The new year is upon us, and franchisors across the U.S. are focusing on updating their franchise disclosure documents and renewing their franchise registrations. In this busy time, it is easy to overlook other filing requirements for franchisors.

Since 2009, franchisors that have at least one franchisee that does business in New York state and is required to be registered as a sales tax vendor are required to file information returns with the New York State Department of Taxation and Finance. The reporting period is from March 1 to February 28 (or 29) of the subsequent year. The return is due on March 20.

The reporting requirement applies where the franchisor-franchisee relationship falls within the broad franchise definition under the New York franchise statute. The reports are generally intended to give the New York tax authorities a double check on state tax filings submitted by New York franchisees, and the contents of the franchisor report are in line with that purpose. For example, a franchisor must report the franchisees’ gross sales in New York both as reported by the franchisee and as audited by the franchisor (if there was an audit), information about the amount of royalty payments from each franchisee location in New York and the amount of sales made by the franchisor and its affiliates to each franchisee location. Franchisors are also required to inform franchisees of the reported information.

Penalties of up to $10,000 may be imposed for failure to comply with the reporting and information requirements.

For additional information or questions on filing requirements for franchisors, please contact any of the attorneys in our Franchising & Distribution practice group.

In the aftermath of a significant change in the joint employer standard this year, several states are attempting to address how franchisors are affected.

Legislation aims to stop fallout from joint employer status changesIn August, the National Labor Relations Board (NLRB) released a decision in Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Recyclery, 362 NLRB No. 186 (Aug. 27, 2015), drastically expanding the standard for determining whether an entity was a joint employer. (See our blog post about it here). In doing so, the NLRB veered away from precedent that required a showing that a company exerted actual control over the employees of another company in order for the first company to be considered a joint employer.

In the wake of Browning-Ferris, the standard now looks to the control a company could potentially exert over the employees of another company when making the joint employer determination. While Browning-Ferris involved outsourced workers and not a franchise system, the broad holding in the case (as criticized by the dissent) could apply to many scenarios, including the franchisor-franchisee relationship.

While many thought this expansion of the joint employer standard would be a nail in the coffin of franchises, states have reacted to the NLRB’s move by attempting to narrow the focus and revert to the traditional control standard. While Congress failed to act, Michigan, Virginia and Wisconsin are joining states such as Texas, Tennessee and Louisiana, which have already passed legislation to protect franchisors from being considered joint employers. Michigan, Virginia and Wisconsin have all proposed legislation that would similarly impact the franchisor-franchisee relationship.

Michigan legislative activity

In November, the Michigan legislature introduced bills in the Senate and House that would limit a franchisor’s liability to a franchisee’s employees by amending a number of statutes including

  • Workers’ Disability Compensation Act of 1969 (Michigan Senate Bill No. 493);
  • Franchise Investment Law (Michigan Senate Bill No. 492);
  • Michigan Employment Security Act (Michigan Senate Bill No. 5073);
  • Workforce Opportunity Wage Act (Michigan House Bill No. 5072);
  • Michigan Occupational Safety and Health Act (Michigan House Bill No. 5070); and
  • 1978 PA 390 amending section 1, MCL 408.471 (Michigan House Bill No. 5071).

The intent of the proposed legislation in Michigan is to clearly define “employer” and explicitly prevent the franchisor from being held as a joint employer with the franchisee. Much of the language in the bills provides that “except as specifically provided in the franchise agreement, as between a franchisee and franchisor, the franchisee is considered the sole employer of workers for whom the franchisee provides a benefit plan or pays wages.” Michigan Senate Bill No. 493 amending the Workers’ Disability Compensation Act most tellingly describes the state’s attitude towards the expanded standard. It seeks to prescribe the traditional control formula by stating that a franchisee’s employee will not be an employee of the franchisor unless the franchisee and franchisor co-determine matters “governing the essential terms and conditions of the employee’s employment,” and both “directly and immediately control matters relating to the employment relationship.” That bill, along with Senate Bill No. 492, has been sent to the governor for execution.

Virginia legislative activity

Virginia similarly seeks to redefine “employer” and “employee” to prevent the franchisor and the franchisee from being labeled as joint employers. Virginia House Bill No. 18 proposes to amend the definition of “employee” in section 40.1-2 of the Code of Virginia Definitions to read that “neither a franchisee nor a franchisee’s employee shall be deemed to be an employee of the franchisee’s franchisor for any purpose,” absent any contrary agreements in the franchise agreement.

