Recent Cases
Court Strikes Down NLRB Rule Mandating Union Posters
In early May, a federal court of appeals struck down a controversial National Labor Relations Board (NLRB) rule that would have required employers to post information informing their employees of their rights to unionize. The court noted that the National Labor Relations Act ensures an employer’s right to free speech as long as the employer does not use threats. The court reasoned that this gave employers the right to remain silent. Therefore, the court ruled that mandating the posters would be the equivalent of mandating speech and violated the employer’s right to remain silent. At this point, the NLRB’s only chance to save the rule is an appeal to the Supreme Court.
National Association of Manufacturers v. NLRB, No. 12-5068 (D.C. Cir., May 7, 2013).
Automobile Manufacturer Not Held Liable for Dealer’s Actions
The Oklahoma Court of Appeals recently ruled that Ford Motor Company was not liable to customers for the fraudulent actions of one of its dealerships. The dealership in question had forged checks and failed to deliver vehicles, leading to lawsuits by several customers. At trial, the customers won on a theory of apparent agency, arguing that Ford’s actions led them to believe that the dealership was acting as an agent of Ford rather than as an independent dealer. The appellate court overturned this ruling, however, finding instead that customers could not reasonably have believed that the dealership was acting under Ford’s authority. Although Ford’s internal documents showed a more substantial connection to the dealership, the court said that the documents could not have induced reliance on the part of customers because it was not observable by customers at the time of sale.
Thornton v. Ford Motor Co., 297 P.3d 413 (Okl. Ct. App. 2012).
Class Action Waiver in Arbitration Clause Upheld
In a recent case involving a challenge to an arbitration clause in a Shuttle Express franchise agreement, the Fourth Circuit held that the arbitration clause was enforceable even though it included (1) a class action waiver, (2) a fee-splitting clause, and (3) a one-year limitation on any suit, arbitration, or action relating to the agreement.
The validity of the class action waiver may be of special interest to franchisors. Disagreeing with the district court, the Fourth Circuit ruled that the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion prohibited finding an arbitration agreement unconscionable simply because it included a class action waiver. The fee-splitting clause was upheld because there was not enough evidence that the cost was prohibitive, and the court declined to rule on the merits of the one-year limitation because it was not part of the arbitration agreement itself.
Muriithi v. Shuttle Express, Inc., 712 F.3d 173 (4th Cir. 2013).
Court Dismisses Class Action Against 7-Eleven
A federal district court in California ruled that a class action brought against 7-Eleven by former franchisees was barred by the release of claims the franchisees signed when terminating their franchise agreements. The lawsuit, which sought to recover excise tax refunds from the franchisor, was dismissed when the court held that a California statute invalidating releases of claims did not apply to the franchisees. The statute nullifies contracts that exempt a party from liability for future intentional wrongs or gross misconduct, but the franchisees construed it as including intentional acts of withholding property as well. The court rejected their argument, ending the case.
Grayson, et. al. v. 7-Eleven, Inc., Case No. 09c1353-GPC(WMC) (S.D. California 2013).
Legislative/Policy Updates
Missouri Liquor Franchise Bill Stalls in Senate
Missouri’s alcohol franchise bill, currently stalled in the Missouri Senate, would reinstate protections for local distributors that were placed in serious jeopardy after a 2011 court case redefined the meaning of the term “franchise” in Missouri. The change essentially abolished competition protections that local distributors in Missouri have enjoyed since the 1970s.
The controversial law would require suppliers to have “good cause” to terminate a contract with a distributor. Proponents of the bill say that the legislation is necessary to protect home state interests from out of state competitors and ensure a competitive marketplace for local brands. Opponents maintain that the bill is anti-competitive and gives Missouri distributors monopoly protection.
California Bill to Protect Franchise Buyers Gains Ground
A California bill, recently passed in the state Senate, would enhance protections for franchisees if it becomes law. The law would impose a “good faith” requirement for dealings between franchisors and franchisees and would allow franchisees to sue franchisors who don’t negotiate offers to sell, renew, transfer, or terminate a franchise in good faith. The proposed law would also allow franchisees to band together in associations.
The American Association of Franchisees strongly supports the bill, arguing that it is necessary to level the playing field between franchisors and franchisees. The International Franchise Association opposes the bill.
Having passed in the California Senate, the bill is now on its way to the state Assembly for amendments. You can read the bill at here.
New Laws and Regulations
New Mexico Passes New Regulations on Motor Vehicle Franchises
A recently enacted New Mexico law prohibits automobile manufacturers from requiring a dealer to build a new dealership or relocate an existing dealership unless it is necessary to comply with health and safety laws or the technological requirements of selling certain services. Manufacturers are also prohibited from conditioning their approval of certain purchases on the remodeling or construction of a dealership. The law went into effect on June 14, 2013. The text of the bill can be read here.
Delaware Recognizes Franchisees as Independent Contractors
The State of Delaware has enacted a law clarifying that the franchisee/franchisor relationship is not equivalent to an employee/employer relationship for purposes of interpreting certain Delaware wage and employment laws. Pursuant to HB 55, franchisees are considered independent contractors.
The bill was signed into law by Governor Jack Markell after being passed unanimously by both the Delaware House and Senate. The International Franchise Association applauded the passage of the new bill, saying that it was necessary to allow franchising to remain a growing force in the Delaware economy. The International Franchise Association will likely pursue similar measures in other states in the near future. Read the bill in its entirety here.
Recent Cases — Issue 10
Court Strikes Down NLRB Rule Mandating Union Posters In early May, a federal court of appeals struck down a controversial National Labor Relations Board (NLRB) rule that would have required employers to post information informing their employees of their rights to unionize. The court noted that the National Labor Relations Act ensures an employer’s right to free speech as long as the employer does not use threats. The court reasoned that this gave employers the right to remain silent. Therefore, the court ruled that mandating the posters would be the equivalent of mandating speech and violated the employer’s right to… Read more
Legislative/Policy Updates
Missouri Liquor Franchise Bill Stalls in Senate Missouri’s alcohol franchise bill, currently stalled in the Missouri Senate, would reinstate protections for local distributors that were placed in serious jeopardy after a 2011 court case redefined the meaning of the term “franchise” in Missouri. The change essentially abolished competition protections that local distributors in Missouri have enjoyed since the 1970s. The controversial law would require suppliers to have “good cause” to terminate a contract with a distributor. Proponents of the bill say that the legislation is necessary to protect home state interests from out of state competitors and ensure a competitive… Read more
Issue 10 — New Laws and Regulations
New Mexico Passes New Regulations on Motor Vehicle Franchises A recently enacted New Mexico law prohibits automobile manufacturers from requiring a dealer to build a new dealership or relocate an existing dealership unless it is necessary to comply with health and safety laws or the technological requirements of selling certain services. Manufacturers are also prohibited from conditioning their approval of certain purchases on the remodeling or construction of a dealership. The law went into effect on June 14, 2013. The text of the bill can be read here. Delaware Recognizes Franchisees as Independent Contractors The State of Delaware has enacted… Read more