Author Archives: Tom Pitegoff

Tom Pitegoff

About: Tom Pitegoff

Tom Pitegoff is co-chair of the LeClairRyan franchise industry team. He is an internationally recognized leader in the franchise field. He drafts franchise agreements and disclosure documents, obtains state franchise registrations and provides ongoing franchise compliance counseling services. He represents foreign franchisors in their U.S. business and U.S. franchisors expanding abroad.

Improving Franchise Laws

Will California’s recent overhaul of its franchise relationship law lead to a proliferation of state franchise relationship laws? I doubt it. As I’ve written elsewhere, my guess is that the California law represents a specific congruence of interests that is unlikely to be repeated in other states. Outside of California, the new franchise laws being enacted today have nothing to do with termination and non-renewal or good faith in franchise relationships. Instead, we are seeing new state laws declaring that franchisors are not joint employers of the franchisee’s employees. Such laws were passed in recent months in Texas (S.B. 652), Louisiana …

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What’s an FPR?

Every franchise buyer wants to know how much money he or she can make from the franchised business.  Franchise sellers naturally want to answer that question in order to make the sale.  But many say that they cannot give figures to prospective franchisees, and they suggest that the prospects talk to other franchisees whose contact information is typically listed in an exhibit to the franchise disclosure document (FDD). The fact is that franchise sellers may indeed provide information regarding earnings, but only if the franchisor discloses “financial performance representations” (or FPRs) in Item 19 of the FDD.  If no FPRs appear …

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State Regulation of Biz Ops

26 states in the U.S. have laws that govern the sale of business opportunities, or “biz ops”. California and some other states use the term “seller assisted marketing plan” instead of business opportunity, but the substance is the same. At the federal level, the Federal Trade Commission (FTC) regulates the sale of biz ops, as explained in an earlier post. The FTC biz op rule does not preempt the state biz op laws, but allows the states to impose their own requirements. Like the franchise laws, the business opportunity laws contain disclosure requirements and many require a filing. Unlike in franchising, …

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What’s a Biz Op?

What’s a business opportunity or, as we often say, a “biz op”? The Federal Trade Commission (FTC) regulates biz op sales under its authority to regulate unfair or deceptive trade practices. The FTC’s definition of a business opportunity differs from the definitions under the laws of the 26 states that regulate biz ops, and the states themselves have varying definitions. These laws impose anti-fraud obligations on the sellers of biz ops, and some require registration and disclosure. This post covers the FTC biz op rule (16 CFR Part 437). A separate post will address state biz op laws. The FTC …

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California Toughens Its Franchise Relationship Law

California franchisees will soon have additional statutory protections against a franchisor’s termination or non-renewal of the franchise without good cause, and new protections against the franchisor’s refusal to approve the transfer of the franchise without good cause. On October 11, 2015, Governor Jerry Brown signed into law Assembly Bill 525, substantially amending the California Franchise Relations Act (CFRA), which has been in effect in California since 1980. The revised CFRA applies to franchise agreements entered into or renewed on or after January 1, 2016, and to franchises of an indefinite duration that may be terminated without cause. (Section 20041 of the …

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The Contours of a Franchisor’s Vicarious Liability

In a ruling that reflects a clear understanding of the distinction between the roles of the franchisor and franchisee, the Appeals Court of Massachusetts recently held that Domino’s was not vicariously liable for the acts of its franchisee that resulted in the death of the franchisee’s delivery driver.  LeClairRyan represented the franchisor in the case, Lind v. Domino’s Pizza, LLC, 87 Mass. App. Ct. 650 (July 29, 2015). The facts of the case are tragic.  Alex Morales, a customer, telephoned the store around 2:30 a.m. to order a pizza.  Morales killed the delivery driver, Corey Lind, and was later convicted …

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Federal Labor Officials Step Into the Lion’s Den

Two top federal labor officials engaged in a spirited dialog with two franchise lawyer moderators at the American Bar Association’s annual Forum on Franchising in New Orleans on October 16.  The topic: whether the National Labor Relations Board (NLRB) will fundamentally change the franchise industry. The program had dramatic potential.  NLRB General Counsel Richard Griffin and Dr. David Weil, Administrator of the Wage & Hour Division of the U.S. Department of Labor, faced a lion’s den of more than 800 lawyers representing franchisors and franchisees, none of whom want to see franchisors deemed to be joint employers of franchisee employees. …

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Franchisors Vulnerable to Unfair Labor Practice Allegations

As expected, the National Labor Relations Board (NLRB) recently broadened the definition of joint employer.  In a 3-2 decision, the NLRB adopted the joint employment standard recommended by the NLRB’s General Counsel.  The ruling was issued August 27, 2015, in the case of Browning-Ferris Industries of California, Inc. (BFI). The Browning-Ferris case did not involve franchising, but it will have an important impact on franchising.  Franchisors are now more likely to be deemed joint employers of their franchisees’ employees for purposes of compliance with the National Labor Relations Act.  This is a shock to the franchise industry.

Reflections on the Origins of the NY Franchise Act

I recently had occasion to review the legislative history of the New York Franchise Sales Act (NYFSA)–click here to see for yourself. Here are a few of my reflections. The NYFSA was enacted into law in 1980 and became effective January 1, 1981. At that time, Robert Abrams was the NY Attorney General and Hugh Carey was the Governor. Abrams supported the bill and Carey signed it into law. In recommending passage of the bill, Attorney General Abrams cited the numerous complaints of franchise fraud and abuse that the department of law had received. More than 13,000 New Yorkers had …

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What’s an Exclusive Territory?

The extent of a franchisee’s territorial rights is the subject of Item 12 of the franchise disclosure document (FDD). One of the questions franchisors must address in Item 12 is whether the territory is exclusive. If the territory is not exclusive, the Federal Trade Commission’s trade regulation rule on franchising (the FTC Rule) requires that Item 12 contain this statement: You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control. So what does “exclusive territory” mean?