Forward Franchising - Las Vegas, Nevada Franchise Attorney Matt Kreutzer

Fast Food Restaurant Strikes Spread To St. Louis, Detroit

Following on the heels of similar strikes in recent weeks in New York and Chicago, hundreds of St. Louis area fast food restaurant employees walked off the job May 9, which affected more than 30 area businesses including a number of fast food franchise businesses. The strikes spread to Detroit on May 10. These employees joined a growing wave of protests over wages and other terms and conditions of employment in what is one of the fastest-growing segments in the U.S. labor market. You may even remember similar actions by Wal-Mart employees on Black Friday in 2012.

Although strikes are often associated with labor unions, the workers involved in these impromptu strikes are not unionized.  Instead, the efforts are being supported by a coalition of organizations, including labor groups, nominally coined “alt-labor,” that are not legally unions. But this does not mean that their activities are not protected by U.S. labor laws, specifically the National Labor Relations Act (“NLRA”). Enacted in 1935, the NLRA protects the right of workers to join together to bargain collectively with their employer and  engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection. The NLRA also protects the right of workers to refrain from any and all such activities.

Among other things, employees covered by the NLRA (which includes most, but not all, private sector employees) have the right to walk out or strike, even if they are not in a union. Many employers who are unfamiliar with unions or do not regularly deal with unionized workforces, can sometimes fall into a trap for the unwary by disciplining or discharging employees who are engaged in protected, concerted activities such as a strike. Even though failing to report for work or even walking out during the middle of a shift impacts an employer’s operations and may, in fact, violate an attendance policy, depending on the circumstances, an employer may actually be prohibited from disciplining them or questioning them about such protected activities.

In some cases, however, striking and picketing may not be protected. One such circumstance involves what is known as “recognitional picketing.” This occurs when employees, and perhaps non-employees, picket an employer with the goal of obtaining recognition. When employees (and non-employees) picketed Wal-Mart on Black Friday, Wal-Mart filed a charge with the National Labor Relations Board. This charge was ultimately resolved when the union involved agreed to cease organizing the employees.

For franchisors and franchisees, an ounce of prevention is truly worth a pound of cure. To lawfully confront the potential for such activities, wise and savvy employers need to train their supervisors and managers now, before any such activity begins. Trained managers and supervisors not only have the tools to respond effectively and lawfully should such an incident occur, but are vital to warding off such activities in the first place.

Armstrong Teasdale’s employment and labor attorneys can assist employers in preparing for, and responding to, organizing activity. Being prepared is vital to an employer’s success in the face of union or union-like activity.

Franchising Bill Moves Forward In California

An update to my previous post regarding the "fair franchising bill" being considered in California's Senate: on Tuesday, April 16, 2013, the California Senate Judiciary Committee approved the proposed legislation (SB 610), which is being supported by the American Association of Franchisees and Dealers ("AAFD") and opposed by the International Franchise Association ("IFA"). 

If passed, SB 610 would make the following amendments to the California Franchise Relations Act ("CFRA"):

• The parties to a franchise relationship would be required to deal with one another in good faith (essentially, making the implied covenant of good faith and fair dealing an express statutory requirement); and
• Franchisors (or subfranchisors) would be prohibited from restricting a franchisee from joining or participating in an association of franchisees.

SB 610 would also amend the CFRA by permitting a franchisee to sue a franchisor or subfranchisor who violates the CFRA for damages, rescission, or other relief deemed appropriate by a court.  Moreover, SB 610 would authorize a court in its discretion to award treble (3 times) damages to the suing franchisee, as well as reasonable costs and attorney's fees. 

The AAFD, in support of the bill, argues that:

Modern franchise relationships are most always governed by one-sided "take it or leave it" adhesion contracts that elicit substantial monetary investment from franchise owners, provide substantial protection for franchisors, but severely limit a franchisee's rights in franchise relationship.  Creating a statutory affirmative duty of good faith in franchise relationships will inhibit the enforcement of one-sided franchise agreements in an abusive manner.

The IFA, on the other hand, argues that the good faith requirement is problematic because "good faith" is:

[An] amorphous term to be applied to the franchisor in its relationship with the franchisee.  The  concept of "good faith" was created in the Uniform Commercial Code to fill in the blanks on short form contracts for the sale of goods.  However, it provides no benefit in the context of detailed franchise contracts which govern complex and ongoing business relationships.

