is also a hot topic with the Federal Trade Commission (“FTC”). The FTC may deem an advertisement that looks like an ordinary news article to be deceptive if consumers are not provided with sufficient information to differentiate the advertisement from publisher-generated, non-advertising content. This information may be inherent in the nature of the advertisement, or it may require a separate disclosure indicating that the advertisement is a marketing communication.

Be careful, and abide by the FTC’s guidance, including the FTC’s Enforcement Policy Statement on Deceptively Formatted Advertisements, to avoid deception. The Enforcement Policy states that “an ad is deceptive if it promotes the benefits and attributes of goods and services, but is not readily identifiable to consumers as an ad.” The FTC’s guidance lists 17 mini case studies that provide examples of what does and does not require a disclosure.

GOAL: The goal is whether the consumer can reasonably ascertain that the advertisement is paid marketing material.

LESSON: Native advertising should contain a clear and prominent disclosure such as “ad,” “advertisement,” and “paid advertisement” – but, terms such as “promoted” or “sponsored” are ambiguous. For videos, the disclosure should be made in the video itself before the consumer receives the advertising message.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.

June 7, 2016October 24, 2016 by Duane Morris

Commission, Incentive Pay and Nondiscretionary Bonus Are Impacted by DOL’s New Regs

By: Sheila Raftery Wiggins

The U.S. Department of Labor’s new regulations are effective on Dec. 1, 2016. The new regulations impact exempt employees, federal overtime pay and minimum wage requirements.

Significantly, nondiscretionary bonuses, commissions and incentive payments may be used to satisfy up to 10 percent of the minimum standard salary requirement if these payments are paid on a quarterly or more frequent basis.

Highly compensated employees (“HCEs”) are exempt from federal overtime pay and minimum wage if the employee currently has a minimum salary threshold of $100,000 per year. HCEs must receive at least the full standard salary amount each pay period on a salary basis without regard to the payment of nondiscretionary bonuses and incentive payments. Yet, nondiscretionary bonuses and incentive payments (including commissions) will count toward the total annual HCE compensation requirement.

If an employee does not earn enough in nondiscretionary bonuses and incentive payments (including commissions) in a given quarter to retain their exempt status, the employer may provide a “catch-up” payment at the end of the quarter to make up for the shortfall (up to 10 percent of the standard salary level for the preceding 13-week period).

ACT PROMPTLY: Consider your business, the structure of the incentive pay and how employees are classified – less than six months until the Dec. 1, 2016 regulations are effective.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.

May 24, 2016October 24, 2016 by Duane Morris

Texting Advertisements or Employment Offers May Violate TCPA

By: Sheila Raftery Wiggins

Potential drivers filed a class action suit against a well-known ride hailing firm in federal court (N.D. Ill.) alleging that text messages sent to potential drivers violate the Telephone Consumer Protection Act (“TCPA”). A sample text states: “You’re invited to drive [insert name]. No schedule. No boss. Sign up now and get a $500 bonus,” according to the recently-filed complaint. The case seeks $500 or $1,500 in damages for each text message which violates the TCPA.

Similar claims have been filed against this ride hailing firm in other federal courts, including in California. The firm has had some success defeating similar cases.

Generally, text message advertising services require “prior express written consent” from recipients, and employment solicitations require “express consent” which need not be in writing.

LESSON: A text campaign for employment should explicitly state that it is an employment solicitation.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.

