the seven deadly sins of labor and employment …...the seven deadly sins of labor and employment...
TRANSCRIPT
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