Menu and chef
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The Trump administration is moving forward with an Obama-era initiative requiring certain food establishments to list calorie information on menus and menu boards, including food on display and self-service food. The FDA recently released new draft recommendations to help affected businesses comply with the menu labeling rule.

The rule implements the nutrition labeling provisions of the Patient Protection and Affordable Care Act of 2010, which are intended to give consumers direct, point-of-purchase access to nutritional information, including the calorie content of foods. When the rule was originally published, we blogged about its impact on restaurants and followed up with a report on the Small Entity Compliance Guide, which explains the rule’s requirements in a question/answer format.

The rule has met stiff opposition and enforcement has been delayed multiple times. Most recently, just four days shy of implementation, the deadline for compliance was extended to May 7, 2018. The extension was intended to give the FDA time to consider how to reduce the rule’s regulatory burden and increase flexibility, while providing consumers with nutritional information.

The FDA’s recent guidance is non-binding and addresses stakeholder concerns regarding implementation of the rule, including:

  • Clarifying calorie disclosure requirements for self-service food, including buffets and grab-and-go food;
  • Addressing the need for flexible methods to provide calorie disclosure information;
  • Explaining the criteria for distinguishing between menus and marketing materials;
  • Addressing how the FDA will assist covered establishments to comply with the rule, and how it will enforce compliance;
  • Expanding upon the “reasonable basis” standard that covered establishments must meet when disclosing nutritional information; and
  • Explaining the criteria for determining whether establishments (including franchises) and menu items are subject to the rule.

The FDA invites public comment on the draft guidelines through January 8, 2018.  We will continue to monitor developments and the rule’s effect on franchise systems.

Janitorial services franchisor Jan-Pro Franchising International, Inc. (“Jan-Pro”) is not the employer of its unit franchisees, according to a recent California federal court decision. Roman v. Jan-Pro Franchising Int’l, Inc., No. C 16-05961 WHA (N.D. Cal. May 24, 2017). The plaintiff franchisees failed to show that Jan-Pro exercised sufficient control over their day-to-day employment activities.

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What makes this case unique is that Jan-Pro operates a three-tiered franchising structure, often called a subfranchise arrangement. Under this arrangement, Jan-Pro grants subfranchise rights to a regional master franchisee (“Master Franchisee”), who is responsible for selling Jan-Pro unit franchises to individual franchisees (“Unit Franchisees”) in a particular geographic territory. The Unit Franchisees operate the franchised cleaning service business. Importantly, as is common in a subfranchise arrangement, Jan-Pro never directly contracts with its Unit Franchisees. Instead, Jan-Pro directly contracts with its Master Franchisees. Then, the Master Franchisees directly contract with the Unit Franchisees.

 

The plaintiff Unit Franchisees claimed that they were misclassified as independent contractors when they were really Jan-Pro’s employees. They sought minimum wages and overtime premiums from Jan-Pro. The plaintiffs argued that they were Jan-Pro’s employees under California law because the contracts between Jan-Pro and its Master Franchisees permitted Jan-Pro to control the business of the Master Franchisees and Unit Franchisees through its policies and procedures.

Under California law, “to employ” means

  1. To exercise control over the wages, hours or working conditions, or
  2. To suffer or permit to work, or
  3. To engage, thereby creating a common law employment relationship.

Martinez v. Combs, 49 Cal. 4th 35, 64 (2010). However, in the franchise context, controlling the “means and manner” of a franchisee’s operations is not sufficient to make a franchisor an employer. A franchisor is only an employer if it retains or assumes general control over employment matters such as hiring, direction, supervision, discipline and discharge. Patterson v. Domino’s Pizza, LLC, 60 Cal. 4th 474, 498 (2014).

The court concluded that Jan-Pro did not employ the Unit Franchisee’s employees. It reached this result despite the fact that the Master Franchisees exerted control over the Unit Franchisees under the contracts between them. Critical to the court’s analysis was the fact that these contracts did not confer any rights on Jan-Pro to control or terminate the Unit Franchisees. Nor was Jan-Pro a third party beneficiary of these agreements, which could give Jan-Pro the right to directly enforce them. Moreover, Jan-Pro never directly contracted with the Unit Franchisees.

