A new publication from Greensfelder’s Business Services practice group regarding Economic Injury Disaster Loans (EIDL) may be relevant to many franchise systems.  The purpose of the EIDL program is to provide economic support to small businesses in order to continue operations during the COVID-19 pandemic. The procedure and terms of the EIDLs are determined on a case-by-case basis, but the article linked below provides  a high-level summary of the programs, eligibility criteria and application process.

Read the full article at https://www.greensfelder.com/newsroom-publications-SBA-coronavirus-disaster-loans.html

Additional publications relating to the COVID-19 pandemic can be found here.

This post was updated on April 8, 2020.

In recent days, several U.S. states have announced accommodations for franchise filings.

California announced an extension of time for calendar year franchisors to file their  2020 renewals from April 20 to June 20 in light of the COVID-19 pandemic. Although the renewal filing fee of $475 remains in effect if the renewal is filed by June 20, those who do not file  by April 20 must suspend sales until approved. Filers are urged to file electronically and can sign their application forms using an e-sign software program, such as DocuSign, instead of getting their signatures notarized.  Those who file by hard copy are asked to waive the automatic effectiveness, and their filing will not be effective until the actual date designated by order.

Hawaii is urging filers to use its online filing system. It has also extended the renewal filing deadline until April 30.

Indiana is granting franchisors whose current registrations were to expire between March 16, 2020, and May 31, 2020, a registration extension until June 30, 2020.

Minnesota is waiving its notarization requirement.

New York is extending current registrations and exemptions by 90 days and is accepting electronic filings.

South Dakota is asking franchisors to request an extension of their registration if they will not be able to file timely.

Virginia has extended the 21-day grace period previously reported on March 18  to registrations and exemptions expiring while the emergency declaration remains in effect. It also will accept PDF copies of the FDD on CD-ROM, though the application forms must still be submitted in paper form.

Washington is waiving its notarization requirement. 

Other states, including Illinois, North Dakota and South Dakota, will provide accommodations if requested.

Click here for our previous update on Virginia and here for Maryland, and stay tuned for further updates.

On March 18, 2020, the State Corporation Commission of Virginia extended current franchise registrations and exemptions under the Virginia Retail Franchising Act that would have expired between March 16, 2020, and April 6, 2020, by 21 days. The order indicates that if the COVID-19 emergency continues, one or more additional extensions may be granted by order.

As opposed to the Maryland order (discussed in a previous blog post here), the Virginia order seems to require that the franchisor continues to use its 2019 FDD.  If the state of emergency continues, this may mean that franchisors offering franchises in Virginia will have to use their 2019 FDD to comply with Virginia law and their 2020 FDD to comply with federal FDD updating requirements.

Our Franchising & Distribution team of attorneys is continuing to monitor these developments and is available to answer your questions related to franchise matters affected by COVID-19.

Link to COVID-19 Resources page

March and April mean franchise registration renewal season for franchisors. Updating the franchise disclosure document (FDD) in a timely fashion is often a major challenge. COVID-19 has thrown much of the world, including franchisors, into a new, very uncertain reality. People and businesses are scrambling to respond and adapt. Yet, March and April remain the annual franchise registration renewal season with deadlines set by statute.

Thankfully, states are also scrambling to help franchisors with the upcoming deadlines. First to act is Maryland. The governor declared a state of emergency on March 5, 2020, and on March 17, the Maryland securities commissioner issued an order extending registrations and exemptions for currently registered or exempt franchisors whose registrations or exemptions would have expired during the state of emergency. The registration and exemption dates will be extended for 30 days after the governor of Maryland declares the end of the state of emergency.

The Maryland extension of the registration period is similar to the provisions in the California and New York franchise laws allowing registered franchisors to continue offering franchises while an amendment application is pending. During the extension period franchisors can provide prospective franchisees subject to the Maryland franchise law with their new FDD, even though it is not registered. The FDD must include the material updates that are required by the FTC Franchise Rule. The franchisor may not enter into an actual franchise agreement until the updated FDD has been registered or deemed exempt. The franchisor must also give the prospective franchisee at least 15 days after registration/exemption to review the FDD, together with a marked copy of the registered/exempted FDD against the FDD that the franchisee received earlier.

Franchisors should also note that the automatic effectiveness the Maryland Franchise Law provides for is also waived during the emergency period and should not be relied upon for the time being.

While we are hopeful that other states will follow suit, franchisors should not expect that all states will do so, or announce a change in time for this year’s filings. Most annual renewal deadlines are set by statute, and any change may involve the legislature or the state franchise commissioner’s discretion in amending the deadlines by order.