The bill was passed in the California Senate Judiciary Committee with a vote of 5-2.  Next, the bill will be voted on by the full Senate.  If passed, it would go before the California Assembly for consideration.  

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California Senate To Consider Franchising Bill

California Senate To Consider Franchising Bill

The Senate Judiciary Committee of California is scheduled to consider a franchising bill at a hearing scheduled for Tuesday, April 16, 2013, at 1:30 p.m.  If passed by California's legislature (the State Assembly and Senate), SB 610 would amend the California Franchise Relations Act ("CFRA") as follows:

• The parties to a franchise relationship would be required to deal with one another in good faith (essentially, making the implied covenant of good faith and fair dealing an express statutory requirement); and
• Franchisors (or subfranchisors) would be prohibited from restricting a franchisee from joining or participating in an association of franchisees.

SB 610 would also amend the CFRA by permitting a franchisee to sue a franchisor or subfranchisor who violates the CFRA for damages, rescission, or other relief deemed appropriate by a court.  Moreover, SB 610 would authorize a court in its discretion to award treble (3 times) damages to the suing franchisee, as well as reasonable costs and attorney's fees. 

For more information about SB 610 and a copy of the full text of the bill, visit www.leginfo.ca.gov.  A live audio / video feed may be available during the hearing at http://www.calchannel.com/. 

Saved From The "Fiscal Cliff"

The American Taxpayer Relief Act of 2012 (“ATRA”) was signed into law by President Obama on January 2, 2013. ATRA is a large tax package that renewed tax breaks for individuals and businesses and avoided automatic spending cuts to a plethora of government programs. Here is a summary of the more salient provisions:

Tax Rates
Bush era tax rates were made permanent. However, there is a new 39.6 percent rate that will apply to earners based on income thresholds and filing status: $400,000 (single); $425,000 (head of household); $450,000 (joint or qualifying widow(er)); and $225,000 (married filing separately). These thresholds will be indexed for inflation after 2013.

Capital Gains and Qualified Dividend Rates
ATRA retains the 0 percent tax rate on long-term capital gains and qualified dividends if income falls below the 25 percent tax bracket; modifies the 15 percent tax rate to apply between the 25 percent and new 39.6 percent tax brackets; and adds a new 20 percent tax rate to those in the 39.6 percent tax bracket. In addition, those subject to the 20 percent tax rate will also be subject to the 3.8 percent surtax on investment income above $200,000 (filing single) and $250,000 (joint filers). So the top rate is actually 23.8 percent for those in the 39.6 percent tax bracket beginning in 2013.

Payroll Tax Reinstated
The 2 percent payroll tax cut was allowed to expire at the end of 2012.

Estate, Generation Skipping and Gift Tax
The 2011 exemptions level of $5,000,000 (indexed for inflation) for estate, generation skipping and gift taxes were made permanent. The exemption for 2013 is $5,250,000. However, the top tax rate was increased from 35 percent to 40 percent. The exemption portability rules were also made permanent.

 

 AMT Relief
Alternative minimum tax (“AMT”) relief was made permanent. The AMT exemption is set at $50,600 for unmarried taxpayers, $78,750 for joint filers, and $39,375 for married filing separately. These amounts are also indexed for inflation going forward.

Tax Extenders
The election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes was extended through 2013, along with the $250 above the line deduction for certain teacher expenses and the research credit.

Cost Recovery
ATRA extends Code Section 179 elections and other bonus depreciation provisions.

Pension Provision
An election may be made available to plan participants to transfer amounts to designated ROTH accounts. Any such election will subject the transferred amounts that were contributed pre-tax to ordinary income tax rates.

Please contact an attorney in the Armstrong Teasdale Tax Department if you would like to discuss the effect of the tax compromise on you or your business. 

Home Care Assistance Executive Team Featured In Forbes

Congratulations to my franchisor client, Home Care Assistance 1-866-4-LiveIn, which recently had an article published in Forbes regarding its young executive team.  The company is a truly innovative in-home assisted living franchise company which focuses on always improving and modifying the services that it offers to its franchisees, and the article does a good job of capturing the energy and spirit of the company and its young executive team.

Form W-2 Reporting for Employer-Sponsored Health Coverage: Is Your Franchise System Prepared?