Wisconsin legislative activity

Wisconsin follows in line with Michigan and Virginia in proposed Senate Bill No. 422, which proposes to increase franchisor exclusions for employment law purposes. The act impacts laws relating to workers’ compensation, unemployment insurance, employment discrimination, minimum wage, and wage payments. Again, harking back to the traditional notions of control to hold the franchisor as a joint employee with the franchisee, the Wisconsin Senate Bill prohibits considering a franchisor as the employer of a franchisee or a franchisee’s employee unless the franchisor agrees to that role in writing or exerts “control over the franchisee or the franchisee’s employees that is not customarily exercised by a franchisor for the purpose of protecting the franchisor’s trademarks or brand.”

These bills are an obvious reaction to the NLRB’s August decision, and it is likely that other states will pass similar legislation. It remains to be seen whether such legislation is truly necessary to protect franchisors and franchisees from more intermingling of their businesses than bargained for by either party. The state bills can be juxtaposed with congressional failure to include legislation that would limit the NLRB’s enforcement of the joint employer standard in its latest omnibus spending package. All is not lost in Congress, though, and HR 3459, the Protecting Local Business Opportunity Act, is positively positioned for a vote in 2016. HR 3459 would curtail the NLRB’s expansion of the traditional standard. In contrast to Congress’s current posture, the state bills are a clear indication that many agree with the franchise community at large that the NLRB has taken the joint employer standard too far, as least as it regards the franchise relationship.

For additional information or any questions on your state’s laws, please contact any of the attorneys in our Franchising & Distribution or Employment & Labor practice groups.

gift cardThe holiday season is upon us. For many retailers, that means gift card sales are about to explode, which is great news. Not only can gift card sales help generate new customers, but industry data continues to confirm that consumers often never use some portion of their gift card balance, which can ultimately result in additional breakage profit.

Be warned, however, that a new type of class action lawsuit against retailers is starting to emerge relating to the very fact that, for whatever reason, consumers may not always want to use the entire balance of their gift cards on merchandise. California has enacted legislation requiring retailers to honor consumer requests for “cash back” any time a gift card’s balance falls below $10, and similar legislation is pending in Connecticut. Other states such as Colorado, Maine, Massachusetts, New Jersey, Oregon and Washington have the same or similar requirements for balances below $5. Texas has a similar requirement for balances below $2.50. Rhode Island and Vermont have a similar requirement for balances below $1.

Class action plaintiffs’ attorneys have taken note, and a rash of “cash back” lawsuits have popped up claiming that retailers are failing to comply with these requirements. For example, based on these “cash back” requirements, separate class action lawsuits have been filed against Google (based on Google Play gift cards), Dave & Buster’s, Lowe’s, Kiehl’s and Toys “R” Us, all alleging violations of state “cash back” gift card statutes and seeking significant damages.

So if you are selling gift cards this holiday season, make sure you know whether the states you operate in have a “cash back” requirement and how you can comply. Otherwise, Santa might put you on the naughty list, and you could end up with a class action lawsuit in your stocking to go along with that dreaded piece of coal.

Contact us if you have questions about “cash back” policies or other gift card questions, and we’ll be glad to help.

A California judge dismissed a class action lawsuit against MillerCoors that alleged deceptive advertising related to the brewing conglomerate’s Blue Moon beverage — specifically its status as a “craft” beer.

In Evan Parent v. MillerCoors LLC, Case No: 3:15-cv-1204-GPC-WVG (S.D. Cal. Oct. 26, 2015), the plaintiffs alleged that MillerCoors was deceiving consumers by (a) advertising Blue Moon on its website as a “craft” beer, and (b) advertising it as “artfully crafted” and brewed by the Blue Moon Brewing Co. on bottles and commercials, then selling it at premium prices.

According to the plaintiffs, relying on an industry group for American craft breweries known as the Brewers Association, a beer is only a “craft” beer if the brewer:

  • Produces less than 6 million barrels of beer annually
  • Is not more than 25 percent owned or controlled by a non-craft brewer
  • Makes beer using only traditional or innovative brewing ingredients

Thus, according to the plaintiffs, MillerCoors – which produces more than 76 million barrels of beer annually – does not qualify as a craft brewer, and its advertisements for Blue Moon as being “artfully crafted” or “craft” beer is deceptive.

