Law Flashcards
What is franchising?
« Relationship between parties, stated in contract.
« Just 2 counterparties, buyer, and seller.
« Legally independent but economically interdependent.
« Vertical integration – style of management/control without elements of ownership.
« In labor law, comparisons with outsourcing, subcontracting or temporary employment
agencies.
« Examples: KFC, Marriott, McDonalds.
- Franchising- growth industry in Europe
- Lex specialis (more countries have separate franchise laws)
- UNIDROIT (International institute for the unification of private law) model has the objective to
harmonize international private law across countries through uniform rules, international
conventions and the production of model laws
Importance of choice-of-law clause (Franchising)
Contract in which the parties specify that any dispute arising under the contract shall be
determined in accordance with the law of a particular jurisdiction.
Franchise contract
« Traditionally, B2B (business to business), not a consumer or labor contract.
« Not a contract of utmost good faith, with fiduciary duty (so no duty to disclose), as with
mergers & acquisitions. No agency.
Franchisor is never seen as a joint employer if they did not exercise direct and immediate control
over employees’ essential terms and conditions of employment.
Economic realities test
A. Do the 2 companies interchange employees?
B. Is one company acting directly/indirectly in the interest of the other in relation to the
employee?
C. Completely disassociated?
When are 2 entities not completely disassociated?
Are 2 entities not completely disassociated, non-exhaustive factors:
1. Directly or indirectly direct control or supervise workers (policing standards).
2. Jointly ‘determine, share, or allocate’ the power to hire and fire.
3. Duration and permanency of relationship between the 2 parties (multi-year, renewable).
4. Whether 1 party is under the control of the other, through shared management or
direct/indirect ownership interest.
5. If premises is owned or controlled by the other (yes in case of MacDonalds, no in case of
Pearle).
6. If other party provides facilities, equipment, tools, or materials necessary.
Any one of these six could trigger joint employment.
What is joint employment?
Joint employment is when an employee has two or more employers and the employers are legally responsible for the employee. This means that the employers share the
supervision of the employee’s work and activities during a working day. This aspect of control over the employee’s activity is key to joint employment. Even if there’s no formal contract, when two companies supervise and control the work of an employee, that employee is considered jointly employed. The final decision about this rests with the courts, but in general, the greater the control of the employers over the employee, the
more likely the court will decide that there is joint employment.
Situations associated with joint employment:
o When working for a company with multiple locations and you can be assigned at different
locations.
o Joint employment is the sharing of control and supervision of an employee’s activity
among two or more business entities.
Consequences of joint employment:
« Franchisor would have to compensate for workers who were paid unfair wages.
« Or settle discrimination claims for age, gender, race, etc.
Creative ownership clause:
« ‘The franchisee shall promptly disclose to the franchisor all inventions, discoveries, improvements, recipes, creations, etc.’
« ‘Confidential information relating to the store which it or any of its owners, officers or employees has made’
Vicarious liability:
Liability that a supervisory party (such as an employer) bears for the
actionable conduct of a subordinate or associate (such as an employee) based on the
relationship between the two parties
Franchise contract:
- Traditionally, B2B, not a consumer or labor contract with weaker party
- Not a contract of utmost good faith, with fiduciary duty ( so no duty to disclose) as with M&A, no
agency+
Joint employment; because chains:
Track
Track labor costs of franchisees.
Impose
Impose number of required workers (to ensure quality service).
Track
Track performance (speediness).
Accept
Accept job apps, for franchised locations through central system and screen applicants
What to include in an employee handbook?
« Employee behavior. Under this heading, you can discuss the attendance policy, meal
breaks and rest periods, and general expectations of employee conduct. This can
include stating a policy against employee harassment, discrimination, or a smoking
policy.
« Guidelines for employee performance reviews. Such as how and when they are
conducted.
« Policies for promotion or demotion to a certain position.
« Rules concerning use of the phone, company equipment and internet.
Non-compete clauses:
Non-compete clauses
« Restrictive covenant, like employee non-solicits.
« Only to the extent that it is necessary to protect the employer’s legitimate interests, does not impose an undue hardship on the employee, does not harm the public, and is reasonable in time and geographic scope.