If a franchisor is unable to meet a registration renewal deadline, it can still file an application as a new franchise. There will be a slightly higher filing fee and it will have to avoid sales until the registration is approved.

Our Franchising & Distribution team of attorneys is continuing to monitor these developments and is available to answer your questions related to franchise matters affected by COVID-19.

Link to COVID-19 Resources page

On April 1, 2019, the U.S. Department of Labor (DOL) offered a simplified test in a Notice of Proposed Rulemaking to determine whether two entities should be considered joint employers under the Fair Labor Standards Act (FLSA). The FLSA provides that two entities can be jointly and severally responsible for an employee’s wages, and thus the potential FLSA violations of either entity, if they function as joint employers. The notice sets out that the employment relationship should be determined based on a balance of four factors, specifically, whether a potential joint employer actually exercises the power to:

• hire or fire the employee;
• supervise and control the employee’s work schedules or conditions of employment;
• determine the employee’s rate and method of payment; and
• maintain the employee’s employment records.

The DOL explained that these “factors are consistent with section 3(d) of the FLSA, which defines an ‘employer’ to ‘include[] any person acting directly or indirectly in the interest of an employer in relation to an employee,’ 29 U.S.C. 203(d), and with Supreme Court precedent. They are clear and easy to understand. They can be used across a wide variety of contexts. And they are highly probative of the ultimate inquiry in determining joint employer status: whether a potential joint employer, as a matter of economic reality, actually exercises sufficient control over an employee to qualify as a joint employer under the [FLSA].”

The Notice of Proposed Rulemaking comes almost two years after the DOL withdrew the Obama-era guidance letter 2016-1, which resulted in an expansion of the joint employer doctrine such that even a business entity with very little control, if any, over an employee could still be considered a joint employer.

The Proposed Rulemaking is a welcome relief to businesses, including franchisors that have little to no control over franchisee employees. The DOL’s proposal states that the business model, including a franchise relationship, does not have any bearing on whether there is a joint employment relationship. Furthermore, the DOL included several hypothetical examples and explained that a franchisor providing its franchisees with sample employment materials, applications or policies or requiring the franchisees to conduct certain training would not result in a joint employment relationship if there was no other day-to-day control exercised by the franchisor.

If after the notice and comment period, the DOL adopts the proposed rule, it will not have the weight of law. However, it will provide guidance to the agency and courts when interpreting the FLSA and joint employment situations. If you have questions about how your business may be affected by this proposed rule, please contact any of the attorneys in our Franchising & Distribution Group.

The National Labor Relations Board (NLRB) on Jan. 25, 2019, overturned its 2014 ruling in FedEx Home Delivery and returned to its long-standing independent-contractor standard. In affirming its reliance on the traditional common-law employment classification test, the board clarified how entrepreneurial opportunity factors into its determination of independent-contractor status.

In FedEx, the board held that drivers in the Connecticut terminal of a FedEx Ground Package Systems Inc. unit were employees and not independent contractors, saying that a wide range of factors favored employee status. In reaching that conclusion, the board modified the test for determining independent-contractor status by strictly limiting the significance of a worker’s entrepreneurial opportunity for economic gain. Specifically, the board held that it would give

weight to actual, not merely theoretical, entrepreneurial opportunity, and that it would necessarily evaluate the constraints imposed by a company on an individual’s ability to pursue this opportunity.

Now, in SuperShuttle DFW, Inc., the board concluded that franchisees of SuperShuttle at the Dallas-Fort Worth Airport are not statutory employees under the National Labor Relations Act (NLRA), but are independent contractors excluded from the NLRA’s coverage.

Importantly, the board found that the franchisees’ leasing or ownership of their work vans, their method of compensation, and their almost unrestricted control over their schedules and working conditions provided the franchisees with significant entrepreneurial opportunity for economic gain. These factors, along with the absence of supervision and the parties’ understanding that the franchisees are independent contractors, resulted in the board’s decision that the franchisees are not employees. In overruling FedEx, the board concluded that it would continue to consider “all of the common-law factors in the total factual context of each case and treating no one factor (or the principle of entrepreneurial opportunity) as decisive. And where the common-law factors, considered together, demonstrate that the workers in question are afforded significant entrepreneurial opportunity, [it] will likely find independent-contractor status.”

If you have questions about the SuperShuttle decision or need help classifying your workers, please call one of the attorneys in our Employment & Labor group. In addition, franchisors with questions about how this may affect them can contact a member of our Franchising & Distribution group.

