Forward Franchising - Las Vegas, Nevada Franchise Attorney Matt Kreutzer

EEOC Issues New Guidance On Criminal Background Checks By Employers

Many franchise companies, particularly those in industries dealing with children and the elderly, require (or suggest) that their franchisees conduct criminal background checks on their potential employees before making a hiring decision.  If your franchise system has this type of requirement, you should know that, on April 25, 2012, the Equal Employment Opportunity Commission issued new Guidance regarding employer use of criminal records under Title VII of the Civil Rights Act of 1964.

The EEOC issued this Guidance primarily in response to two related issues: (1) employers' purported increased access to and use of criminal history information and (2) data showing that criminal record exclusions may have a significantly greater impact on minority applicants and employees.

Building on existing guidelines, the new Guidance specifically addresses the following issues (among others):

• The EEOC's view that records of arrests and convictions must be evaluated differently. The EEOC advises that a blanket ban on hiring an individual based solely on his/her arrest record violates Title VII because an arrest does not establish criminal conduct occurred. By contrast, a conviction record will usually serve as sufficient evidence that a person engaged in particular conduct. However, the Guidance makes clear the EEOC's belief that a policy which bars hiring applicants who have criminal convictions of any kind would also violate Title VII.
• It is unlawful for an employer to treat individuals with similar criminal records differently based on factors such as race or color.
• An employer may be in violation of Title VII if its neutral policy against hiring all individuals who have criminal arrests and/or convictions results in a disparate impact on employees or applicants of a particular race or national origin, unless the employer can demonstrate that its policy is "job-related and consistent with business necessity." The EEOC specifically discusses the significant negative impact which criminal background checks have on individuals of color.
• Whether and to what extent compliance with other federal laws and/or regulations that conflict with Title VII is a defense to a charge of discrimination involving a criminal background check.
• "Best practices" for employers when it comes to the use of criminal background checks.

Perhaps the most significant aspect of the new Guidance is the EEOC's position that although Title VII does not require an "individualized assessment" of criminal history in all circumstances, the use of a criminal background screen that does not include such an assessment is more likely to violate the law.

Vegas Inc. Column On Spring Meeting Of Nevada Franchise Business Network

In case you missed the Spring 2012 meeting of the Nevada Franchise Business Network, the weekly business magazine Vegas Inc. just ran a great column about the program.  Mr. Spotleson (the author of the column) did a great job in covering many of the highlights of the program, including talking about some of the key points mentioned by Debra Shwetz (CEO of Nothing Bundt Cakes), Fred Hassen (CEO of Sit Means Sit) and Alfredo Rivera (President of Sit Means Sit).  He also mentioned my client, All Nevada Insurance.

The one thing I wish he had space to cover was something that was touched on in the program: why franchising is a good fit for Nevada. 



Court of Appeals Enjoins NLRB Notice Posting

And now, an update from Armstrong Teasdale's Employment & Labor Practice Group:

As many of you may be aware, the NLRB has been trying to implement a rule requiring all employers subject to the National Labor Relations Act to post a Notice to Employees that purports to inform the employees of their rights under the National Labor Relations Act. The NLRB’s posting requirement was supposed to take effect on April 30, 2012.

Various groups have sought to block the implementation of the rule. A U.S. District Court for the District of Columbia struck down part of the rule, but allowed the Notice Posting requirement to stand and refused to enjoin the enforcement of the rule pending appeals.

However, a U.S. District Court in South Carolina invalidated the entire rule and enjoined the NLRB from enforcing the rule.

This split in the federal district courts created a difficult situation for employers because the NLRB has traditionally taken the position that it will enforce its interpretation of its power in any jurisdiction that has not ruled on the issue. The result would be that employers in Missouri would be faced with NLRB action for failure to post the Notice, while employers in South Carolina would not. 

The U.S. Court of Appeals for the District of Columbia saw this problem and enjoined the implementation of the NLRB’s Notice Posting Rule nationwide. The injunction will last until the Court has had an opportunity to rule the issue. As a result, employers are not required to post the Notice to Employees on April 30, 2012. We will keep you posted on future developments.