Continuing on with my coverage of the Supreme Court's ruling on the Patient Protection and Affordable Care Act (the "Act") (read my previous posts here, here, and here), there is some updated information information available for employers.  Under the Act, some franchisees will qualify as small employers for certain exemptions, but many (including multi-unit owners) will not.  As a result, franchisors and franchisees need to educate themselves regarding the Act and what it will require them to do in both the short term and the long term.

The Patient Protection and Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health or medical plan. This requirement was optional for all employers in 2011. For 2012 (meaning Forms W-2 for calendar year 2012 generally furnished to employees in 2013), the reporting requirement is now mandatory for sponsors of group health or medical plans, except for certain qualified small employers. 

The Internal Revenue Service recently updated its online “Frequently Asked Questions” to clarify certain issues. These include: the type of employers subject to the reporting requirements; whether reporting is mandatory or optional for a particular type of coverage; whether the employee portion of applicable premiums needs to be reported; and where on Form W-2 the premium costs should be reported. For example, dental and vision plans not integrated into another group medical or health plan are among the types of coverage within the optional reporting category.  If you have any questions about this or any other tax-related issues, please contact a member of Armstrong Teasdale's Tax Department.

IRS Circular 230 Notice
Internal Revenue Service regulations state that only a formal opinion that meets specific requirements can be used to avoid tax penalties. Any tax advice in this communication is not intended or written to be used, and cannot be used by a taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer, because it does not meet the requirements of a formal opinion.

What The Supreme Court's Patient Protection and Affordable Care Act Ruling Could Mean For Franchises

Several news stories around the web today discuss the United States Supreme Court's Ruling on the 2010 Patient Protection and Affordable Care Act and what it could mean for franchised businesses.  As I said yesterday, I sincerely hope these gloomy predictions are not accurate.  Franchising has started to rebound as an industry, and I would hate to see that growth stymied.  After all, franchises account for a very large percentage of all small businesses around the country, and small business is the engine on which this country's economy runs. 

• From the Los Angeles Times: Retailers, Factories, Main Street React to Supreme Court Ruling.  Quotes International Franchise Association President Steve Caldeira as saying that the ruling puts 3.2 million franchised businesses at risk, and that it is "unworkable, unaffordable and wrong for our country's small business owners who continue to struggle in a still sluggish economic climate."

• From CNBC: Small Business On Obamacare: No Reason To Hire Or Invest.  Quotes Jim Amos, President and CEO of Tasti D-Lite, as saying that the ruling will "force franchisees to shift workers to part-time to avoid the 50-employee threshold[, and] keep new owners and new openings on the sideline.”

• From Nasdaq / Dow Jones: Restaurants, Retailers Disappointed With Health-Care Mandate. Quotes National Retail Federation's Chief Executive, Matthew Shay, as saying "as it stands, the law wrongly focuses more on penalizing employers and the private sector than reducing health costs. Although the Court upheld the law's constitutionality, many problems remain: It penalizes employers too much; it doesn't do enough to reduce the cost of health care; and it is unreasonably complicated and difficult to implement and administer."

• From the Washington Post, an op-ed piece by Fastsigns CEO Catherine Monson: Why the health-care ruling may stop franchises from opening new stores, creating new jobs.  According to Ms. Monson, "the law will deter growth by unintentionally discouraging franchisees from owning and operating multiple locations, creating a competitive disadvantage for our franchisees who do own more than one or two locations (and who may want to open additional stores), and barriers to entrepreneurs who are looking to capitalize on the franchise business model to grow their business and hire more workers."

The 2010 Patient Protection and Affordable Care Act - Summary Of The U.S. Supreme Court's Ruling

"We do not consider whether the Act embodies sound policies. That judgment is entrusted to the Nation's elected leaders. We ask only whether Congress has the power under the Constitution to enact the challenged provisions."
- Chief Justice John Roberts

With that introduction, (and as reported yesterday) the United States Supreme Court on Thursday, June 28, 2012, upheld the constitutionality of most of the 2010 Patient Protection and Affordable Care Act (ACA).

The two key issues before the Court were the constitutionality of (1) the ACA’s “individual mandate,” which requires virtually everyone in the United States to buy health insurance or to pay a penalty for failing to do so, and (2) its requirement that states adopt new standards that would have significantly increased the number of Medicaid-eligible individuals (the so-called “Medicaid expansion”), or face loss of federal Medicaid funding.