In a case pending in the Northern District of Illinois, a court granted a motion to dismiss Petroleum Marketing Practices Act (PMPA) claims brought pertaining to two unbranded motor fuel stations. The court, however, refused to dismiss claims on the question of the validity of termination pursuant to the PMPA as to a third station. All three stations were supplied motor fuel by Lehigh Gas Wholesale, LP pursuant to supply agreements executed with each of the locations. One station sold Marathon-branded fuel and it was undisputed that the PMPA applied to that supply agreement. The two other stations were supplied unbranded motor fuel and did not have authorization to sell under any third-parties’ trademark.

Noting its earlier ruling in the case at the preliminary injunction stage, the court reconsidered the PMPA issues raised by the plaintiffs to challenge the termination of their supply agreements, presented with “further nuance” at the motion to dismiss stage. The court rejected all three arguments made by the plaintiffs attempting to apply the PMPA to the two unbranded stations.

First, the plaintiffs attempted to invoke the PMPA by arguing that their supply agreements for the two unbranded stations addressed issues of branding. Specifically, the plaintiffs pointed to the following provisions that they contended extended a right to use a trademark:

• a contractual requirement to “maintain all signs and advertising related to the gasoline brand being dispensed”;
• advertising fees;
• indemnity to the supplier whose logo or signage was used; and
• provisions that failure to comply with branding requirements would be grounds for termination.

The court rejected this contention and found that, although the provisions anticipated the use of trademarks, they did not actually confer any right to use a trademark or require that the sale of fuel occur under a trademark—as confirmed by the plaintiff’s failure to identify any specific trademark. As a result, the two locations could not constitute a “franchise” under the PMPA and, thus, were not subject to the termination requirements of the PMPA.

Second, the plaintiffs argued that their supplier admitted that the PMPA applied to the unbranded stations. The plaintiffs pointed to a provision in their supply agreements providing that “[t]he parties specifically acknowledge and agree that the franchise relationship (as defined in the Petroleum Marketing Practices Act, 15 USC §2801 et seq.) created by this Agreement between the Retailer and the Supplier is necessarily contingent upon the Retailer’s ability to maintain possession of the Premises.” The court rejected that the provision demonstrated a mutual intent for the PMPA to apply.

Third, the plaintiffs argued that a cross-default provision in the supply agreements rendered all three stations subject to the PMPA because the third station was undisputedly subject to the PMPA. Again rejecting the plaintiff’s argument, the court found that the cross-default provision did not extend application of the PMPA because it did not provide for automatic termination. Suggesting that had the agreements provided for automatic termination, they could extend application of the PMPA, the court cited an earlier decision from the Northern District of Illinois holding that where the termination of a premises lease and motor fuel franchise agreement would automatically terminate a separate mini-market franchise agreement, the PMPA could govern the mini-market agreement as well.

The court did not grant the motion to dismiss entirely because it could not determine from the face of the complaint whether the termination notice to the third station was valid under the PMPA.

The case is Catch 26, LLC v. LGP Realty Holdings, LP (N.D. Ill. April 17, 2018).

After repeated delays, the compliance deadline for the Food and Drug Administration’s (FDA) new federal menu labeling rules — requiring disclosure of nutrition information for standard menu items — is set for May 7, 2018. After repeatedly being postponed, the FDA announced that the rules will not be postponed any longer and will be enforced as of that date.

As a result, on your next visit to a restaurant, motor fuel station or fast food drive-thru, you will see something new when making your selection from the menu: nutritional information. The federal menu labeling rules apply to restaurants and similar food establishments if they are part of a chain of 20 or more locations that are doing business under the same name and selling substantially the same menu items for restaurant-type foods. The FDA has projected that the rules could apply to nearly 300,000 different establishments nationwide. The rules require establishments to display nutrition information — specifically, calories — for standard menu items and, upon request, provide additional written nutrition information.

In late 2017, the FDA issued additional guidance to respond to the practical questions facing those who need to comply with the rules: Do I need to include information on a coupon? What are the requirements for a salad bar? Do I have to provide the information on the menu in the store and online? The guidance addresses many questions, for example, clarifying that, generally, the rules should not apply to marketing materials such as coupons and billboards.

Against the backdrop of the looming compliance deadline, in February 2018, the House passed the Common Sense Nutrition Disclosure Act, which would ease the rules and, critically, limits civil liability. The question at this point is: Will the bill pass in the Senate before the compliance deadline in May? For now, retailers are preparing to meet the compliance deadline.

As we’ve previously highlighted, identifying nutrition information on menus presents potential risk, including to franchisors, in addition to regulatory compliance in the form of consumer actions. Make sure you are in compliance and prepared if faced with such a lawsuit.