If you have any questions on this or other employment or labor related matters, please contact one fo the following attorneys in Armstrong Teasdale's Employment & Labor Practice Group.  Vance Miller, John Vering, Robert Kaiser, or Michael Kass.

Legislative Update: JOBS Act Eases Regulatory Burdens On Capital Raising

Below is an update from Armstrong Teasdale's Corporate Services Group about the JOBS Act.  I am personally most interested in the aspects of the JOBS Act which creates a new registration exemption under Section 4 of the Securities Act to allow for “crowdfunding,” which is how many independent filmmakers have raised capital for their projects. 

President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”) on April 5, 2012, making significant changes to U.S. federal securities laws and rules that govern the capital formation process in this country. Primarily, the purpose of the JOBS Act is to help ease the regulatory burden of capital raising for startups and smaller companies leading to increased economic growth and job creation.

While several of the JOBS Act provisions are effective immediately, many provisions require the Securities and Exchange Commission (the “SEC”) to conduct studies on certain key topics, and issue or amend implementing rules or regulations within the next 90 - 360 days. Consequently, the timing of some rule proposals is uncertain and the full impact of the JOBS Act will remain unknown until all rules and regulations are finalized.

Emerging Growth Companies
Effective immediately, the JOBS Act creates a new class of issuers, labeled “emerging growth companies,” that are exempt from certain federal securities regulations. An emerging growth company is one with less than $1 billion in total annual gross revenues during its most recently completed fiscal year. This status applies to companies with IPOs that occurred after December 8, 2011.

A company’s status as an emerging growth company terminates upon the earliest of:

• the first fiscal year following the fifth anniversary of its IPO;
• the first fiscal year after its annual gross revenues are $1 billion or more;
• the date which it has, during the previous three-year period, issued more than $1 billion in non-convertible debt; or
• the first fiscal year in which it is deemed to be a "large accelerated filer."

The "Big Mac" Provision Redux: What About Franchisee Compensation?

In response to last week's post, When Franchisees Innovate: Discussing The "Big Mac" Provision, I received the following question:

Curious about the benefits to franchisee that discovers the new "Big Mac" as you say. Are there any financial rewards/incentives for them? If I was a franchisor, I would want to encourage innovation since the franchisee has the relationship with the customer.

During the negotiating process, sometimes a prospective franchisee asks for the right to some kind of compensation for innovations that are created by them. On very rare occasions, franchisors (usually emerging franchisors) will agree to this.

My opinion, however, is that compensation for franchisees under the "Big Mac" provision is ultimately a bad idea. Franchise systems benefit, as a whole, when they are able to capitalize on the shared resources and innovative thinking of all franchisees. If an improvement is made to the franchise company's system, it should be useable and used by everyone if the franchisor determines that it materially enhances the overall value of the system and its operations. 

Franchisors who permit or encourage innovation generally take the position that building compensation into the "Big Mac" provision will ultimately discourage the sharing of new ideas between and among franchisees.  This is because the franchisee in that situation who comes up with a good idea may hesitate to share it with others unless a compensation plan is in place. If franchisees get possessive about their ideas and refuse to share them unless they get paid for the ideas, no one benefits. 

Also, not all franchisee innovations are breakthroughs on the level of the Big Mac. Many smaller (but valuable) "tweaks" are made to systems when franchisees share ideas. If compensation becomes part of the equation, the franchisor might not feel that every idea that comes along is so significant that it merits payment to the franchisee who created it -- in which case the idea goes unused, and helps no one.

Finally, there are many changes that provide a benefit to the system but don't necessarily result in an increase in earnings that directly correlates to the innovation. In those cases, any compensation to the creating franchisee can be hard to quantify and therefore make compensation impractical.

In sum, my opinion is that building compensation into "Big Mac" provisions is a bad idea because the compensation provision can actually discourage positive system change. That isn't good for anyone -- the franchisor, the franchisees as a whole, or customers. 

P.S.: In the case of Jim Delligatti, the franchisee who created the Big Mac, McDonald's did not pay him any money for his idea. But he has been honored in various ways by both the company and his home town of Pittsburgh (a statue of him was erected there), and he will go down in history as the creator of one of the world's most famous sandwiches!

