The Seven Deadly Sins of Labor and Employment …...The Seven Deadly Sins of Labor and Employment...

The Seven Deadly Sins of Labor and Employment Law for

Franchisors

By: Michaelle Baumert

Mistake #1

• Failing to recognize requests for “accomodation” covered by the ADA

Mistake #2

• Failing to recognize and properly administer requests for leave covered by FMLA or required by other laws

Mistake #3

• Asking questions that elicit genetic information

Mistake #4

• Interference with employees engaging in “protected activity”

Mistake #5

• Wage and hour errors

Mistake #6

• Failing to accurately document employee performance

Mistake #7

• Workplace harassment

Key Considerations in Using Third Parties to Sell Franchises

By: John Moore and Don Culp

Why Use Third Parties?

• Special Aptitude, Education, Experience and Techniques

• Understand Franchise Sales Process

• Identify Leads Based on Criteria and Targets

• Balance Expansion Plan Against Resources For Selling

• Commission-Based Compensation vs. Salaried Employee

Types of Arrangements/Relationships

• Traditional Brokers/Broker Networks

• Lead Generators

• Area Representative

• Master Franchise/Subfranchise

Business Risks Inherent in These Arrangements and Relationships

• Loss of Control to 3rd Party / Monitoring and Management of Relationship

• 3rd Party Less Knowledgeable About Business / Training

• Potential for Loss of Value in Brand or Goodwill

Business Risks Inherent in These Arrangements and Relationships

• Franchisee Criteria and Qualification Process Must Be Defined

• Conflicts of Interest─ Interests of 3rd Party in Other Concepts

─ Amount at Stake in Long-Term Relationship of Franchisor and Franchisee

Advantages/Disadvantages of BrokersAdvantages Disadvantages

Dedicated Sales Approach Time/Money to Negotiate Agmt and Train

Activities with Multiple Franchise Systems May Generate Leads

Unqualified Leads with Exaggerated Financial Condition or Experience

Earn Trust from Prospects by Evaluating /Comparing Concepts

Concepts With Higher Commission Structures May Be Favored

Knowledge of Market Conditions and Selling Practices / Feedback

Provide Less Information to Franchisee Than Franchisor’s Internal Team

Potentially Better Incentives / Less Costs Than In-House Sales Force

Link Compensation to Sales – No Stake in Post-Sale Success of Franchisee (Exception If Tie Compensation to Royalty Stream)

Advantages/Disadvantages of Lead Generators

Advantages Disadvantages

Internet Websites Allow Increased Exposure

Services Provided and Compensation Structure Vary

Referral Sources May Provide Some of Services Provided by Traditional Brokers

Poor Quality of Leads

Time Intensive Sorting / Qualification Process

Advantages/Disadvantages of Area Representation

Advantages Disadvantages

Area Rep Bears Costs of Sales and Support

Success Dependent on Skills of Area Rep

Area Rep Typically Operates One or More Locations Within Its Territory

Management of Post-Sale Issues and Relationships Can Be Costly and Time Consuming

Local Knowledge and Presence Post-Sale Revenue Sharing

Franchisor Retains Control Over Franchisee Selection and Enforcement of Standards

May Create Additional State Regulation

Advantages/Disadvantages of Master Franchise/Subfranchisor

Advantages Disadvantages

Allocation of Risk to Subfranchisorand Use of Subfranchisor’sResources

No Direct Interaction Between Franchisor and Franchisee

Allows Franchisor to Focus in Other Territories

Dependent on Subfranchisor to Enforce System Standards

Local Knowledge and Presence Revenue Sharing

Terms of Written Contract Are Critical

• Define Services Provided and Process

• Be Specific About Compensation Structure

• Establish Minimum Performance Criteria

• Exclusivity and Territory

• Disclosure of Competing Concepts and Conflicts of Interest

• Termination Rights

Legal Risks and Regulatory Issues for Franchisor and Third Party

• Franchisor Liability for Statements and Actions of Third Party

• Definition of “Franchise Seller” and Franchisor’s Disclosure About Franchise Sellers

• State Registration for Franchise Sellers

• FDD Delivery, Receipt and Sales Process

By: Rick Washburn ‐ Title Boxing Club, International

Our “Knock Out” Experience: Practical Aspects of Working with a 

Franchise Broker

TBC International, LLC

• Established in 2007• First Club January 2008• First Franchise sold March 2010

TBC International, LLC

• Build Sales Team• Internal Sales• First Year Sold  Seven Franchises

TBC International, LLC

• Outsource Sales• International Franchise Association

• Rhino 7• Franchise Dynamics• St. Gregory Development

TBC International, LLC

TBC International, LLC

• Contract Negotiations• Performance Clauses• Shared Costs• Investment by Development Company

• Geographic Territory• Legal Issues• Wind Down Operations

• Franchises sold as of today?– 195

• How do we manage the sales process?

• Questions?

TBC International, LLC

Protecting the Perfect Location: Franchise Considerations in

Leases and Other Real Estate Documents

By: Stacy Wipfler

• Location

• Location

• Location

© Husch Blackwell LLP

Landlord

Tenant/Franchisee

Franchisor

Lease

Franchise Agreement

Lease Rider/Assumption Agreement

Alignment of (Some) Interests

• Landlord/Franchisor both want:– Payment from Tenant

– Control of the location

– Continued operations

– Maintenance of standards

Lease Assumption: OptionsProtection in Event of a Tenant Lease Default

• Option 1 – Abandon the location

• Option 2 – Direct operation by Franchisor

• Option 3 – Franchisor assignment to new franchisee

Lease Assumption Agreement

• Option 1: Right of entry– Removal of improvements and de-identification of

premises

• Options 2 and 3 - Right to take over the lease– Direct assumption of lease by Franchisor

– Assignment to a third party

Lease Assumption Agreement

• Pre-approval of assignees

• Notice of Tenant default

• Right (but not obligation) to cure Tenant default

• Notice of any lease amendments

• Release of prior parties

• Use restrictions– Limitation of use to just one concept

– Interplay with other use restrictions in the Center

• SNDA from Landlord’s lender

• Landlord lien waiver from Landlord and approval of franchisee lender

Other Lease Assumption Considerations

Lease Assumption AgreementInterplay with Franchise Agreement

• Right of Franchisor to assume/assign lease even if there isn’t a Tenant default

• Release of old franchisee and guarantors

• Expiration of lease and franchisee agreement

• Consider narrow use restrictions

© Husch Blackwell LLP

Landlord

Tenant/Franchisee

Franchisor

Lease

Franchise Agreement

Lease Rider/Assumption Agreement

Franchise AgreementReal Estate Requirements

• Ability for the Franchisor to assume or assign the lease– Form: Lease Rider or terms included in lease

• Site Plan/Lease Approval - Mission Critical Requirements– Parking, Signage, Exclusive Use, Access

– Others

How to Protect Mission Critical ConceptsLease Provisions

• Exclusive use

• Restrictions against other uses

• Signage

• Visibility

• Parking – restrictions of neighboring uses

– permissible building areas

More Lease Provisions

• Access

• Co-Tenancy

• Radius Restrictions

• Going Dark Restrictions/Continued Operations

• Drive-Thru Facilities

Regulations Can Be More Dangerous than Laws:

Protecting Your Interests in Washington D.C.

and Your State CapitalBy: Hal Daub

The Uncertainty of Healthcare Reform

Best Assessment of its Business Impactas of March 1, 2011