The court’s analysis focused on features that are specific to subfranchise arrangements, especially the lack of a direct contractual relationship between Jan-Pro and its Unit Franchisees. A subfranchise arrangement is only one form of multi-unit arrangement, and is not appropriate for all franchise systems. Franchisors engaged in or considering this system should perhaps not put too much emphasis on the court’s analysis. For one thing, a franchisor may want to have some contractual rights it can enforce directly against Unit Franchisees. Additionally, even if Jan-Pro had directly contracted with Unit Franchisees, there appeared to be scant evidence that Jan-Pro controlled employment conditions in a manner that would make it a joint employer. However, if a franchisor were to indirectly control employment conditions through a subfranchise arrangement, a court might come to a different conclusion. In any event, the court’s decision was well reasoned and grounded in a firm understanding of franchising. It was certainly a win for the franchise model, made especially important by the fact that it took place in California, which is typically considered an employee and franchise friendly jurisdiction.

Copyright: bbbar / 123RF Stock Photo
Copyright: bbbar / 123RF Stock Photo

The attorneys of Fox Rothschild’s Franchising, Licensing & Distribution practice are excited to welcome associate Megan Center as she joins Fox’s franchise practice group.  Prior to joining Fox Rothschild, Megan spent four years at a well-recognized franchise boutique law firm in Philadelphia where she focused her practice on business transactions in the franchise context with an emphasis on state franchise registration and regulatory compliance.  Megan will work with the attorneys in the franchise practice group to provide general corporate and franchising counseling to start-up, emerging and established national and international franchise systems.   Moreover, as eagle-eyed readers may have already noticed, Megan will also be a frequent contributor to the Franchise Law Update.

Megan has experience drafting franchise disclosure documents, franchise agreements, consents to transfer, non-disclosure agreements and mutual release and termination agreements.   Megan’s skill and expertise are well recognized within the franchise community and she was named a 2016 Franchise Legal Eagle by Franchise Times Magazine, a prestigious list that highlights attorneys who have made significant strides in franchise law.

 

Massages. Waxes. Manicures. Some of the most popular franchises this year are concepts offering quick, convenient and affordable luxury services.   Massage Envy and Hand & Stone are just two of the many systems making health and beauty service more easily accessible to consumers. Even this month’s issue of the Entrepreneur devotes a large article about the trend in “democratizing luxury” for patrons who want a “better, cheaper experience in just 15 minutes.”

Copyright: andreypopov / 123RF Stock Photo
Copyright: andreypopov / 123RF Stock Photo

But don’t think this movement is dominated by only female-centric franchise models. Savvy businesses are now expanding the reach of these services to men and having a lot of success in doing so.   Grooming Lounge is a franchise system based in Washington D.C. where male customers can get a shave, haircut as well as nail services. Grooming Lounge describes itself as combining “the comfort and atmosphere of a classic barbershop with the advances of a modern men’s spa.” The Franchise Times also recently featured a story on the launch of Michael Eliot’s Hammer & Nails franchise concept – a nail salon catering to men where each customer has his own television and headset to block out the sound of grooming. While the article reports that only 4% of men in the United States are nail salon customers, Eliot hopes to change that statistic by using athletes as role models. Many NBA players are reported to get pedicures for basic hygiene reasons and MLB pitchers get manicures in order to avoid hangnails and related finger issues.    While it is too early to predict whether these franchise systems will attract a large enough male customer base to achieve the growth necessary for success, it will certainly be interesting to follow their efforts to see if this luxury services trend will spread to both men and women equally.  There is, however, one thing emerging franchises should keep in mind. Marketing to women has advantages. Grooming Lounge founder, Michael Gilman, is quoted in the Franchise Times as saying “I have so many guys who come in with a gift certificate from their wife and tell us, ‘This is not really my thing and then the same guys walk out and say they love it.’”