Significant Considerations for Effective Franchise Systems

Kansas City, Missouri September 16, 2015

Latest Developments on Franchisor “Employer” Status: What Franchisors and Franchisees Should Know

Michaelle Baumert

NLRB Changes to the “Joint Employer” Standard

Browning-Ferris Decision

Freshii/Nutritionality Advice Memo

McDonald’s cases

Browning-Ferris – A Closer Look

Factual Basis – Staffing Agency/Teamsters’ Election

What the Decision Means for Browning-Ferris

The Impact of the Decision on Franchising

Change in the Joint Employer StandardPre-BF Joint Employer Standard Businesses are joint employers

only when they share “direct and immediate” control over matters governing the essential terms and conditions of employment (hiring, firing, discipline, supervision, direction).

Post-BF Joint Employer Standard Two-part test that looks at direct,

indirect, and potential control reserved by contract (even where never exercised). Fact-specific analysis that has to be decided case-by-case. Standard is potentially unlimited in scope. Dissent says this fundamentally alters business relationships, including franchising.

Immediate Potential Impact on Franchise Labor Relations

Neutrality Agreements

Joint Employer Petitions to Test

Concept

Joint Bargaining with Franchisee and

Franchisor?

Secondary Boycott

Potential

Other NLRB Activity

David Weil, DOL Wage and Hour Division Administrator

“Fissured Employment Relationships”

Impact on Franchising Other

Agencies?

Controlling the Risk

Eliminate appearance of control

Review agreement language

Training for operations personnel with contact with franchisees

Review insurance coverage

Union prevention strategies and training

Questions?

Lessons Learned in 20 years of Franchising

Jeff Huber, President & CEO, Home Instead, Inc.

Franchise Owner Relations

Active Listening

Focus on WHY

Establish FEC before you need it and on your own terms

Transparency and clarity

Control expectations

Deal in facts

Communicate, communicate, communicate

The Importance of Planning

Needs to be a discipline

Inclusive and exclusive

Get it down to one page

Set really big compelling goals

“Law of Unintended Consequences”

Focus on the front line, not the top line

Assets, not cost centers

“The Happy Continuum”

Invest in people – especially the Home Office

Cohesive senior leadership team

“The Five Dysfunctions of a Team”

“Robust dialogue”

Disagree and commit

Being in the “foxhole”

Retreats

Culture is everything

Organic at first

“Living Home Instead”

Moving to the right

Change IS your job

Intellectually easy, emotionally hard

From “here” to “there”

20-60-20 rule

Starts with the leader

Invest in Government Affairs

Husch Blackwell

Industry association

Some random lessons

International sounds great but is really hard

Be really selective in awarding franchises

Focus as much on owners’ bottom line as their top line

Final Thoughts

This stuff is hard

Always competing interests

Be guided by principles

Keep it fun

Grow yourself

My Influences

Jim Collins

Patrick Lencioni

Bill Hybels

St. Ignatius

Questions?

9/14/2015

©Forward Communication Strategies, Inc.

Get Results:Effective Franchise Communication

Jami Hahnpresident

9/14/2015

Myth of Effective Communication

It’s done.

9/14/2015

Feedback Loop

ACTIONstrategy

Effective Franchise Communication

9/14/2015

There is noEND GAMEwithout a CLEARPLAN

A Clear Plan

+ >Right strategy Right tactics Good process

9/14/2015

WhyWhatWho

HowWhen

Evaluate

4 PRINCIPLESFor Effective Franchise Communication

9/14/2015

DemonstrationEmotion & Sincerity

Gaining interest

DetailReference

Clarity & Direction

Talking Headsgreat band; lousy video

9/14/2015

3 Rules for Good Video Have a point that is clear and easily

articulated

Demonstrate; don’t tell.

Make it stick! (Simple, profound,

unexpected)

Communicating Personalityis NOT a cardinal sin

9/14/2015

3 Rules for Message EngagementBuild your

communications around your style

Bring company to life in your messages

Connect with your audiences’ hearts

and minds

It takes a Villageto communicate effectively

9/14/2015

3 Rules for Involving Others Expert knowledge doesn’t make expert

communicators

Provide resources to be resourceful

Authenticity is key!

