Business Tools for Franchise Success · Business Tools for Franchise Success Kansas City, Missouri September 20, 2016

Business Tools for Franchise Success Kansas City, Missouri September 20, 2016

© 2016 Husch Blackwell LLP. All Rights Reserved.

Employment Issues to Watch

Franchise Joint Employer and Vicarious Liability Threats:

Practical Steps to Minimize Risk By: Terry Potter and Willie Ramirez

© 2016 H usch B l ack we l l LLP

Overview Joint Employer Developments Items to Review

– Documents– Practices– Franchisor Staff Training



Joint Employer Developments New Day

– Agency focus – NLRB, DOL, State Attorney General– Plaintiff awareness – Class Action– State legislation – Pre-emption


Joint Employer Developments Joint Employer Factors (vary by context):

– Power to hire, fire, and discipline employees– Authority to supervise and control employee work

schedules and employment conditions– Maintenance of employment records– Ability to determine the rate and method of pay– Ownership of equipment and facilities– Assignment of tasks and direction of employees– Authority to promulgate work rules



Joint Employer Developments NLRB General Counsel

– Browning Ferris NLRB GC advocating a broader standard An entity could be a joint employer if it –

– Exercised direct or indirect control over working conditions;

– Had the unexercised potential to control working conditions; or

– Where “industrial realities” otherwise made the entity essential to meaningful collective bargaining

– McDonald’s complaints


Joint Employer Developments NLRB – McDonald’s Complaints

– Charged franchisor with liability for unfair labor practices committed by franchisees under a joint employer theory

– Alleged McDonald’s “possessed and/or exercised control over the labor relations policies” of the franchisees

– “McDonald’s, USA, LLC, through its franchise relationship and its use of tools, resources and technology, engages in sufficient control over its franchisees’ operations, beyond protection of the brand, to make it a putative joint employer with its franchisees . . .”



Items to Review – Documents Franchise Agreement

– Relationship/independent contractor Explicit regarding employment decisions and

controls Franchisee responsible for all employment

decisions Franchisor not responsible for franchisee’s

employment decisions


Items to Review - Documents Franchise Agreement (cont.)

– Duties of franchisor/what we provide Eliminate training of franchisee’s non-Manager

employees Eliminate unnecessary controls Eliminate employment forms or handbooks

– Duties of franchisee Exclusive control of all employment decisions Comply with all manuals – careful what they say



Items to Review - Documents Franchise Agreement (cont.)

– Indemnification Clause – claims relating to: All state and federal employment and labor laws Data Privacy laws Acts of franchisee’s employees

– Insurance Clause Mandate EPLI coverage?


Items to Review - Documents Operations Manuals

– Biggest source of major risks– Determine scope Paper manuals On-line – often a graveyard of outdated material Flyers, updates, programs, policies,

announcements – What is mandatory vs. suggested guideline?



Items to Review - Documents Operations Manuals (cont.)

– Courts say control over trademark, product and brand should not result in vicarious liability – employment or otherwise Trademark is relatively easy to identify How do you decide what is control over “The

Brand”?– Answer: The concept of the “Deliverable” Conceptual filter for reviewing franchisor content Flexible approach for any system Use when reviewing franchisee controls in any

form


Items to Review – Documents Deliverable – What is it?

– Put yourself in the place of the customer– What comprises their experience and perception

when interacting wit the franchisee’s product or service offering? Holistic viewpoint

– Anything directly impacting the “Deliverable,” you can control via mandatory operational standards

– Anything not directly impacting the “Deliverable,” should be deleted or “suggested” only



Items to Review - Documents Deliverables

– Examples Easy: food safety, service standards, store layout,

menu, uniforms, signage, trademark use and display, approved products, vehicle signage Harder: cash controls, drug testing, grooming

standards, background checks, mobile devise use, drug and alochol policies, bookkeeping systems, closing procedures If you can tie it directly to the customer experience

(Deliverable), then you can control it


Items to Review - Documents Why is the Deliverable concept important?

– When sued as a joint employer or claimed to be vicariously liable, you can articulate how your mandatory franchisee controls directly relate to your efforts to protect the “Brand,” which established case law says should not subject you to vicarious liability Patterson v. Domino’s Kerl v. Rasmussen



Items to Review - Practices Review/Minimize Franchisor Interaction with

Franchisee’s Non-Management Employees– Training/coaching– Auditing/inspections– Recruiting, interviewing, hiring, certifying– Setting compensation– Discipline– Handling complaints


Items to Review –Franchisor Staff Training Training Franchisor Field Support Staff

– Educate on joint employer and vicarious liability law –Deliverable concept

– Treat franchisee employee complaints as potential breach of Franchise Agreement

– Provide staff with checklists for inspections and QC purposes Checklist should primarily cover Deliverables Verify compliance with contractual independence

obligations/insurance coverage– Caveat: area representative/master franchisee


Advertising Programs:Options and Legalities

By: John Moore and Arkadia Olson


Common Components of Advertising Programs in a Franchise System

Advertising/Marketing/Branding Fund Advertising Cooperatives Minimum Advertising Spend



Advertising Fund Characteristics Promote brand Pool resources Require franchisee contributions on periodic basis