U.S. District Court Judge Gonzalo Curiel in the Southern District of California dismissed the claim without prejudice, finding that the plaintiffs’ complaint did not state a claim showing that a reasonable consumer could be deceived by MillerCoors’ advertisements of Blue Moon. Among his reasons included the fact that MillerCoors’ own website advertises Blue Moon prominently, meaning that a reasonable consumer would know MillerCoors brewed the beer. He also noted that the plaintiffs failed to allege any facts suggesting that MillerCoors controls where retailers place Blue Moon on their shelves or that the price of a product, by itself, constitutes any sort of representation about the product.

Curiel also rejected the plaintiffs’ argument that MillerCoors intentionally deceived consumers by advertising that Blue Moon is brewed by “Blue Moon Brewing Co.” (the beer’s trade name) rather than by MillerCoors. In denying the claim, the court noted that federal regulations specifically permit a brewer to label or package beer pursuant to a registered trade name, which is exactly what MillerCoors does with respect to Blue Moon.

Curiel refused to rule on whether there is any actual definition of what constitutes a “craft beer,” finding instead that a consumer could not be deceived by MillerCoors’ website calling the beer a craft beer, again because by visiting the website, a reasonable consumer would know MillerCoors was the brewer.

Because Curiel declined to consider whether craft beer has a legal definition, the long-term ramifications of the ruling are unclear. But before beer manufacturers or retailers start advertising mainstream, large-production beers as craft beers, they should note that Curiel declined to consider the possibility that “craft” has a legal meaning based only on a technicality (the plaintiffs alleged only one instance of MillerCoors advertising Blue Moon as a “craft” beer – on its website, which could not be deceiving since consumers would know MillerCoors was the brewer). If MillerCoors had called Blue Moon a craft beer on a television commercial (which does not identify MillerCoors as the brewer), for example, Curiel likely would have had to consider whether that advertisement was deceptive.

So if you make or sell beer at retail, you still may need to think twice before calling it “craft” beer. But as a beer consumer, feel free to start claiming that you enjoy a good craft beer every now and then, no matter what kind you drink. For now, no one can tell you you’re wrong, and as the great television show “Futurama” once told us, being “technically correct” is “the best kind of correct,” a sentiment any good beer snob is sure to appreciate.

The American Bar Association’s annual Forum on Franchising took place recently, and Greensfelder, Hemker & Gale attorneys David Harris, Dawn Johnson, Beata Krakus, Kim Myers, Abby Risner and Leonard Vines, as well as franchise paralegal Tom Ligouri, attended the two-day program in New Orleans.

Beata Krakus was elected to serve on the ABA Forum on Franchising Governing Committee.

Leonard Vines spoke and presented a paper at one of the Forum’s most well-attended break-out sessions, Drafting and Negotiating Challenging Provisions in Franchise and Development Agreements. The presentation discussed tips for negotiating franchise agreements and in particular difficult issues when faced with negotiating provisions relating to lost future royalties, personal guarantees, assignments and transfers, reservation of rights, advertising and area development agreements.

The Forum also announced the establishment of the John R. F. Baer Scholarship for International Civility and Professionalism, in honor of Greensfelder’s deceased partner. The scholarship will provide free tuition and a travel stipend for attendance at the Forum’s annual meeting.

Some key takeaways from the program:

DATA BREACH

Data breach is an ever-growing threat that nearly all businesses face, and one presentation provided advice on how franchisors can help minimize their risks. Lessons include updating operations manuals to make recommendations to franchisees about data security practices, such as:

  • Changing default credentials;
  • Using and frequently changing strong passwords;
  • Log monitoring;
  • Inspecting hardware;
  • Segregating payment card environment from other systems and networks;
  • Recommending virus protection software; and
  • Installing and monitoring firewalls

Larger franchisors also may want to consider providing training programs to franchisees designed to educate franchisees on how to minimize their risks.

Greensfelder has a team of attorneys who regularly counsel clients on data privacy and security and would be pleased to help you address these issues. And, this is another reminder to franchisors to continuously review and update their operations manuals.

Practice pointer: Update your operations manual to address data breach and security issues.

