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Potential Changes to the Joint Employer Liability Standard May Affect Franchise Business Model

On July 29, 2014, the National Labor Relations Board (“NLRB” or “Board”) authorized 43 complaints against McDonald’s franchisees for alleged violations of the National Labor Relations Act.[1]  The Board also named the franchisor, McDonald’s USA, LLC, as a joint employer respondent in the cases, making the national franchisor potentially liable for the acts of its franchisees.  Two months prior, on May 12, 2014, the NLRB invited parties to file amicus briefs addressing the “Board’s joint employer standard, as raised in its pending case, Browning-Ferris Industries (Case 32-RC-109684).”[2]

The NLRB announcements are significant because they foreshadow a potential change to the NLRB’s current legal standard for the franchise industry, namely, that as long as the franchisee is an independent contractor who maintains full control over the internal daily management of the franchised business, the franchisor is not a joint employer and not liable for any unlawful employment practices committed by its franchisee.

Franchises are common in the hospitality and restaurant industries, and there exists a delicate balance of powers between the franchisor and franchisee.  The franchisor seeks to protect its brand and its intellectual property by establishing standards so that each customer receives the same level of service and products at each franchise location. Franchisees benefit from the goodwill associated with the brand, and by receiving training, software and support from the franchisor.  Under most franchise agreements, the franchisee remains an independent contractor with full control over the day-to-day management of its business including its employment practices.

Since 1984, the NLRB legal analysis for determining joint employer liability focused on a showing of “significant control” by the alleged joint employer over matters relating to the employment relationship such as hiring, firing, discipline, supervision, and direction.  See Laerco Transportation, 269 NLRB 324 (1984).  This analysis resulted in few franchisors being deemed joint employers.  In its June 26, 2014 amicus brief for the Brown-Ferris Industries case currently pending before the Board, the General Counsel of the NLRB urged the Board to “return to the Board’s traditional approach prior to Laerco Transportation and TLI, Inc.,” and the adoption of a standard “that takes account of the totality of the circumstances, including how the putative joint employers structured their commercial dealings with each other.”[3]  This standard, according to the brief, “would make no distinction between direct, indirect, and potential control over working conditions,” and would find unexercised “potential control . . . sufficient to find joint-employer status.”  The Board’s July announcement regarding the McDonald’s complaints may be a hint that it intends to adopt the broad joint employer test advocated by its General Counsel.

If this new standard is adopted, franchisors will have to take greater precautions to ensure that the oversight over their brand, dictated in the Franchise Agreement, does not expose them to increased liability for the adverse employment actions of their franchisees.  To that end, franchisees need to carefully avoid any requirement that implicates any direct employment practice, such as recruitment, hiring, firing, payroll issues, reviewing employment records or tracking employee wages and performance.

The Board has yet to rule in the Browning-Ferris Industries case but franchisors need to carefully examine their franchise agreements and guard against any hint of franchise control that would expose it to greater liability via the NLRB’s potential heighten standards for joint employment.

Doyle, Barlow & Mazard has experience drafting and reviewing complex contracts, including franchise agreements, on behalf of restaurant clients.  For more information, contact

profile_blog
Rosemarie Salguero, Esq.
rsalguero@dbmlawgroup.com
(202) 589-1836


[1] www.nlrb.gov/news-outreach/news-story/nlrb-office-general-counsel-authorizes-complaints-against-mcdonalds; See also http://www.nlrb.gov/case/32-RC-109684

[2] www.nlrb.gov/news-outreach/news-story/nlrb-invites-briefs-joint-employment-standard

[3] www.laborrelationsupdate.com/files/2014/07/GCs-Amicus-Brief-Browning-Ferris.pdf

ABRA to Host Books and Records Training Seminar

On September 25, 2014, Alcoholic Beverage Regulation Administration (“ABRA”) will host a Books and Records Training seminar. ABC licensees of hotels and restaurants are invited to attend.

Training will cover:

  • Food sales requirements
  • Food sales reporting
  • Quarterly statement filings
  • Books and records tracking

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New D.C. Guidelines Clears Operation of Certain Online Alcohol Services

On August 14, 2014, the Alcoholic Beverage Control Board (“Board”) issued new guidelines that will allow unlicensed websites and smartphone applications to provide alcohol services in the District.

The Alcoholic Beverage Regulation Administration (“ABRA”) recently reviewed several technology businesses that partner with liquor-licensed retailers to provide alcohol order and delivery services, among which are Drizly and Klink, internet-based alcohol delivery services. The Board did not find their business models in violation of D.C. law.