May 11, 2016October 26, 2016 by Duane Morris

FCC Seeks Comments on Law Governing Automated Calls to Your Customers

By: Sheila Raftery Wiggins

Companies make automated calls to customers who owe money. These calls are governed by a federal statute, the Telephone Consumer Protection Act (“TCPA”). When a company violates the TCPA, the damages are calculated for each call. That can be costly. Due by June 6, 2016, the FCC seeks comments about changing the scope of the TCPA, including:

“solely to collect a debt” – The FCC proposes to interpret “solely to collect a debt” to mean only those calls made to obtain payment after the borrower is delinquent on a payment. The FCC also seeks comments regarding who may be called in order to ensure that a debtor’s family and friends are not subjected to non-consent robocalls seeking information about the debtor.
“debt servicing calls” – The FCC proposes that servicing calls are included in the covered calls and that covered calls begin when a borrower is delinquent on a payment.
consumer’s ability to stop covered calls – The FCC proposes that the stop-calling requests should apply to a subsequent collector of the same debt.
residential lines – Robocalls to residential lines for debt collection are not subject to the prior express consent requirement. The FCC seeks comments regarding revising this rule.

Consider: (1) your business and industry practices and (2) the courts’ rulings are very different in the different jurisdictions. This is a great opportunity to provide comments to the FCC.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.

May 9, 2016October 26, 2016 by Duane Morris

More States Enact Laws: Franchisors Are Not “Joint Employers”

By: Sheila Raftery Wiggins

Eight states passed legislation prohibiting a franchisor from being considered an employer or co-employer of franchisee employees, including: Texas, Louisiana, Tennessee, Wisconsin, Michigan, Indiana, Utah and Georgia. Similar legislative efforts were introduced in California, Colorado, Massachusetts, Oklahoma, Pennsylvania, Vermont and Virginia.

On May 3, 2016, Georgia is the most recent state to enact such a law. Georgia’s “Protecting Small Businesses Act” amends Georgia’s Labor and Industrial Relations Code to provide that neither a franchisee nor a franchisee’s employee is considered an employee of a franchisor for “any purpose.” The Act is effective on January 1, 2017. Like other states’ new laws, the Act responds to the dramatic 2015 ruling of the National Labor Relations Board in NLRB v. Browning-Ferris Industries, which impacts when a franchisor could be found to be a joint employer of its franchisee’s employees.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.

April 5, 2016October 26, 2016 by Duane Morris

E-commerce: Clickwrap Versus Browsewrap Agreement

By: Sheila Raftery Wiggins

The goal of an e-commerce contract is whether the “reasonable” consumer is aware of the e-commerce contract terms. A browsewrap agreement uses hyperlinks to the contract terms and conditions. A clickwrap agreement requires users to scroll through the terms before they are required to agree to them. The California state appeals court recently held that a browsewrap agreement for an online florist is not enforceable because the hyperlinks and overall design of the website would not have put a reasonably prudent Internet user on notice of the terms of use. LESSON: Design your website to give the consumer notice of the contract terms so the terms are enforceable.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.

March 29, 2016October 26, 2016 by Duane Morris

Two Lessons to Avoid a Franchise Price Discrimination/Distribution Lawsuit

By: Sheila Raftery Wiggins

Design business practices by incorporating the lessons offered by other parties’ lawsuits. The lessons from a recent franchise/commodity distribution federal court case are that:

Watch forecasting statements: A franchisor which changes its policy—here, the rent policy changed—should avoid making representations regarding the future of the franchise (such as, we will not sell the franchise agreements—when an alleged plan to assign the agreement exists).
Actions/practices may trump the franchisee agreement’s terms: A franchisor’s actions—such as alleged manipulation of the delivery time of a commodity based on price fluctuations—may prompt a price discrimination claim even though the franchise agreement grants the franchisee the power to determine their own retail prices.

In New Jersey federal court, franchisees sued the franchisor regarding its:

delivery actions – of allegedly manipulating pricing and delivery times immediately before the commodity price dropped,
pricing practice – of dividing the state into zones and charging retailers different wholesale prices and
alleged misrepresentations – of stating that the franchise agreements will not be sold, even though there was allegedly a plan to assign the agreements.

The franchisor sought an early dismissal of the lawsuit. The New Jersey federal court noted that many of the allegations are fact-based, and thus, the lawsuit may—at this point—proceed.

Sheila Raftery Wiggins, of the Newark office, handles matters involving complex commercial disputes, insurance defense, coverage disputes, financial fraud, and attorney ethics.