INVESTOR LIABILITY

In recent years, there has been a trend of private equity and venture capital (PE/VC) investments in franchises and, therefore, a need to understand to what extent such investors can be held liable for franchisee claims against the franchisor.

Often, a PE/VC firm’s investment goals of generating a relatively quick return through capital appreciation can be at odds with the traditional franchise model goal of long-term growth and stability. These differing goals can lead to litigation concerns in the franchise system. The current bases for liability – piercing the corporate veil/alter ego, control person liability under state franchise laws and RICO – are giving way to evolving theories such as aiding and abetting a breach of duty or breach of franchise agreement, interference with contractual relations, WARN Act employment law violations and trustee claims.

Practice pointer: PE/VC firms can mitigate their potential liability by limiting their exercise of control over the franchisor, carefully selecting favorable state laws and including arbitration provisions in order to splinter system-wide dispute resolution.

ADVERTISING WITH SOCIAL MEDIA

Social media has changed a franchisor’s ability to advertise, but it also creates potential pitfalls that must be navigated. These include considering when a post constitutes an endorsement and promotions that encourage consumers to “like” a product on Facebook. Social media also creates opportunity for consumers to generate advertising content on their own for your product or service. Social media policies can be critical to addressing these issues with respect to a system’s franchisees, and they ensure protection of the brand.

Practice pointer: Do not neglect careful consideration of state laws on advertising. Also, consider whether you should develop a social media policy for your franchisees.

ARBITRATION INJUNCTIONS

Many franchisors have arbitration provisions in their franchise agreements, and many of those provisions allow a party to seek injunctive relief from a court, for example, in cases of misuse of a trademark or violating a non-competition agreement. One presentation on non-traditional remedies discussed the recently (2013 and 2014) adopted rules for the three major arbitration providers (AAA, JAMS and CPR) that allow parties to seek emergency relief from a specially designated arbitrator. This could impact a franchisor’s practice of applying for preliminary injunctive relief with a court pending arbitration.

Under the new rules, the parties can apply for emergency relief by providing notice to the administrator and the other party, with a brief description of the issue. An expedited schedule will be set for partiality disclosures, challenges to the arbitrators, a hearing and written submissions. The emergency arbitrator, for lack of a better word, will hear the request for emergency relief before the arbitrator is appointed who will hear the case (although parties could decide later to keep that same arbitrator for the merits). The general standard for emergency relief for the AAA and JAMS is that, in the absence of such relief, “immediate and irreparable loss or damage” will result. For CPR, the rules allow any interim measures that the arbitrator deems necessary. In general, the arbitrator can require the applicant to post security, can issue sanctions for non-compliance, and will retain jurisdiction until the regular arbitrator is appointed.

According to the presentation, these rules have rarely been invoked, so there is not much experience on which to rely. However, if you have a mandatory arbitration clause with any of these three providers, you may want to consider whether to ask the arbitration provider for emergency relief rather than the court. It is unclear whether federal courts would have jurisdiction to hear a motion to confirm, vacate or modify an interim award by an arbitrator.

Practice pointer: There are a number of potential issues, such as how to proceed if you need ex parte same-day relief not provided for in the arbitration rules, whether the new rules allow an arbitrator more flexibility than a judge in presentation of evidence and fashioning relief, and whether an arbitrator can enforce its rulings compared to a court’s contempt power. 

JOINT EMPLOYER ISSUES

Richard F. Griffin, Jr., the general counsel of the National Labor Relations Board, and David Weil, the administrator of the Wage and Hour Division of the U.S. Department of Labor and author of “The Fissured Workplace,” spoke on joint employer issues, a topic that has preoccupied many in the franchise field for some time. For an in-depth take on the presentation, please see our Franchising & Distribution Blog.

NLRB’s Richard Griffin and DOL’s David Weil address joint employer issues at the ABA Forum on Franchising

Joint employer issues have preoccupied many in the franchise field for some time now. So it is no surprise that a session with Richard F. Griffin, Jr., the general counsel of the National Labor Relations Board (NLRB), and David Weil, the administrator of the Wage and Hour Division of the U.S. Department of Labor (DOL) and author of “The Fissured Workplace,” drew large crowds at the 38th annual meeting of the American Bar Association Forum on Franchising.