The Board advises technology companies facilitating the sale of alcohol through websites and apps to limit their operations to:

  • Connecting consumers over the Internet to District retailers such as liquor and grocery stores; and/or
  • Promoting a retailer’s alcoholic products.

Technology companies are restricted from:

  • Soliciting, selling and shipping orders for alcoholic beverages;
  • Storing alcoholic beverages for sale to consumers; and
  • Collecting any money, fees or transacting any credit or debit cards for the sale of alcoholic beverages.

Any credit or debit card information provided to a website or app would need to be transferred to a liquor-licensed retailer in order to complete the transaction. The licensee would also need to retain the discretion to process or deny any order.

The Alcohol delivery service, Ultra, which runs on a similar model to Drizly and Klink, was subject to a cease-and-desist order from ABRA in late June of this year. However, unlike Drizly and Klink, Ultra acts as the collector of customers’ payments before forwarding the amount, minus its commission, to its partner D.C. liquor stores.

A technology company that violates D.C. law could be subject to criminal and civil penalties as well as an order to cease operations in the District.  A licensed retailer that violates the law could face fines and possible suspension or revocation of its license.

ABRA Hosts ID Compliance Training

The Alcoholic Beverage Regulation Administration (“ABRA”) will be hosting a special ID Compliance training for ABC licensees and their staff to review:

  • Techniques for properly verifying IDs
  • Tips for spotting fake IDs
  • Information on ABRA compliance checks

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Labor Day Weekend the End of Extended Holiday Hours Program

The extended holiday hours program allows on-premise establishments to stay open twenty-four hours a day, and to serve alcohol before 4 a.m. on certain holidays and holiday weekends. The Labor Day Weekend will be the last time this summer that establishments registered for extended holiday hours can stay open later for an entire weekend.

During Labor Day Weekend, alcohol service must end at 4 a.m. on the mornings of Saturday, Aug. 30; Sunday, Aug. 31; and Monday, Sept. 1.

On-premise establishments that want to participate in the extended holiday hours program have until Friday, August 1 to do so.  Once the licensee is signed up for the program, the establishment can participate in all eligible holidays listed on the calendar during the same year. The calendar is available here: http://abra.dc.gov/node/695172

Application is available here: http://abra.dc.gov/node/671792.

While the summer holidays end with the Labor Day Weekend, Columbus Day Weekend on Monday, Oct. 13, mark the beginning of the fall extended holiday hours.

New Permit Allows On-Premise Consumption at D.C. Breweries

On July 14, 2014, the Alcoholic Beverage Regulation Administration (“ABRA”) made available a new permit that will allow on-premise consumption of alcohol at breweries located in the District of Columbia. The permit is a provision of the Fiscal Year 2015 Budget Support Emergency Act of 2014.

A brewery located in the District of Columbia can apply for an on-site sales and consumption permit with ABRA under the Manufacturer Tasing Permit Emergency Amendment Act of 2014. With the permit, customers can purchase and consume beer that is brewed at the brewery on the brewery’s premise from 1 p.m. to 9 p.m., seven days a week.

The annual fee for the permit is $1,000.  Interested parties can apply for the permit here:
http://abra.dc.gov/node/864522

The permit is not mandatory for brewers.  In addition, if a brewery wishes to offer free samples of beer to customers on its premise, it must apply for a separate tasting permit to do so. 

Adam’s Morgan Moratorium Renewed, New Restaurant Licenses Available

On July 9, 2014, the Alcoholic Beverage Control Board (“ABC Board”) renewed the Adams Morgan moratorium zone.  The ABC Board consulted with the business community and the Advisory Neighborhood Commission 1C, which provided a proposal to modify some of aspects of the moratorium.

The ABC Board adopted the ANC’s proposal to remove the prohibition on new restaurant licenses in the moratorium zone.  In considering this request, the ABC board commented that more licenses can foster greater competition in the Adams Morgan commercial zone, which will ultimately lead to improvement in services for customers. However, the other restrictions, including ones on tavern and multipurpose facilities licenses, nightclub licenses, and promotional activities focused on nightclub and pub-crawl activities, are still in place.

The ABC Board also decided to reduce the term of the moratorium from five to three years, in order to monitor the effect of the extra restaurant licenses in the area.

The renewal is currently in effect only as on an emergency basis, however, and is subject to a 30-day public comment period pending final approval from the District of Columbia Council. Members of the public who wish to submit public comment can send theirs to martha.jenkins@dc.gov.