When Franchisees Innovate: Discussing The "Big Mac" Provision

I just came across this fun little commercial from Domino's Pizza, which features a new product called "Bread Bites."  From the commercial, we learn that Bread Bites were created by a Domino's Pizza franchisee in Findlay, Ohio (watch the commercial below).

Franchisee innovation is nothing new.  Franchisors often find that some of the best-selling products are created by franchisees.  For example, some of the most popular sandwiches (including the Big Mac, Filet-o-Fish, and Egg McMuffin) at McDonald's were created by franchisees.  Indeed, the Big Mac is one of the all-time innovation success stories, having been created by franchisee Jim Delligatti in the 1960s and finally adopted by McDonalds in 1968 (the sandwich quickly became one of the chain's best sellers, accounting for 19 percent of all sales). These success stories encourage franchising companies to carefully consider permitting franchisees to create new or different products.

That having been said, franchisors have to balance the idea of product innovation with the need to maintain system uniformity and system standards.  Allowing franchisees free reign to create and sell new items can create customer confusion (when they can't find a particular item they liked at all locations) and an erosion of goodwill.  This is particularly true where the new item isn't up to the franchise company's brand and quality standards.  As a result, franchisors will ensure that their contract clearly prohibits a franchise from selling new or different products unless they are first approved by the franchisor.  That was true in the case of the Big Mac, where franchisee Delligatti's creation was subjected to a rigorous approval process by McDonald's that took several years of evaluation and consumer testing before the sandwich was finally added to the menu.  

Equally as important to a franchise company is that the ownership of products created by franchisees is undisputed.  Where a new item has the potential to be successful and attractive to consumers, the franchisor wants to be sure that the product can be offered at all locations.  As a result, a careful franchisor will ensure that its franchise agreement clearly addresses the handling of innovations with a provision that explicitly states that any franchisee creations or breakthroughs will be considered the exclusive property of the franchisor.  I like to call this type of franchise agreement provision a "Big Mac" provision, in honor of the granddaddy of all franchisee innovations.

A well-written "Big Mac" provision will also require the franchisee who created the new item to assist the franchisor in obtaining and enforcing intellectual property rights to any such innovation, or, if the rights can't be secured by the franchisor, then to grant the company a fully-paid up and irrevocable license to use the product.  By controlling the ownership of such intellectual property, a franchise company can ensure that any improvements -- be they Bread Bites or Big Macs -- can be rolled out across all of its locations, thereby creating uniformity systemwide. 

 

Best Franchise Times Article Ever (But Then Again, I Am Biased)

Check out April's edition of Franchise Times magazine for what is arguably one of the greatest profile pieces to ever appear in that periodical (or any other, for that matter).  But then again, I am biased because it's about me.  Click here to read the full story. 

I feel badly about my comments about Michelle Williams. She's a very good actress; she's just not one of my favorites.  I should have answered Kristin Scott Thomas to that question, instead.  Email me if you want to know why, or if you want to know about some of the other movie props and memorabilia that I own.  And, although it should be obvious enough by reading the rest of the article, the biggest omission is that my favorite director is Quentin Tarantino (I'm waiting eagerly for his next film, Django Unchained).

An Illustration Of Changing Consumer Patterns And System Evolution: Best Buy To Close 50 Stores

Big box retailer Best Buy announced today that it is closing 50 of its large-format stores around the country. This news comes on the heels of the company's announcement that it lost $1.7 billion last quarter and has seen four straight quarters of earnings declines. This move could be a sign of what's to come: at the same time it closes its big box stores, it plans to open 100 small-format "Best Buy Mobile" stores.

To be sure, Best Buy's decline is a consequence both of changing consumer habits and of continuing decreases in the prices of consumer electronics. People continue to prefer shopping online over the in-store experience, particularly given that many have grown disenchanted with spotty customer service at large retail stores. To buy movies and music, you used to have to buy a physical CD or DVD; now, you can download media easily without leaving your home. As times change, Best Buy finds itself in the position of having to evolve to survive in the market.