Joint employer matters have been a hot topic in franchising for several years, and the issue was brought to a point when in the fall of 2014 the NLRB permitted complaints involving employees of McDonald’s franchisees to go forward not only against the franchisees, but also against McDonald’s itself. The ongoing review of the joint employer standard, which goes well beyond just the franchise model, has brought outcries such as that the suggested (and now adopted) new standard is an attack on the franchise model and would lead to the death of franchising.

Griffin and Weil clearly wished to dispel much of the hyperbole and diffuse concerns about their agencies’ current actions as being intended as a death knell on franchising. Weil in particular repeatedly stated that the goal of his division is to increase compliance with wage and hour legislation and nothing more.

While not specifically stated, it appears the Department of Labor perceives working with franchisors as a convenient way of reaching out to a large number of employers — the franchisees — at one time. Weil repeatedly referred to the agreement between the DOL and the franchisor of the Subway franchise system as an example of what his division is trying to achieve. Under the Subway agreement, the franchisor and the DOL agreed that the DOL will be given access to Subway franchisees — for example, at the franchise system’s annual convention — to educate the franchisees about Fair Labor Act compliance. As part of the agreement, the DOL also informs the franchisor if it receives wage and hour complaints regarding its franchisees.

Weil’s part of the presentation should make franchisors feel somewhat better. Griffin, while he clearly wanted to convey a similar message, may not quite have reached the mark. Griffin, as the general counsel for the NLRB, oversees the enforcement of the National Labor Relations Act (NLRA). The potential joint employer issues raised under the NLRA can be far-reaching and are more nuanced than the wage and hour questions. It remains unclear how the newly adopted joint employer standard (read about the newly adopted standard here) will affect franchisors. Griffin highlighted that in his amicus brief submitted in the Browning-Ferris Industries matter (and reported on in this blog post), he had specifically argued for a joint employer standard that would not consider franchisors as joint employers by default. Only if franchisors exercised control beyond that intended to protect the brand would they be joint employers with their franchisees. Griffin spoke at length about how a franchisor’s access to scheduling software could go beyond brand control and interfere with labor relations. Where software combines information about gross sales, employees’ hours and salary levels, that information can be used to maximize profitability, but will also directly impact employee scheduling, thereby affecting labor relations.

Griffin also repeatedly talked about the process of enforcing the NLRA, highlighting that there is no private cause of action and that a complaint can only be brought before the NLRB by the general counsel. Based on what he said, it appears that he would not bring cases against franchisors unless they would control franchisees beyond the types of controls necessary to protect the franchisor’s brand. However, he skirted over the fact that the joint employer standard adopted in Browning Ferris Industries of California is potentially broader than the standard he had argued for. He also never addressed what would be considered too much control. It is obvious that requiring use of the type of scheduling software he described would be too much under the current NLRA joint employer standard, but there is a big grey area between that level of control and simply ensuring that trademarks are correctly used to requiring use of scheduling software. He also didn’t address maybe the most difficult question in this setting: When do software and other tools that a franchisor may make available to franchisees become “required”? If a tool is offered on an optional basis by a franchisor but adopted by a vast majority of franchisees, is it required?

The discussion also covered the types of controls that may not be intended to affect franchisee employees but nonetheless have an indirect impact on them. For example, a franchisor’s control over the franchisee’s real estate may impact franchisee employees’ ability to picket and otherwise exercise their rights under labor laws at their place of employment.

All in all, the message sent by Griffin and Weil was to keep calm and carry on. While franchisors would be well advised to review their system requirements to ensure that they do not inadvertently interfere with their franchisees’ employees and review direct and potential indirect interference, franchising as such is not likely to see increased review by federal agencies.

We previously reported on the proposed amendments to the California Franchise Relations Act (CFRA) in a Sept. 28 blog post. The proposed bill was signed into law by the governor on Sunday, Oct. 11, and will take effect Jan. 1, 2016.

The bill revises the previous provisions of the CFRA regarding termination, introduces a restriction on a franchisor’s ability to prevent transfers by a franchisee and broadens the franchisor’s obligation to repurchase inventory. Critics of the bill are concerned that it will turn franchisors away from California, while the bill’s proponents laud it as strengthening franchisee rights.

Over the past several years, California has severely restricted the permissible scope of non-competition covenants, and many California courts have been liberal towards franchisees. Yet, franchisors continue to sell franchises in the state. Whether the amendments to the CFRA are the drop that spills the glass remains to be seen. Only time will tell about the real impact of the amendment.