Had the “individual mandate” been found unconstitutional, there was a significant possibility that other provisions of the ACA would also have been overturned by the Court.

The Court’s final decision took many by surprise because it both upheld the “individual mandate,” and because Chief Justice John Roberts joined four liberal members of the Court in finding that provision constitutional.

The “Medicaid expansion” provision was upheld with a significant limitation. A majority of the Court held that it was unconstitutional for the federal government to cut off all Medicaid funds for states that choose not to go along with the “Medicaid expansion,” calling that threat “a gun to the head” of the states. Under the Court’s ruling, states that elect not to adopt the more liberal eligibility standards simply will not get the enhanced funding provided for the “Medicaid expansion,” but will continue to retain existing Medicaid funding. Per the ruling, enhanced funding will continue to be available for those states that choose to adopt the expanded eligibility standards.

All other requirements under the ACA remain untouched and will go into effect as provided in the ACA, assuming that there are no legislative changes. Undoubtedly there will be efforts in Congress to revise or repeal the ACA. Even if no legislative changes are made, there are many provisions of the ACA that are still being interpreted and implemented by the executive branch.

Whether or not Congressional revision or repeal efforts are successful, many franchise companies, small businesses, healthcare providers and payers have been endeavoring to work through initiatives to deal with concerns about healthcare quality and costs. Those endeavors are certain to continue whatever may happen to the ACA in Congress.

Armstrong Teasdale’s attorneys are ready and available to assist franchisors, small businesses, health care providers and others to deal with the challenges presented by such endeavors. Armstrong Teasdale will be providing further information and analysis in the days and weeks to come, concerning how the ACA requirements might affect you and other health care reform-related initiatives.

A copy of the Court’s majority and dissenting opinions (193 pages) are available at http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf

International Franchise Association: Supreme Court Ruling Puts Jobs At Franchise Businesses At Risk

In the aftermath of the U.S. Supreme Court's ruling on the Affordable Care Act and, specifically, the constitutionality of the individual mandate provision in the Act, the International Franchise Association released the following statement from its President & CEO, Steve Caldeira:

"We are deeply disappointed by the High Court ruling to uphold the Affordable Care Act, which places undue burdens on the franchise small business community. While it may have been ruled constitutional, the law is unworkable, unaffordable and wrong for our country's small business owners who continue to struggle in a still sluggish economic climate. By upholding the law, 3.2 million jobs at franchise businesses continue to be put at risk due to the employer mandate provision, thereby discouraging and disincentivizing the creation of new jobs and business expansion.

 "The Affordable Care Act, and specifically the employer mandate, does not provide solutions to the cost and access issues it set out to address, but rather hurts the employees it aims to assist. IFA will continue to work with Congress to fully repeal the law and start over with a health care reform effort that enacts reforms that provide access to care at an affordable cost for franchise small businesses and their employees."

I know many small business owners and franchisors were watching this decision closely, and the general feeling in the industry is consistent with Mr. Caldeira's statement. I hope the Court's ruling won't have the significant, negative impact on the industry that many are predicting.

Lack Of Incentives Continues To Discourage Film Production In Nevada

A new story in the Las Vegas Review Journal talks about the continued lack of filming incentives in Nevada, an issue about which I have written previously.  As discussed in the story, Nevada continues to lose dollars to neighboring states as companies opt to film in places where economic incentives make a significant difference to overall production costs.  What kills me about this is that we are losing the opportunity to host t.v. shows and films that actually take place in Nevada, which opt to film in New Mexico or other states that provide substantial production incentives.  For example, a new CBS television show "Vegas," which takes place in (you guessed it) Las Vegas, is being filmed in Las Vegas -- the one in New Mexico.   

To give you a sense of the net economic impact that is being lost to other states, total television and film revenue in Nevada was $102.5 million in 2011, compared with New Mexico's reported $276.7 million in direct spending in 2011 due to film and t.v. productions.  And the state continues to experience what has been called a "steady decline" in filming revenue that has been trending downward for the last 10 years.

Until the legislature understands the value that film and television production can bring to our state and create incentives for filming here, I'm afraid we will continue to miss opportunities and lose dollars to our neighbors.  And that will mean fewer jobs for skilled crew members here in Nevada.