Franchisor 101: A Tinted FDD A Tennessee federal district court granted a franchisee’s request for a preliminary injunction to prevent the franchisor from enforcing noncompete restrictions under the franchise agreement while the franchisee litigated its fraud claims against the franchisor. Frost Shades Franchising, LLC, the franchisor of a window tinting and frosting business, granted a franchise for the operation of a South Carolina location. Shortly after entering into the franchise agreement, the parties’ relationship broke down. The franchisee learned that some of the franchisor’s members ..read more

Franchisor 101: Getting Away With Tax (Franchisor) Evasion A Pennsylvania federal court refused to enforce non-competition and non-solicitation covenants in a franchise agreement of a nationwide tax preparation service franchisor. The court dismissed the franchisor’s request for injunctive relief to enforce those covenants. In 2015, Liberty Tax Service (Liberty) entered into a franchise agreement for the operation of a tax preparation business in Pennsylvania. Liberty terminated the franchise agreement in June 2020, claiming the franchisee breached the franchise agreement by failing to pay mon ..read more

Franchisor 101: Hunka, Hunka Confusion A federal district court in Florida denied a former moving and junk hauling franchisee’s motion to dismiss claims of trademark infringement and unfair competition by franchisor College Hunks Hauling Junk (“CHHJ”). In May 2021, franchisor and franchisee entered into a franchise agreement to open a CHHJ franchise in New Jersey. Franchisor alleges that franchisee breached the franchise agreement and were sent a notice of default with opportunity to cure followed by two notices of default and termination with opportunity to cure and finally a notice of termin ..read more

On January 9, 2024, the Wage and Hour Division of the United States Department of Labor announced a new rule pertaining to classifying a worker as either an employee or independent contractor under the Fair Labor Standards Act. The rule goes into effect March 11, 2024. The new rule rescinds the 2021 Independent Contractor Rule and focuses on six factors which must be analyzed, with no one factor allocated more weight than any others. The six factors are: The opportunity for profit or loss; The financial stake and nature of any resources a worker has invested in the work; The degree of permane ..read more

A new California law concerning employee noncompete agreements and clauses went into effect Jan. 1, 2024, and requires affected employers to take action by Feb. 14, 2024. The new law, codified at Business & Professions Code Sections 16600 and 16600.1, makes it unlawful for an employer to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy limited exceptions. The law may likely be liberally interpreted to include not only noncompete agreements, but also non-solicitation agreements. Action Required Business ..read more

Franchisor 101: Court Holds Joint Liability is Fashionable A California federal district court held that judgment entered against individual owners of a franchisor entity, KEP Fortune, LLC, finding them jointly and severally liable with the franchisor entity, was not erroneous or a violation of due process rights. The franchise agreement was for a Klein Epstein & Parker clothing store in Las Vegas. After the parties’ relationship soured, the franchisee sent a notice that it was rescinding the franchise agreement. The franchisee then filed suit against KEP and its principals, Jeroen and Mi ..read more

Franchisor 101: Franchisor Cannot Massage its Way Out of Vicarious Liability A Texas court of appeals affirmed judgment in favor of a plaintiff who claimed a franchisor was vicariously liable for a franchisee’s employee’s wrongful conduct. Plaintiff, a customer of a massage salon franchised by Massage Heights Franchising, LLC (“MH Franchising”), alleged she was sexually assaulted by the franchisee’s employee, a massage therapist, during plaintiff’s massage. Plaintiff sued the employee, franchisee and MH Franchising asserting multiple claims, including negligence, premises liability and vicari ..read more

As of Jan. 1, 2024, the Corporate Transparency Act goes live. The CTA creates a national database of information concerning individuals who, directly or indirectly, own a substantial interest in, or hold substantial control over, certain types of domestic and foreign legal entities. The reported information is referred to as Beneficial Ownership Information or BOI. The non-public database will be maintained by the U.S. Treasury Department’s Financial Crimes Enforcement Network, often referred to as FinCEN. What are Reporting Companies?  There are two types of entities, known as “Reporting ..read more

Franchisor 101: The Secret is Not in the Dough A Utah federal judge denied cookie franchisor Crumbl an injunction preventing its competitor, Dirty Dozen, from opening new locations while litigation between the two franchisors was pending. Crumbl alleged two brothers, Bradley and Bennett Maxwell, who are partial owners in Dirty Dozen, stole proprietary information from their previous affiliations with Crumbl. Bradley was a process engineer for Crumbl, and Bennett a potential Crumbl franchisee that was denied. Bradley was subject to two non-disclosure agreements and when his employment was termi ..read more

Last year the California Legislature enacted Assembly Bill 257, with a declared purpose of improving the terms and conditions of employment of fast food workers who, according to the bill, “are the largest and fastest growing group of low-wage workers in the state.” Entitled the Fast Food Accountability and Standards Recovery Act, the FAST Act sought to establish a new “Fast Food Council” authorized to establish a new industry minimum wage (up to $22 per hour) and new standards concerning “working hours, and other working conditions related to the health, safety, and welfare of … fast foo ..read more