Now that the polar vortexes are gone for another year and the FDD annual update process is finished or almost finished (at least for franchisors with December 31 fiscal year ends), it's time to start thinking about Spring Cleaning. This is a great time of year to review old compliance processes and clean them up to make sure they remain current and reflect best practices. Some good areas of focus are financial performance representations (FPRs), joint employer/no-poaching issues and data protection policies.
FPRS IN THE SALES PROCESS
FPRs remain one of the best sales tools for strong brands, but also one of the areas of greatest risk for franchise law claims. Hopefully with this year's FDD update, franchisors have carefully reviewed their Item 19 FPRs to make sure they have a "reasonable basis," as the franchise regulations, NASAA Commentary on FPRs, and state examiners interpret that term, and are the most effective sales tools for the organization.
Now it's important to make sure the franchise sales staff, and anyone else who might have contact with prospective franchisees, are familiar with the current FPRs. Perhaps more importantly, they all should be reminded that the information in the new Item 19 is the only sales, revenue or profit information that the franchisor's staff are permitted to provide to prospective franchisees. This includes not only prospects who are considering their first franchise, but also existing franchisees who are buying additional franchises, and in many cases renewing franchisees. Ensuring that all franchisor personnel understand what is, and what isn&'t, included in the current Item 19 will go a long way to eliminating violations for unauthorized FPRs.
RETAINING ONLY NECESSARY BRAND CONTROLS
Joint employer issues have been on franchisors&' minds for some time as they attempt to navigate the narrow path of providing their franchisees guidance on labor and employment issues without exercising (or potentially reserving the right to exercise) the level of control that would make them a joint employer with their franchisees.
A more recent, related issue involves state attorneys general and franchisee employees bringing actions against franchisors alleging that the "no-poaching" provisions in the franchise agreements violate the antitrust laws. These provisions take various forms, but in general prohibit one franchisee, and in some cases the franchisor, from hiring away certain individuals employed by each other...