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The bill creating the new rules unanimously passed the General Assembly and Senate, reflecting legislators' concern with the health of auto dealers in the state. According to James B. Appleton, president of the New Jersey Coalition of Automotive Retailers, the state has 512 dealers today, down from 630 in January 2007.

Massachusetts Lawmakers Consider Two Franchise Bills

Massachusetts lawmakers held hearings on June 29 about two legislative proposals that would significantly change how franchising is regulated in the state. The hearings were held by the Joint Committee on Community Development and Small Businesses.

HR3513 would affirm that the definition of a franchisee in Massachusetts conforms to the definition used by the Federal Trade Commission (“FTC”). The legislation arose out of the controversial decision by the U.S. District Court for the District of Massachusetts in Awuah v. Coverall North America Inc., in March 2010, in which Coverall franchisees were deemed to be employees of Coverall (see FBLA June 2011, page 3). If a franchisee is an employee, he or she is entitled to worker protections such as minimum wage and overtime, and Coverall would be responsible for making payments on the franchisee-employee's behalf for worker's compensation insurance and unemployment insurance.

HR3513 would declare that “an individual who owns a franchise, or is a party to a franchise agreement under which he or she is authorized to sell products and/or services (a) in accordance with prescribed methods and procedures; and (b) under service marks, trademarks, trade names and other intellectual property licensed under such agreement, shall not be considered an employee of the franchisor. For the purposes of this section, 'Franchise' has the same meaning ascribed to it by the Federal Trade Commission in 16 CFR 436 through 436.11.”

The International Franchise Association supports HR3513. IFA filed an amicus brief earlier in June with the Massachusetts Supreme Judicial Court in support of Coverall's appeal of the district court's decision (see FBLA, July 2011, page 7). “Wrongfully defining franchisees as employees of the franchisors instead of as business owners, as the federal district court's ruling does, threatens the viability of franchising as a business model in Massachusetts and will likely lead to the closing of franchise establishments and a reduced rate of job creation in the state,” said IFA President and CEO Steve Caldeira when the brief was filed.

The next step for the bill is an executive session of the joint committee. “The legislation is designed to clarify the relationship between a legitimate franchisor and a franchisee. In the unique case of Coverall, the court ruled that the company abused the franchisor/franchisee model,” Rep. John D. Keenan (D-Salem), sponsor of the bill, told FBLA in an e-mail exchange after the hearing. “All I hope to do with this legislation is ensure that franchisors who abide by the rules can feel comfortable doing business in Massachusetts.

“The simple goal of this legislation is to recognize the traditional boundaries between a franchisor and a franchisee ' to ensure that they are recognized as two distinct business entities and treated as such under the law,” Keenan continued. “In doing so, this in no way neglects or changes the rights and protections currently in place for workers in the traditional franchise model '. It is my hope that, moving forward, this bill would serve to benefit both franchises and their workers.”

S1843, known informally as the “Fair Franchising Bill,” would strengthen franchisees' protections against termination or non-renewal and in disputes generally. It would prohibit terminations or non-renewals unless a franchisor showed “good cause,” defined as “based upon legitimate business reason ' includ[ing] the franchisee's failure to comply with any material lawful requirement contained in the franchise agreement.” Termination and non-renewal notices would have to be delivered 90 days in advance, with the reasons for the action stated.

Several franchisees and franchisee representatives testified in favor of the bill during the hearing. SB1843 would “level the playing field” for franchisees, said Jim Coen, president of the Dunkin' Donuts Independent Franchise Owners Association.

The bill has a long list of franchisee actions that cannot be the reason for termination, including:

• Refusal to take part in promotional campaigns of the franchisor's products.
• Failure to meet sales quotas suggested by the franchisor.
• Refusal to sell any products at a price suggested by the franchisor or supplier.
• Refusal to keep the premises open and operating earlier than 6 a.m. or later than 10 p.m., or during other periods that the franchisee can document are unprofitable.
• Refusal to give the franchisor records of the operation of the franchise that are not related to or are unnecessary to the franchisee's obligations under the franchise agreement.