The exact geographic boundaries of the moratorium zone can be found here:
http://abra.dc.gov/sites/default/files/dc/sites/abra/publication/attachments/Adams_Morgan_ABC_Moratorium.pdf

Restaurants Targeted for Intellectual Property Violations for Allegedly Pirating Sporting Events

With the growing popularity of World Cup soccer in the Washington, D.C. area,  more and more bars and restaurants are hosting watch parties and cashing in on the merriment of this quadrennial soccer carnival.

As with playing copyrighted music (See here for our post discussing music licenses), restaurant and bar owners need to know the licensing rules for broadcasting major sporting events at their establishments.

In the last several years, thousands of restaurants have been sued in federal court for allegedly intercepting and showing licensed sporting events illegally.  The results of the lawsuits – defendant restaurants have been forced to pay $25,000, $50,000 and even upwards of $100,000 for statutory violations of federal law.

Many restaurants purchase commercial cable subscriptions and pay additional pay-per-view fees in order to broadcast certain sporting events at their establishments.  Commercial pay-per-view licensees and exclusive domestic commercial distributor of such sporting programs as Ultimate Fighting Championship (“UFC”) fighting matches, CONCACAF Champions League soccer matches, and FIFA’s World Cup games, monitor restaurants and bars to see who is broadcasting their programming.   These licensees send private investigators, some with cameras, to document restaurants that show these sporting events.  If the restaurant does not have a contract to show these events, or the restaurant is using a residential pay-per-view account rather than the more expensive business account, then the licensees or its agents sue the restaurant in federal court.

UFC has reported that from 2006 through January 2012, it collected $4.7 million in settlements from these commercial cases.[1]  J&J Sports Productions, Innovation Sports Management, Joe Hand Promotions, Inc, frequently file complaints in federal district court alleging violations of 47 U.S.C. § 605 of the Federal Communications Act of 1934, as amended (“FCA”), 47 U.S.C. § 553 of The Cable and Television Consumer Protection and Competition Act of 1992, as amended, and common law conversion claims.  Many of these law suits name the individual owners of the restaurants and bars as defendants along with the corporate entity.

Restaurants and bars who receive demand letters or complaints against them for these types of violations need to take these allegations seriously.  The sports licensees have won a number of substantial default judgments against restaurants who have failed to respond to these complaints.[2]  Restaurants should read their cable/satellite contract or pay-per-view contract carefully to ensure it allows for the public broadcast of such sporting events.

Doyle, Barlow & Mazard PLLC has successfully defended clients against these types of cases in federal district court on behalf of restaurant clients.  For more information, contact :

profile_blogRosemarie Salguero, Esq.
rsalguero@dbmlawgroup.com
(202) 589-1836

 

 

 

 


[1] http://www.businessweek.com/articles/2012-04-12/pay-per-view-wrestles-with-bar-owners

[2] http://www.bloomberg.com/news/2012-04-13/ultimate-fighting-boxing-on-pay-tv-spark-pirate-lawsuits.html

ABRA Issues Cease and Desist Order to Online Alcohol Vendor

On June 26, 2014, the Alcoholic Beverage Regulation Administration (“ABRA”) issued a cease-and-desist order against an online business that sells alcoholic beverages in the District of Columbia as a third-party without a license. 

ABRA issued the order to online alcohol vendor Ultra for selling alcoholic beverages in Washington, D.C. without a license. Ultra partners with local liquor stores to deliver alcohol directly to local consumers.  Consumer pays Ultra directly; Ultra then forwards the payment to the local liquor store minus an agreed upon percentage that is retained by Ultra.

Under District of Columbia law, no person or entity is permitted to sell or solicit orders for sale any alcoholic beverage without the proper license.  However, not all online sales are illegal. Liquor stores that have the proper licenses in Washington, D.C. can conduct online sales and deliveries in the District of Columbia.

ABRA issued an advisory opinion (Board Order No. 2013-062) last year related to “the operation of a similar online business,” with consistent findings.

ABRA Hosts New ABC Holder Orientation Session

ABRA will be hosting an orientation training session for new ABC license holders and other members of the public on Thursday, August 14th, from 2-5:00 p.m.

According to ABRA, the training will cover:

  • District ABC laws and regulations (including recent changes to the law)
  • Working with the community
  • Settlement Agreements
  • Expectations of ABC licensees
  • Tips for best practices
  • Noise abatement and sound management

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