Many states have seen attempts over the past several years to enact new franchise relationship legislation. California’s bills have made it further in the legislative process than those of other states, and by Sept. 30, we should know whether the latest attempt, bill AB 525, will make it all the way.

The smart money is betting that California Gov. Jerry Brown will sign the new bill that modifies certain provisions of the California Franchise Relations Act. The purpose of the bill is to give more protections to franchisees. Last year, the governor vetoed a similar but more franchisee-friendly bill (SB 610).

An Aug. 26 editorial in The New York Times, “A Better Deal for Franchisees and Workers,” urging Brown to approve AB 525, caused significant buzz in the franchise community. To be sure, the editorial included several misstatements and mischaracterizations about franchising. However, even if the bill is enacted, it will not be earth-shattering and will not likely cause franchisors to stop doing business in a state as important to the national economy as California. California already has some of the most expansive and restrictive business laws and regulations, but these do not seem to have impaired the state’s growth.

The details of AB 525

The key provisions of the proposed law include:

Termination: Good cause for termination would be limited to the failure of the franchisee to substantially comply with the lawful requirement of the franchise after being given 60 days’ advanced notice (instead of 30 days as provided under current law). Franchisors are, however, permitted to terminate the franchise without an opportunity or a limited opportunity to cure for certain breaches such as:

  • Bankruptcy
  • Abandonment of the business
  • Material misrepresentations relating to the acquisition of the franchise
  • Engaging in conduct that reflects materially and unfavorably on the operation and reputation of the franchise business or system
  • Noncompliance with laws after 10 days’ notice
  • Repeated noncompliance with the franchise agreement
  • Conviction of a felony or other criminal misconduct relevant to the operation of the franchise
  • Failure to pay amounts due to the franchisor or its affiliate within five days after notice
  • The franchisor’s determination that continued operation will result in an imminent danger to public health or safety

Sale of a franchise: A franchisor will not be able to prevent a franchisee from selling or transferring a franchise to a person who is qualified under the franchisor’s then-existing and reasonable standards for franchisees’ sales or transfers, and the franchisor’s approval to a transfer cannot be unreasonably withheld.

Repurchase: Upon a lawful termination or nonrenewal of a franchise, the franchisor would be required to purchase all inventory, supplies, equipment, fixtures and furnishings purchased by the franchisee from the franchisor or its affiliates at the value of the price paid less depreciation. (The current law only requires a franchisor under these circumstances to purchase the franchisee’s resalable current inventory). If the franchisor terminates or fails to renew the franchise in violation of the act, the franchisee would be entitled to receive the fair market value of the business, plus damages from the franchisor.

Applicability: Changes to the existing law will apply only to franchise agreements entered into or renewed on or after Jan. 1, 2016, or to franchises of an indefinite duration that may be terminated by the franchisee or franchisor without cause.

As with almost all legislation, some of the bill’s provisions are unclear, and interpretations by and guidance from the courts will follow over time. Franchisors may consider revising their California franchise agreements in light of the new law, assuming the governor signs it. And, although California was the first state to enact a franchise disclosure and registration law that predated the FTC Franchise Rule by more than eight years, it remains to be seen whether other states will follow California’s lead. Even if some do, however, franchising will remain a viable vehicle for business expansion and this type of legislation should not, alone, impact the growth of franchising in California or elsewhere.

The bill can be found online at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160AB525

If you have questions about this topic or other franchise law matters, the attorneys in Greensfelder’s Franchising & Distribution Practice Group are here to help.

Starting Oct. 1, retailers lacking EMV compliance can be liable for fraudulent in-store purchases.

If your customers routinely use credit cards to pay you, you are likely already familiar with a new type of credit card with a tiny microprocessing chip built inside. These cards — known as “EMV cards,” “chip cards” or “chip-and-PIN” — are designed to reduce fraudulent in-person credit card transactions, also called “card present” transactions.

While relatively new in the United States, EMV cards have been widely adopted over the past three years in Europe, Canada, Latin America and the Caribbean. Now, Visa, MasterCard, American Express and Discover are taking a major step to require their use in the United States as well.