Also, S1843 would mandate compensation to franchise owners if a new outlet opened nearby and was affecting sales, unless one of several conditions was met, such as the franchisee was first offered the chance to open the new outlet. The bill would mandate arbitration by the American Arbitration Association on questions of “good cause,” but both the franchisor and franchisee could appeal the arbitrator's decision in court.

The Fair Franchising Bill's sponsor, Sen. Brian A. Joyce (D-Milton), was unable to respond to questions from FBLA in time for publication.

PA Car Dealer on Losing End of $4.4 Million Award in Car Accident

A jury in Montgomery County, PA, awarded $4.4 million to Cristina Tarca, who said being rear-ended in a 2005 car accident caused her to develop a debilitating pain syndrome. Tarca's Toyota RAV4 was rear-ended by a Ford E-150 van driven by Irvin Johnson on behalf of his former employer, Norristown Ford.

As reported by Amaris Elliott-Engel, of the Pennsylvania Law Weekly, a publication affiliated with FBLA, the verdict is one of the five highest verdicts or settlements reported in Montgomery County over the last decade. Tarca v. Norristown Ford was heard in Montgomery Common Pleas Court, with Judge Gary Silow presiding.

The parties stipulated that driver Johnson and Norristown Ford were negligent and were the factual cause of Tarca's injuries. Johnson was looking down at the delivery schedule he had dropped to the floor when his vehicle hit Tarca's vehicle, according to the parties' pretrial memorandums. The plaintiffs argued that Norristown Ford was negligent in hiring and supervising Johnson because he was driving at the time of the accident with a suspended driver's license. Johnson's license was suspended in October 2005 because he did not respond to a traffic ticket in August 2005, but Johnson claimed in a pretrial statement that he did not receive notification of the suspension because he had moved. Without knowledge of the suspension, Johnson did not inform his employer, either.

Drivers for the car dealership were checked on an annual basis, and there had been no problems with Johnson's license during the two years preceding the accident, the defense papers said. “The claim against defendant, Irvin Johnson, is based solely on negligence and there is an admission that Johnson was acting within the course and scope of his employment with Norristown Ford,” defense papers said. “There is no evidence to support any willful or wanton misconduct on the part of Norristown Ford in entrusting its vehicle to Irvin Johnson.”

Tarca's medical expenses were $168,102.99, and the jury awarded her an additional $20,000 in past medical expenses related to an experimental treatment she sought from a Florida medical provider and almost $1.9 million in future medical expenses, $142,010 in past lost earnings, $714,251 in future lost earnings, $142,010 in past non-economic losses and $1.33 million in future non-economic losses. Tarca's husband, Dumitru Tarca, was entitled to $50,000 for loss of consortium.

Car Dealers Gain New Protections in NJ

New Jersey auto dealers have broad new protections from elimination of vehicle product lines, mandatory upgrades, terminations, and more under amendments to the New Jersey Franchise Practices Act signed by Gov. Chris Christie. The new rules went into effect in May.

As noted in a May 25 memo sent to judges and other officials in the civil courts, the amended rules affect: facilities, real property, physical location, capital, and inventory requirements imposed by manufacturers on dealers; manufacturer demands that dealers sign ancillary agreements regarding liability; charge-backs levied by manufacturers against dealers in connection with the exportation of motor vehicles, sales incentives, and warranty audits; and manufacturers' repurchase obligations and dealers' rights in the event of a voluntary dealer termination, a sale or transfer of a franchise, and in the event a manufacturer seeks to establish or relocate a new or competing franchise in a dealer's market area. The rules also increase dealers' ability to protect against the addition of or a relocation of an existing dealer of the same brand into the “relevant market area” of a dealer.

The bill creating the new rules unanimously passed the General Assembly and Senate, reflecting legislators' concern with the health of auto dealers in the state. According to James B. Appleton, president of the New Jersey Coalition of Automotive Retailers, the state has 512 dealers today, down from 630 in January 2007.