Posted on Jan 23, 2012
Franchises in the News
While franchise law rarely makes headlines, recently a few high-profile brands have found themselves in the public spotlight for disputes involving their franchisees (or, in one case, putative franchisees). The three cases discussed below all highlight different – and equally important – issues that are highly relevant to both franchisors and franchisees.
Panera Franchisee Accused of Discriminating Against “Fat, Black and Ugly” People
A multi-unit Panera franchisee has been accused of discriminating against “fat, black and ugly” people by refusing to promote them, and instructing managers to relegate them to low-profile positions within its cafes. The lawsuit, filed as a class-action on behalf of African American employees of the franchisee, claims that the franchisee has engaged in intentional and unlawful discrimination.
Unlawful discrimination is a common complaint faced by many franchisees—and occasionally their franchisors—and franchise owners are well-advised to take proactive measures to document, promote and provide training on their non-discriminatory practices. Since franchisors can face vicarious liability for their franchisees’ conduct when they exert sufficient control of franchisees’ operations, franchisors too need to take careful steps to limit their exposure to potential liability.
Franchisors must strike a careful balance between providing adequate support and oversight, and crossing the line into becoming responsible for the conduct of their franchisees.
Franchisees Dismiss Racketeering Lawsuit Against Quiznos
According to news reports, a group of Quiznos franchisees have settled their “racketeering” lawsuit against the sandwich chain franchisor. The franchisees’ suit had alleged that several of Quiznos’ mandatory practices resulted in profits for the franchisor, while they ran franchisees out of business. Among other claims, the franchisees charged that Quiznos mandated unnecessary purchases at inflated prices from designated suppliers who maintained relationships with the franchisor.
Quiznos denied the claims, but in general franchisors should be very careful when it comes to mandatory purchases. As a preliminary matter, supplier relationships need to be disclosed in the Franchise Disclosure Document. Further, in actually administering these relationships, franchisors need to be careful to keep their franchisees rights and interests in mind.
Allstate Agents Lose Bid for Protection Under New Jersey Franchise Law
When three long-time Allstate agents were terminated by the insurance giant for severely missing their performance quotas, they filed suit alleging that their terminations ran afoul of New Jersey’s Franchise Practices Act. The New Jersey law – like other franchise relationship laws in some states – protects franchisees from improper terminations and other unfair practices of their franchisors.
However, the agents’ claim failed in one critical respect: the judge hearing the case held that they were not franchisees.
This decision is consistent with prior precedent holding that insurance agents typically do not qualify as franchisees. Under most insurance agency agreements, the relationship fails to meet at least one of the definitional elements of a franchise, resulting in exclusion of agents from the protections of federal and state franchise laws.
In light of the strictures and special provisions applicable to franchise relationships, it is crucial for both would-be franchisors and would-be franchisees to understand the nature of their engagement.
Jeff Fabian is a franchise and trademark lawyer who represents both start-up and active franchisors. He can be reached at 866.545.7859, or online at www.fabianlegal.com. You can also follow Jeff on Twitter @jsfabian.
This article is provided for informational purposes only, and does not constitute legal advice.
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