Barry Kurtz dark logoFranchise First and Foremost
November 2011

21650 Oxnard Street

Suite 500
Woodland Hills, CA 91367



Franchise laws require franchisors to either update their franchise disclosure documents (FDD) within 90 - 120 days after their fiscal year end or cease all franchise sales activities during the "gap period" between the expiration dates of their current registrations and the effective dates of their subsequent registrations.


Franchisors can avoid such an interruption to their businesses by beginning collection of the updated information for their FDD before year-end, especially the numbers for Items 8, 11 and 20, and by scheduling their 2011 audits with their accountants now.


We will send our renewal packets to our franchisor-clients before December 31 and will encourage them to provide us with the necessary information by February 1, 2012 even if their 2011 audited financial statements are not completed by that date.



A Missouri appellate court has found that a franchisor was not the employer of an employee who was hired by one of its franchisees for purposes of the Missouri Minimum Wage Law.


The franchisor had no ability to hire or fire the franchisee's employees, did not supervise or control the employees' work, did not determine the employees' salary and did not maintain personnel records for the Restaurant's employees. All of these rights and responsibilities belonged to the franchisee-employer, so the franchisee, not the franchisor, was the employer in question.


As we stated in our September 2011 Newsletter, franchisors should accurately describe and portray their business in their franchise disclosure documents and franchise agreements as a seller of franchises and as a provider of support services for its franchisees, should require their franchisees to obtain, maintain and confirm the existence of business licenses and insurance coverage customarily in place for employers and, if possible and practical, require their franchisees to form entities that, themselves, employ the franchisee's employees.



A franchisee's closure of its franchised business prior to the scheduled expiration date of its Franchise Agreement could be the proximate cause of lost profits by its franchisor according to a federal District Court in Missouri.


The franchisee argued, among other things, that lost profits were not recoverable by the franchisor because the Franchise Agreement did not provide for liquidated damages. The Court found that applicable law dictated that the absence of specific language covering future damages and liquidated damages was not controlling. Rather, the issue was whether lost royalties were reasonably within the parties' contemplation when they entered into the Franchise Agreement. 


Notwithstanding this decision in the developing U. S. law on a franchisor's right to recover lost profits, franchisees are urged to negotiate for either a cap or a ban on the their exposure for their franchisor's lost profits.



Barry Kurtz's article, detailing the differences between franchises and other business relationships, was featured in the October 2011 issue of the ABA-ALI publication The Practical Lawyer.  To see the article, click here .

This communication published by Barry Kurtz, APC is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation.

Copyright Barry Kurtz, A Professional Corporation 2011
All Rights Reserved.

In This Issue
Renewal Season Is Almost Here!
Franchisor 101: Franchisor Held Not An "Employer"
Franchisee 101: Potential Liability For Lost Profits
The Accidental Franchisor
Contributing Expert - Robert Heller, Esq.

Contributing Expert


Robert Heller, Esq.


The Real Estate Market, California's Anti-Deficiency Laws and Sham Guaranty


Barry Kurtz
Barry Kurtz is a prolific writer on the subject of franchise law. From due diligence to franchise appraisal, his articles are a valuable resource to any franchisee and franchisor.  He has been named a Certified Specialist in Franchise and Distribution Law by the State Bar of California Board of Legal Specialization.

Visit our website for more articles
21650 Oxnard Street, Suite 500
Woodland Hills, CA 91367