(weekly or monthly) based on percentage of revenue Franchisor administers fund and determines

expenditures – sometimes after consulting with Franchisee Advertising Council


Advertising Cooperatives Subset of franchise outlets in specific geographic area

with common interests Pool advertising for mutual benefit of members Members often benefit more directly from coop ads than

from ads by fund Ability to tailor content to local markets Member participation and governance can be problem

areas for coops



Minimum Advertising Spend Most franchise systems require franchisee to spend

certain minimum amounts above contributions to fund and/or coop

Contributions to fund and/or coop are often credited against minimum requirement

Franchisor regulates manner of advertising conducted by franchisee and is often source of content

On-line advertising has taken larger share of advertising spend in most franchise systems


Basic Franchise Disclosure Requirements for Funds / Coops

Which outlets must contribute Amount contributed and whether all outlets contribute

same amount Administration/governance Financial statements/audits Expenditures in past year Ability of franchisor to form, change, dissolve coop


Advertising and Social Media


Overview

General Advertising Principals

Conducting Promotions and Contests

Other ways to engage: “Cause Marketing” and direct customer communications

Substance of Ads: Right of Publicity and IP



Advertising

To avoid claims from consumers, the government, or competitors…

Tell the truth in advertisements

Clear and conspicuous disclosures

Have evidence to back up claims


Promotions

Contests (legal)

Sweepstakes /Giveaways (legal)

Lotteries (NOT LEGAL)



What Is An Illegal Lottery?

Prize

Chance

Consideration – In some states, not clearly defined

Gray Areas: if in doubt, add a “Free Alternative Method of Entry”


Also Beware Of…

Sweepstakes/contest laws– Disclosure requirements

User generated content – IP Issues: Asking for tweets, photos, etc.– Photos of your product/Consideration?

Social media platform rules and TOS



Social Media Promotions

– FB Rules: Have an Official Rules document that

provides complete release of FBEffective 11/5/2014, no more like-gating

– Twitter Rules: Do not encourage multiple tweets to enter

– Pinterest: Don’t call it “Pin it to Win it”Don’t only give pre-selected choice of pins


Endorsements



Endorsements

March 20, 2014 - FTC Letter on Wandering Sole:

“We believe that participants featuring Cole Haan products were endorsements of the Cole Haan products, and the fact that the pins were incentivized by the opportunity to win a $1000 shopping spree would not reasonably be expected by consumers who saw the pins.”


Endorsements



Bottom Line:

Tailor Official Rules for each promotion and platform

Be mindful of “consideration” and third party IP issues

Register in certain states if needed


Text Messaging

92% of Americans own some kind of mobile phone.

Be wary of TCPA rules– Commercial text messages need “prior

express written consent”– Required disclosures– Stiff Penalties ($500/incident or actual

damages)



E-mails and Privacy

Email marketing laws– CAN-SPAM– International Issues

Privacy issues – Policies should be up to date, accurate

regarding how you will collect and use information

– COPPA


Cause Related Marketing

Marketing + Social Cause– State Commercial Co-venturer (CCV) lawsWritten contract with the charityDisclosure of the donation amount Id the beneficiaryRegistration and bonding in some states

– General Advertising ConcernsBe truthful about donations



IP Issues in Advertising

Don’t use creative works without permission

Don’t use others’ brands without permission

Monitor your own brands


Permission via TOS?

Agence France Presse v. Morel, 106 USPQ2d 1192 (S.D.N.Y. 2013)– Court: Photos subject to Twitter TOS,

but no further license to others to take photos from Twitter and license to third parties

– $1.2 M infringement judgment



Right of Publicity issues in Advertising

The Basics:

State laws protect a person’s ability to control use of his/her own image in a commercial manner




Right of Publicity

Right of publicity is separate and distinct from copyright

Be wary of references to celebrities

Non-celebrities may also have a claim – signed release for all persons that will be featured is best practice


Tools and Processes to Drive Franchisee Profitability

By: Dave Banark and Travis Sill


Why Does Franchisee Profitability Matter?

Failing Franchisees cost more to support

Successful Franchisees help validate the concept

Failing Franchisees often stray from brand standards

Successful Franchisees pay more royalties and contribute more ideas



4 Key Areas of Focus

Increase Franchise Revenue

Improve Gross

Margins

Reduce Expenditures on Products and Services

Improve Efficiency –Revenue per Dollar of Payroll


How to Measure Franchisee Success?

Identify Key Performance Indicators (KPIs)

Understand and communicate how KPIs drive profitability

Develop measurement tools for KPIs

Help Franchisees implement changes to improve KPIs



Case Study

Focus on profitability and success of Franchise Owners

Process for identifying KPIs

Test markets for new client strategy

Communicate and roll-out strategy to franchise system

Dave Banark, Chief Operating Officer

Profitability Case Study

September 20, 2016


It’s all about the data, ‘bout the data…

Start with the Hedgehog


Busting myths all over the place

We can be everything to everyone

We can't say no to business

What we saw

P R O D U C T L O S T

5 HOURSA S S I G N E D

3 HOURSAVA I L A B I L I T Y

8 HOURS


Profitability recommendations

EXECUTE

MEASURE

rinse and

REPEAT

Getting the word out


Profitability Case StudyQuestions

?


Identify KPIs

Develop measurement tools to validate KPIs

Communicate KPIs to franchisees

Implement changes and measure performance

Case Study