A potpourri of recent developments affecting franchising

Not so FAST… Petition probably puts FAST Act on hold

More than 1 million signatures were submitted to the California Secretary of State’s office — probably enough to put a yardstick on the ballot as to the fate of AB 257. AB 257 was passed to create a union style of Council to establish minimum health, safety and labor standards in the California fast food industry.

The FAST Act would create a 10-member council consisting of employee representatives, employer representatives and government officials. The Council would set minimum wages and working conditions, and hours for fast food workers in the state. The state’s minimum wage for fast food workers could be raised by the Council to as much as $22 an hour by 2023. Restaurant and franchise groups opposed AB 257, noting that the bill would unfairly hit restaurants hard. Many were more likely to close due to the industry recovering from the COVID-19 pandemic and recent economic hardship.

The signatures collected should be more than the number needed to put AB 257 on hold. The “Save Local Restaurants” coalition noted that they are confident that the initiative to repeal AB 257 will be in the November 2024 vote. While the process of verifying submitted signatures is still underway, the California Department of Industrial Relations said the law would go into effect January 1, 2023. According to the coalition, it would be atypical for the law to come into effect while signatures for a compensatory referendum would be atypical. The coalition has filed a lawsuit to prevent AB 257 from taking effect while the referendum is pending. More on this to follow…

NASSA Policy on Questionnaires and Acknowledgments

The North American Securities Administrators Association (NASAA) adopted a policy statement regarding the use of franchise questionnaires and acknowledgments at its fall meeting. The Policy Statement has been prepared to establish standards for the proper use of questionnaires and acknowledgments in franchise offerings. According to NASAA, questionnaires and credits are misused by franchisors to cover fraud and misrepresentation in the franchise sales process. The Policy prohibits a franchisor and its franchisees from requiring prospective franchisees to make statements in questionnaires, acknowledgments or similar documents that are subjective, unreasonable or that:

1. Would cause a reasonable prospective franchisee to waive or believe that it has waived any rights to which it is entitled under federal or state law;

2. would result in the franchisor’s disclosure obligations under federal or state law being shifted to the prospective franchisee; or

3. Are otherwise prohibited statements under this policy statement or are similar to the prohibited statements.

The Policy Statement also classifies eleven types of statements as Prohibited statements in questionnaires, acknowledgments or similar documents. The Policy Statement also requires the inclusion of an anti-waiver statement.

Massachusetts independent contractors law does not apply to 7-Eleven franchisees

A federal court in Boston ruled that 7-Eleven franchise owners do not provide services for 7-Eleven, Inc. and thus do not meet the threshold for applying the Massachusetts Independent Contractor Law (ICL). A group of 7-Eleven franchisees filed a class action alleging that the franchisor had falsely classified its franchisees as independent contractors rather than employees, in violation of the independent contractor statute. The Massachusetts Supreme Court considered the following question from the federal court: [the independent contractor statute] applies to the relationship between a franchisor and its franchisee, where the franchisor must also comply with the FTC Franchise Rule.” The Massachusetts Supreme Court ruled that the state’s independent contractor statute applied to the relationship between franchisor and franchisee and did not violate the franchisor’s disclosure obligations as outlined in the FTC Franchise Rule.

Based on that guidance, the pre-trial court ruled that 7-Eleven does not pay the franchisees for meeting any alleged obligations. It concluded that the opposite is true because 7-Eleven provides services to franchisees in exchange for franchise fees. Thus, the franchisor was entitled to summary judgment on the employment misclassification claims, and classification was denied.