Potentially more significant than the proposed changes to the definition of “place of business” is the additional language that the Bill would tack on to the “general purpose” section of the Franchise Practices Act. The proposed Bill would add the following language:

“…and to protect franchisees from unreasonable termination by franchisors that may result from a disparity of bargaining power between national and regional franchisors and small franchisees. The legislature finds that these protections are necessary to protect not only retail businesses, but also wholesale distribution franchisees that “through their efforts” enhance the reputation and goodwill of franchisors in this State. Further, the legislature declares that the courts have in some cases more narrowly construed the Franchise Practices Act then was intended by the legislature”.

This additional language should concern franchisors doing business in New Jersey, since it is unnecessary to achieve the expansion to the “place of business” definition that is the focus of the Bill. This tougher language may indicate that there are further changes to the statute being considered. Certainly, the inclusion of the proposed language would be used as a justification by judges to give much broader application to the Act than has been the case in years past.

The two Bills are currently in the initial stage of the legislative process, and will probably not be acted upon until May or June of this year. The current sponsors of the two Bills are Assemblyman Joseph Cryan – District 20 (Union County) and Senator Bob Smith – District 17 (Middlesex and Somerset Counties). The legislation was introduced in the House on March 10, 2008, and in the Senate of March 17, 2008.

A “contract of adhesion” is legal-speak for “non-negotiable” and is “take-it-or-leave-it” in nature.  Most franchise agreements are non-negotiable because it is important for the system to maintain uniform and consistent standards.  However, various courts have deemed franchise agreements to be contracts of adhesion because of the superior bargaining power of the franchisor.  Since most franchise agreements are contracts of adhesion, and if this Bill passes, it will be extraordinarily difficult for franchisors to enforce non-competition agreements among franchisees in Vermont. 

One can only hope that this idea does not spread beyond the borders of the Green Mountain State.    Vermont’s legislature appears intent of following this strange course of action, which is out of step with the other states.  Watch this log for more updates.

The importance of this bill is that it goes beyond protecting an employee from being discriminated against because of their religion, and specifically protects them from discrimination based on “religious practice.”  Given the lack of opposition to this Bill, it is likely that the Governor will sign it into law shortly. 

Additionally, time off can be taken under the FMLA to care for a wounded service member for up to 26 weeks paid leave (which must be taken within a single 12-month period).  It is anticipated that President Bush will sign the Bill into law within the next few weeks.  Once the Bill is signed, employers will need to notify their employees of this change in their FMLA rights.

For example, if an employee leaves a voice mail message on the Human Resource's voice mail requesting FMLA leave, is that sufficient to put the company on notice?  This question will need to be answered in subsequent cases.

His argument was that he had been a very successful manager of another dealership, and by asking him to take on the management of a non-profitable dealership, the franchisee in effect “owed” him employment for a certain period of time.  This claim had been dismissed by the trial judge prior to the trial of the case, and was never heard by a jury.  While there appears to have been some factual merit to the Plaintiffs’ argument, the Appellate Division relied on traditional notions of “at-will” employment and determined that the Court had been correct in dismissing the claim for Promissory Estoppel as they did not find that there was enough evidence that the parties had intended to enter a long-term commitment.  Specifically, the Court was looking for “assurances of employment” that were “clear, specific and definite.”  The franchisee in this case avoided any liability on the “promissory estoppel” claim (though there was a jury verdict against it for discrimination). 

This case highlights the potential for confusion between the franchisee who owns several locations and employees who are “specially assigned” to trouble-shoot certain kinds of jobs.  To avoid this confusion, a franchisee should notify an employee clearly and in writing that their “at-will” employment relationship continues despite the new assignment and that there is no guarantee of continued employment.  Such a written assurance would have most likely avoided litigation in this case and would have saved the franchisee from having to defend such a claim.

A discussion with a potential candidate regarding employment contracts, including restrictive covenants, that they may have previously entered into with their employer is an essential first step to protecting the interests of the client and in defending against claims that a client has intentionally interfered with an existing restrictive covenant between an employee and his/her former employer. Other practical steps can be taken to help protect the recruiter and the candidate from being entangled in unnecessary litigation with former employers over restrictive covenants.

The impact of this legislation is considerable.   New Jersey courts, like several other states, have held that franchise agreement provisions providing for out-of-state arbitrations are enforceable.  See Allen v. World Inspection Network, Int’l, Inc., 389 N.J.Super.115, 911 A.2d 484 (App. Div. 2006).  Previously, the New Jersey Supreme Court held that forum-selection clauses in franchise agreements are presumptively invalid, and should not be enforced. Kubis & Perszyk Assocs. v. Sun Microsystems, 146 N.J. 176 (1996).  However, New Jersey courts (as in other states) have distinguished arbitration provisions from other forum selection clauses under the rational that the Federal Arbitration Act preempts state franchise laws.   This legislation would effectively negate the rational applied by the Allen court, as well as other courts throughout the country. 
 