EMV cards are effective at reducing in-person credit card fraud because they contain an individualized microprocessing chip embedded in each credit card. The chip makes the card essentially impossible to counterfeit or “clone,” unlike with traditional magnetic stripe credit cards. Similarly, unlike with a magnetic stripe card, it is not possible to use stolen credit card data to create a counterfeit EMV credit card. This means that the only way criminals can use an EMV card for a fraudulent in-person transaction is if they have stolen the physical credit card from its owner.

To ensure compliance with the move to EMV card acceptance, all four major credit card companies have issued payment card rules for retail businesses accepting credit card payments. These rules specify that starting Oct. 1, 2015, if a business accepts credit card payments for in-store retail purchases and is not EMV-compliant, it is liable for any “card present” fraudulent transaction that occurs at that store that would not have occurred if the store had the technology to accept EMV cards. In other words, stores must purchase point-of-sale (POS) devices that are EMV-enabled or they will be liable for any fraudulent in-person transactions happening at their locations (other than those based upon use of a lost or stolen card). Exceptions do exist for ATMs and for automated gasoline dispensers, however, which do not have to be EMV-compliant until October 2017.

If you have questions about how the new EMV card liability rules could impact your business, the attorneys in Greensfelder’s Franchising & Distribution Practice Group are here to help.

Reversing course from more than 30 years of precedent, the National Labor Relations Board significantly expanded its standard for determining when two entities constitute a single joint employer over a unit of employees. In so doing, the NLRB creates questions about a number of entity relationships such as parent corporation/subsidiary, contractor/subcontractor and franchisor/franchisee relationships.

The potential to exercise control

Since 1984, the board’s standard for determining whether an entity was a joint employer required a showing that the entity’s control was “immediate and direct” rather than “limited and routine.” Further, in its previous decisions, the board focused on control that was actually exercised over employees rather than control that hypothetically could be exercised. However, in its recently released decision Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Recyclery, 362 NLRB No. 186 (Aug. 27, 2015), the NLRB overruled its prior standard and concluded that an entity with the potential to exercise control over another entity’s employees was a joint employer and was obligated to participate in the collective bargaining process with respect to those issues in which the entity could exercise control. Additionally, the NLRB concluded that the potential control need not be directly exerted; rather, joint employer status could be based on control exercised indirectly through a third party.

The Browning-Ferris case involved an arrangement in which Browning-Ferris Industries of California, Inc. (BFI) contracted with a third party, Leadpoint Business Services, to provide employees who performed work at BFI’s facility. It was undisputed that Leadpoint was an employer — the issue was whether BFI, the recipient of the Leadpoint employees’ services, was a joint employer. In reaching its conclusion that BFI was a joint employer, the NLRB looked at a number of factors, in particular the contract between BFI and Leadpoint to determine whether BFI retained potential control over the Leadpoint employees’ terms and conditions of employment, regardless of whether BFI actually exercised that control. Notably, while the board did identify factors to consider under the newly announced test, it pointed out that the analysis is fact-specific and refused to comment on the potential impact of the new test on facts other than those before it.

Other employee scenarios

While the Browning-Ferris case involved a leased-employee relationship, the NLRB’s decision could extend well beyond the temporary or leased employee scenario. The board has not given guidance on the potential effects the new standard may have on other types of relationships. For example, a parent corporation may indirectly exercise some authority over the employees of its subsidiary by requiring the subsidiary to meet certain standards. A franchisor may require its franchisees to apply standards for purposes of system consistency and trademark protection that indirectly affect employment conditions of franchisee employees. Contractors may require subcontractors to work certain hours or meet certain production standards. While these scenarios may not definitively create joint employer status, it is conceivable that any of these circumstances could satisfy the NLRB’s new test. The implications of joint employer status are significant, including obligations to collectively bargain and potential liability for unfair labor practice charges.

It is unclear whether BFI will file or need to file an appeal of the NLRB’s decision. The NLRB conducted the representation election prior to issuing its ruling and had impounded the ballots. Those ballots will be counted. In the event the union prevails in the election, BFI has the right to appeal the NLRB’s decision to either the 9th Circuit or D.C. Circuit Court of Appeals.

Should you have questions about the NLRB’s new joint employer test and its potential impact on your company, please contact any of the attorneys in our Labor & Employment Group. For franchise-specific inquiries, please contact the attorneys in our Franchise and Distribution Group.