Take your topics seriouslynot yourself

9/14/2015

3 Rules in Getting Results Clearly articulate done through

business objectives

Measure what matters to the objective owner

Define communication success by your

objective’s success

9/14/2015

Right strategy

Right tactics

Good process

Questions

9/14/2015

Thank you!Get Results: Effective Franchise Communication

Jami Hahnpresident

Franchisor Considerations When The Franchise Relationship EndsMike Norton

AGENDA

Transition Planning

Nuts and Bolts of Transition

Covenant Enforcement

Internet and Social Media Considerations

TRANSITION PLANNING

Preparation Starts at the Beginning of the Relationship and Continues Through the Life of the Relationship Ensure agreements, covenants, guarantees, leases and

other documentation formalizing rights and obligations of the relationship are formalized and complete

Conduct periodic reviews of key franchisee documents including financial statements, leases, corporate organization documents, etc.

Consistently enforce franchise agreement regarding documentation provisions in franchise agreements

TRANSITION PLANNING

Understand the Source and Scope of Transition Rights/Obligations Contract rights and obligations Regulatory rights and obligations

Develop Goals for Transition What will happen with the physical location? What will happen with the former franchisees? What will happen with the intangible property?

Understand Notice/Decision Requirements and Timeline

TRANSITION PLANNING

TERMINATE THE FRANCHISE AGREEMENT?

Recent case law is mixed on how termination affects the franchisor’s right to recover lost future royalties.

TRANSITION PLANNING

LOST FUTURE ROYALTIES AS A REMEDY Sealy and courts following it’s analysis are skeptical in

awarding lost future royalties for termination involving non-payment of fees

Lost future royalty claims are much stronger in cases where franchisee has abandoned location

Courts will often award only “net profits” so franchisor must be able to show the relationship between franchisor operating expenses and the royalties from the particular franchisee

Mitigation of damages should also be considered and proven

TRANSITION PLANNING

NUTS AND BOLTS OF TRANSITION

Physical De-identification Signage Trade Dress Inventory, Equipment, and Supplies

Protection of Proprietary Materials Operations Manuals Recipes, Systems, Forms

Tangibles and Intangibles for Continued Operation Customer Lists Phone Numbers

Real Property Rights Lease assignments

Leasehold improvements

Establishing Value of Repurchased Assets Contract requirements

Statutory requirements

Establishing fair market or book value

COVENANT ENFORCEMENT

Defining the Scope of an Enforceable Noncompete Must be able to articulate a legitimate/protectable interest Length of Covenant How long can it last? When do you start to count?

Geography of an Enforceable Noncompete How many miles is too many miles? Miles from where?

Scope of Protection What activities are prohibited? What is a competitive business?

Enforcement Against Nonsignatories Courts are looking for cooperative conduct between

signatories and nonsignatories Nonsignatories benefiting from the franchise agreement

and its terms Former close relationship with the franchise that confers

a continuing benefit to nonsignatories Franchisors have had recent success in these types of

Golden Krust Patties, Inc. v. Bullock – Covenant enforced against franchisee’s son

H&R Block Tax Services, LLC v. Strauss – Covenant enforced against former franchisee employees

Tantopia Franchising Co., LLC v. West Coast Tans of PA, LLC – Covenant enforced against “straw-man” owner

Winmark Corp. v. Brenoby Sports, Inc. – Covenant not enforced against new owner who purchased in an arm’s length transaction

INTERNET AND SOCIAL MEDIA CONSIDERATIONS

Scrubbing the Internet of the Franchise Relationship Start with company controlled websites Develop a plan with the cooperative franchisee to identify

and correct web material Takes steps with popular sites that allow visitors to

report updated information Consider prohibiting franchisee independent websites Address other social media sites such as Facebook and

Twiter

Questions?

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