While not much will occur during the remainder of August due to Congress’ summer break, these bills will be moving through the respective Committees at the beginning of September.

The deceptively titled “Employee Free Choice Act of 2007” has been defeated in Congress.  The Act, which would have allowed for, among other things, “card voting” by employees to establish a union (in lieu of an actual, verifiable vote) posed a significant risk to the franchisor community. 

Although strong union interests quickly moved the bill through the House in the Spring, bi-partisan action has effectively defeated the Bill.  Although this is good news for franchisors, the franchisor community needs to watch for any attempts to revive this defeated legislation over the next year leading up to the presidential election campaign.

Further, most employers these days are familiar with getting nothing more than “name, rank, and serial number,” so you will not be discrediting former employees by severely limiting information. Carefully limit what you say, and you won’t live to regret it. 

This week's New Jersey Legal Update podcast is presented by John MacDonald, Shareholder of Stark & Stark's Employment Litigation Group.

You can download the New Jersey Legal Update Podcast # 69 here. (2.95 MB)

The danger, however, is real. A case in point was the recent punitive damages award in Tarr v. Bob Ciasulli's Mack Auto Mall, Inc., 390 N.J.Super. 557, 916 A.2d 484 (A.D. February 2007). According to the published court opinion, this was a sexual harassment case where a relatively manageable award of $25,000.00 against an automobile sales franchisee ballooned into an additional $85,000.00 in punitive damages (and attorneys fees) resulting in a very expensive day for the Franchisee. 

Other recent cases have awarded significantly higher punitive damage awards (though they are often reduced later through the appeal process). The bottom line is that the franchise community, like any other employer, needs to be vigilant in preventing “bad” conduct from becoming “egregious/outrageous” conduct.

Address employee problems quickly and be proactive when an employee complains of discrimination and/or harassment. Taking these steps may very well convince a judge that, while the conduct may merit an award of compensatory damages, punitive damages are not appropriate.  In this way you can help manage risks and keep troublesome litigation from becoming business-killing litigation.

This week's New Jersey Legal Update is presented by John MacDonald, member of Stark & Stark’s Franchise Group.

You can download the New Jersey Legal Update here. (5.92 MB)

Consider this scenario: the franchisor receives legal papers in the mail.  He or she looks quizzically at the name of the Plaintiff and pulls the franchise agreement out of the file cabinet, flipping to the signature page.  The “franchisee” who signed the franchise agreement is not the same person who filed the claim.
How can this be?  Strangely enough, friends and relatives who claim “sweat equity” in the franchise, or who loaned money to the franchisee to purchase the franchise have decided they are entitled to damages for (fill in one of numerous claims here). Luckily for the franchisor, fundamentals of corporate law enter the picture at this point and, with a few exceptions, result in dismissal of the case.  This is due to the general rule that litigation is limited to the parties who actually signed the franchise agreement. 

This U.S. Supreme Court breathes new life into a 1967 decision known as Prima Paint Corp. v. Flood & Conklin, 388 U.S. 395 (1967) which held that arbitration clauses in franchise agreements are enforceable even where other provisions of the contract are unenforceable. For example, even in situations where the Franchisee claimed that he had been fraudulently induced into signing a Franchise Agreement, the fraud claim would be determined by the arbitrator, and the matter would not be decided by a Court. Various cases subsequent to the Prima Paint decision, notably cases from the 9th Circuit (California), along with numerous state court decisions have “muddied the waters” on this issue. The recent Buckeye decision, however, clearly reaffirms the U.S. Supreme Court’s holding that claims such as unconscionability and fraudulent inducement would have to be resolved by an arbitrator, and that those claims would not provide a mechanism for avoiding arbitration.

This week's New Jersey Legal Update is presented by Adam Siegelheim, a member of the firm's Franchise Group, and John MacDonald, a member of the firm's Litigation Group.

You can download the New Jersey Legal Update Podcast # 45 here. (11 MB)

Technorati Tags: New Jersey : Podcast :  Franchise

In the franchise world, non-competition agreements typically enjoy more protection from the Courts because of the specific nature of the business transactions between franchisor and franchisee. It is doubtful, however, that Courts will extend similar legal “extra credit” to franchisors attempting to enforce non-competition agreements against franchisee relatives because they are too legally “distant” from the initial transaction. Therefore, franchisors should have reasonably limited expectations when they attempt to enforce such agreements with franchisee spouses and relatives. On the other hand, it is fair to assume that requiring franchisee relatives to execute such agreements may act as a significant deterrent to “end runs” around franchisee non-competition agreements.

You can download the New Jersey Legal Update Podcast # 30 here.(7.5MB)

Technorati Tags: New Jersey : Podcast : Employment : Restrictive Covenant

Technorati Tags: New Jersey : Franchise