The Best Buy lesson is an important one for franchise companies. The habits of your customers will change and evolve over time, and what works now as a business model may not have the same impact five or ten years from now. As a result, it's important for businesses to continually evaluate and re-evaluate their format in light of changing consumer tastes and behaviors, and to make changes when the public demands them. Franchisors should ensure that their franchise documents allow them the flexibility to make these changes over time, and to require their franchisees to comply with these changing conditions to ensure system uniformity.

Nevada Franchise Business Network: Spring 2012 Meeting

Join us at the next meeting of the Nevada Franchise Business Network for an interactive discussion featuring leaders from locally-based companies that have successfully grown into national franchise systems. The meeting  is scheduled to occur on Wednesday, April 11, 2012 at Cili restaurant in Bali Hai Country Club, 5160 Las Vegas Boulevard South, Las Vegas, NV 89119. The topic of the meeting is "Lessons Learned in Franchising" and will feature guest speakers Debbie Shwetz, CEO of Nothing Bundt Cakes, Fred Hassen, CEO of Sit Means Sit Franchise, Inc., and Alfredo Rivera, President of Sit Means Sit Franchise, Inc. These dynamic individuals will share their perspective on lessons learned transitioning from an independent, stand-alone operation into a thriving franchise system, and provide insights into best practices for franchise companies.  This exciting program will be a valuable forum for both operators who are considering franchising as a possible avenue for growth and owners of companies that have already developed into mature systems.     

The Nevada Franchise Business Network is hosted by Armstrong Teasdale as an adjunct program of the International Franchise Association. For more information about the purpose and history of the Franchise Business Network, please visit the IFA's website.

Registration will begin at 11:45 A.M., with the program scheduled to start at 12:00 P.M. Lunch will be served.  The meeting is open to all members of the franchise community. There is no cost to attend, but please RSVP in advance to Mary Rodell at (800) 243-5070 ext. 7489, or mrodell@armstrongteasdale.com.

 

FranCamp 2012: Franchising Goes Social

If you are (or work for) a franchisor and are not yet using social media to promote both your brand and your franchise opportunity, shame on you!  You are missing out on some of the lowest-cost and most effective advertising possible.  But fear not; it's not too late, and there are people who can help you. FranCamp 2012 is a program specially designed to help franchise companies with understanding and taking advantage of or expanding social media opportunities. 

FranCamp 2012 is scheduled to occur in Atlanta, Georgia on May 4th, 2012.  If you are not familiar with FranCamp, it is a social media "un-conference" for the franchise industry.  Attendees at FranCamp can earn 50 participation credits towards Certified Franchise Executive (CFE) certification.  Here is a little more information about FranCamp, from its organizers:

Social media and social media related topics are the most talked about in franchising and even at huge events like the annual IFA conference, helpful information is sometimes hard to come by. If you want to educate yourself on the best of current thinking and learn the real recipes that work from the most advanced franchisors, franchisees, consultants and experts in the field of social media, this is a one-day conference you can't afford to miss.

You won't get sales pitches. You'll walk away with a very sophisticated level of understanding about ALL of the pieces of a successful social media strategy.

FranCamp follows the wildly successful PodCamp format -- a low-cost, one day event fully loaded with a fast paced and aggressive agenda full of super-helpful content. What you will get is a good education in almost all of the relevant topics that marketers must understand to make good decisions. If you want to launch your own campaigns and make sure your marketing department is pointed in the right direction, this is for you. If you have a budget and need a better level of understanding about social media related issues so you can make good hiring and vendor decisions, this is especially for you.

Who should attend: anyone who works in franchising. Franchisors -- CEOs, COOs, VPs of Marketing and VPs of Franchise Development. Anyone who deals with franchise sales and lead generation, anyone who handles consumer side marketing should attend. If you work in the marketing department of a franchise system, this is for you. If you own a franchise and want to learn more about how you can boost your local marketing, this is for you.

The event's organizers are among some of the franchise industry's leaders in social media, and they have put together a terrific program with a line-up of first rate speakers.  If you want to know more about FranCamp or register, visit the FranCamp website, here.