Brand Enforcement Redux

This week I was planning to write about Financial Performance Representations (the subject of FDD Item 19) when a funny thing happened on the way home from bocce last night (that's right I play in a bocce league!)

I asked my friend Nick (the driver) to stop at a Burger King so I could pick up a Whopper with cheese. Yes I know they are not particularly healthy but I like them. And, look at them, they are irresistible ...

So we pull up to the electronic menu board and after about 2 minute wait (literally) I shout my order from the passenger's side. This is about 8 PM, the parking lot is empty. With one car ahead of us at the service window, my mouth is watering and I figure we are well positioned for a quick grab and go!

Nick pulls up behind the waiting customer and we wait ... and wait and wait. We wait for at least 5 minutes with no human appearing, no service to the guy in front of us. Completely frustrated as I can easily become, I exit the car, look in the service-window and chat with the waiting car-customer. The single visible employee is at the main customer counter taking a new in-person order. I turn to the waiting car-customer (who must have been waiting at least 10 minutes), and he says. "I think he's the only guy in there, making all the food and taking orders!"

Returning to the car, I tell Nick to forget about it. Being far more patient than me, Nick waits another 2 minutes and with no action for the waiting car-customer, I finally persuade him to leave.

No Whopper with cheese, no service, no more Burger King.

I do not know if this was a corporate location (I doubt it in the middle of Ohio) or a franchise location but does it matter? No. As I wrote a few weeks back (see the post here):

Every location is an animated billboard for your brand, your business. And, I am not talking just to franchisors here. Franchisees, it is your brand as well! Think of it. Every time a customer visits ANY franchise location, it is a reflection of EVERY location in the system. To keep the system-wide impression sterling (not Donald), you must do your part.

Franchisors and franchisees UNITE and enforce your standards, your brand image and your system - it is your most important asset!

It is Big Macs for me from here on out.

Could Mediation Remove the Blind Spot?

Full disclosure: I recently started mediating franchise disagreements and other commercial disputes (see my post announcing my mediation services). So far so good...

Because of this new dimension to my practice, I stay alert to articles and blogs discussing litigation and settlement, especially the psychology of the process. One blog is the Persuasive Litigator written by Dr. Ken Broda-Bahm and his team. Last week's article was "Look for the Dunning-Kruger Effect."

The main finding of the Dunning-Kruger study (done in 1999) - when it comes to self-assessing one's own skills, competent individuals were able to accurately assess their own relative ranking, but incompetent people consistently overestimated their's - did not draw my attention as much as an analogous connection mentioned: that attorneys can be poor predictors of the outcome of their own cases.They have a blind spot.

While surely this does not apply to my ability, the article makes the case:

Cases fail to settle, or settle at an inappropriately late hour, often due to the parties' failure to accurately assess their case. The attorneys, the research supports, can also be surprisingly poor predictors of their own case's prospects. The advocate's role in seeing the best in their own case, the "partisan distortion," can serve as a barrier to settlement, as well as a barrier to the kinds of honest assessment that sets the stage for the best strategy in trial. Advocates' best bet is to obtain as many neutral, or neutralish assessments as possible -- including from mock jurors -- in order to get a realistic grip on the case.

Mock juries are good if you can afford one (none of my clients have been able to); but when I have my litigator hat on, I know that I am a partisan, biased in favor of my client's case. Call it human nature, borne out by the research. Some mediators have helped me and my clients come down to earth, to better assess our chances.

While mediation may not settle your case, it may help you and your client "get a realistic grip on the case." In the franchise arena, where many options are available to settle a case, mediation may solve your dispute or open your eyes to a better strategy. And, the synergistic mediation process may lead to an outcome not previously considered. This just occurred in a mediation I conducted, where a party's creative suggestion broke the logjam.

Remove the blind spot.

Franchisees' Employees Not Franchisor's

Just finished reading Kaufmann, Gildin & Robbins LLP's (led by David Kaufmann) article: A Franchisor is Not the Employer of Its Franchisees or Their Employees, published in the American Bar Association Forum on Franchising's Franchise Law Journal (Spring 2015).

Kudos to David and his colleagues (Breton Permesly, Felicia Soler, and Dale Cohen) - not only have they taken on this controversial issue (triggered by the NLRB General Counsel), but have produced a virtual treatise on the historical evolution of franchising and its legal underpinnings. Long story short - the NLRB's General Counsel's Complaints lack substance, completely ignore the role of the Federal Trade Commission in franchising and likely will not survive "judicial scrutiny."

While the article is at times a bit strident, the grounding of the requirements for "franchisor control" in the Lanham Act (the U.S. federal law for trademarks) is superb and indisputable.

This is the keystone to the defense against the "joint employer" position. Franchisors have no choice but to require uniformity to protect their most precious asset - their trademark. If franchisors (or any trademark owner) fail to control the quality of the goods and services delivered under their mark, they risk losing the mark.

David and crew offer a number of other reasons why the NLRB position is indefensible: the FTC's 35-year jurisdiction (which the NLRB General Counsel did not seem to review or understand), the definitions of a "franchise" under numerous state laws and the overwhelming legal holdings of most courts that a franchisor is not the employer of its franchisees or their employees.

The control dichotomy franchisors face must be resolved in favor of franchising and franchisors.

While I challenged the hyperbole used by the International Franchise Association when addressing this issue (see this blog post - NLRB Ruling Impacts Franchising - Existential Threat?), the Kaufmann, Gildin & Robbins LLP-article articulates all the reasons why I declared: franchisors need not panic. A legal day of reckoning will see franchising prevail. And most of the persuasion can be found in the Kaufmann, Gildin & Robbins LLP-article.

And, just as I closed my prior blog on this topic, "So, for everyone in a panic out there, I quote Aaron Rodgers ... 'Relax'"!

Brand Enforcement

Is Brand enforcement important? Is this a trick question or just a stupid one?

During the day-to-day struggle of competition and the occasional tug-of-war between franchisors and franchisees, we may forget that brand enforcement is THE most important element of the franchise relationship.

Every location is an animated billboard for your brand, your business. And, I am not talking just to franchisors here. Franchisees, it is your brand as well! Think of it. Every time a customer visits ANY franchise location, it is a reflection of EVERY location in the system. To keep the system-wide impression sterling (not Donald), you must do your part.

Franchise agreements in all systems require uniformity, standards, inspections, and compliance. But the key is enforcement. If the franchisor does not enforce the agreement, uniformity and standards can slip radically...and the animated billboard paints a negative picture.

This is especially important for new franchise systems. Both "partners" need to live and breath the standards. Franchisors: inspect frequently, communicate clearly and enforce regularly. Franchisees: know the standards, embrace uniformity and look forward to inspection - feedback is important. Everyone has a stake in keeping the brand positive.

As a franchise lawyer, I often encounter brand enforcement in notices of default, in an arbitration or mediation and in the courtroom, Commonly, this is too late. Franchisors need to be fair and consistent but must constantly enforce. Franchisees need to remember that they joined a system and that all efforts are "common efforts" to please customers and improve the system..

With that said, franchisors MUST maintain an open, clear and sincere dialogue with franchisees, deliver the enforcement message with care and professionalism, and remain flexible enough to act on legitimate suggestions for change.

Franchisees must provide constructive comments in a non-confrontational manner - in a setting that is outside of an active inspection. Your message will carry more weight when you are in a positive mode rather than a defensive one.

Keep the billboard shining brightly!