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TAX
FRANCHISOR COULD BE HELD LIABLE FOR ALLEGED SEXUAL HARASSMENT BY FRANCHISEE
Rebecca Myers, Plaintiff, v. Garfield
& Johnson Enterprises, Inc. and Jackson Hewitt
(January 14, 2010)
An employee of a Jackson Hewitt franchisee tax
preparation business prevailed against Jackson Hewitt's motion to dismiss the
employee's sexual harassment claim against Jackson Hewitt and the franchisee.
The court found that Jackson Hewitt exercised sufficient control over the
franchisee's employees to be a "joint employer"
of the plaintiff for purposes of her alleged sexual harassment claim. The suit
arose when one of the franchisee's employees wrote in a performance evaluation
that the employee "should experience what Nicole Brown
Simpson did." The plaintiff employee had included allegations
suggesting that (1) the franchisor had the authority to promulgate work rules,
(2) she was covered by the franchisor's sexual harassment and other workplace
policies, (3) Jackson Hewitt had the authority to require the franchisee's managers
to submit to training, (4) Jackson Hewitt's Code of Conduct required that
franchisees terminate their employees in certain circumstances, (5) Jackson
Hewitt participated in the daily supervision of the franchisee's employees by
reviewing all tax returns prior to filing, by assisting employees with problems
with tax returns and the computer system, by requiring that she undergo
specific training.
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FITNESS
CENTER FRANCHISEE NOT REQUIRED TO COMPLY WITH POST-TERM COVENANT-NOT-TO-COMPETE
Anytime Fitness Inc. v. Family Fitness
of Royal, LLC (January 8, 2010)
A fitness center franchisor, Anytime Fitness Inc., would
not be irreparably harmed by the denial of its motion for a temporary
restraining order enforcing the terms of the noncompete covenant in its four
franchise agreements with a franchisee that prohibited the franchisee from
owning or operating any competing fitness center during the terms of the
agreements. Anytime
Fitness first argued that it would suffer irreparable harm due to unfair
competition from the former franchisee. According to Anytime Fitness, the
franchisee's other three franchise agreements would have provided him ongoing
access to Anytime Fitness's proprietary information. Anytime Fitness argued
that the franchisee "will be able to take advantage of information regarding
its upcoming promotions and sales strategies ... to draw customers to [the
franchisee's planned independent fitness center] and usurp new customers." The
court disagreed, however, finding the that alleged harm "is speculative rather
than certain and imminent." Further, the court found that because the
franchisee owned the Anytime Fitness franchise nearest to the independent
fitness center that the franchisee planned to operate, "if he [the franchisee] uses
the proprietary information, he will primarily compete with his own business.
Therefore, Anytime Fitness has not established irreparable harm through unfair
competition."
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GOLDSTEIN LAW GROUP, PC
JEFFREY M. GOLDSTEIN, ESQ.
www.goldlawgroup.com
202-293-3947
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ICE
CREAM FRANCHISEE'S CLAIMS AGAINST FRANCHISOR BARRED BY ONE-YEAR CONTRACTUAL
STATUTE OF LIMITATIONS PERIOD IN FRANCHISE AGREEMENT
Scott Krumholz v. AJA, LLC and Emack
& Bolio (January 13, 2010)
All of the claims brought by the Emack & Bolio's
ice cream franchisees against a franchisor were time-barred by the one-year
contractual limitations clause in the parties' franchise agreement. The
franchisees filed their complaint against the franchisor on December 24, 2007.
The franchisees alleged that the franchisor had fraudulently induced them to
invest significant financial resources in their franchise. The alleged
misrepresentations occurred during a meeting between the parties on December
14, 2002. The franchise opened for business in May, 2003, and by the end of
2004 it was clear to the franchisees that the costs of construction, equipment,
and inventory were significantly higher than the amounts quoted to them by the
franchisor and that their earnings had fallen far short of the franchisor's
projections. In light of those facts, it could not be reasonably contended
that, at least by December 2006, after closing the store due to $800,000 in
losses, the franchisee did not have notice of the alleged cause of the harm-the
franchisor's alleged gross misrepresentations.
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NEW
OWNER OF FRANCHISE PERMITTED TO SELL FRANCHISES USING THE HOTEL'S TRADEMARK
Guesthouse International, LLC v.
Shoney's North America Corp. (March 14, 2010)
This case involved a licensing agreement
for Shoney's service marks. One of the defendants was the owner of the service
marks, which are used at both restaurants and motels. This original owner of
the service marks sold the motel business along with the service marks, but it
retained the restaurant business. After using the service marks for many years,
the owner of the motel business decided to convert its
motels from the service mark brand to another brand. Eventually, the owner of
the motel business sold its motels to the plaintiff, and it included in the
sale its rights under the service mark license agreement. Soon after that, the
owner of the service marks sold its restaurant business and its service marks
to the other defendant. When the
plaintiff motel business attempted to franchise new motels using the
service mark name, the defendant new owner of the service marks objected and terminated
the license agreement. The trial court concluded, inter
alia, that the service mark license agreement assigned to the plaintiff was
invalid for lack of consideration. On appeal, however, the court of appeals
held that the license agreement was supported by consideration, that no valid
basis existed on which to terminate the license agreement.
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Thanks for your interest in our Newsletter, and we look forward to answering any questions you might have either on the cases discussed in this issue of Franchise Trends, or on general trends in franchise law.
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