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Vol 12 (2014) - Issue 6

Australia – Regulatory reform and case law update

Andrew Wiseman and Julia Kovarsky, Allens, Sydney, Australia

Franchising law received a lot of attention in Australia in 2014. While Parliament has been busy considering and drafting regulatory reform, the Courts have been equally active in scrutinising franchising relationships. The new Australian Franchising Code of Conduct introduces new civil penalties, an express obligation of good faith, rules in relation to marketing funds and capital expenditure, new disclosure and record keeping obligations, amended dispute resolution rules and restrictions on restraint of trade rules. The Government also published a consultation paper on extending unfair contract term protections to small businesses. The author also considers three recent Federal Court decisions considering the duties of parties in a franchising relationship.

Brazilian anti-corruption law

Luciana Bassani and Cândida Caffé, Dannemann Siemsen Advogados, Rio de Janeiro, Brazil

Brazil’s anti-corruption law came into force in early 2014. It imposes civil and administrative liability on legal entities for corrupt acts committed by their employees or agents against foreign or domestic public administration. This article analyses the main provisions of the legislation, including the definition of corrupt acts, liability, sanctions and other legal consequences, corporate compliance programmes and leniency agreements. The author specifically addresses the impact of the law on franchisors.

Recent developments in Russian franchise law

Dr. Thomas Mundry, Noerr, Moscow, Russia

This article covers recent changes to the laws and regulations affecting franchising in Russia. Amendments which took effect on 1 October 2014 establish less burdensome requirements in relation to registration procedures, a narrower definition of know-how and new rules on licensing intellectual property rights. A draft law introduced in parliament in April 2014 sets out extensive new disclosure obligations on franchisors and determinses the consequences of non-compliance. Finally, the author also considers the new conflict of law provisions which came into force at the end of 2013.

Is a franchisor the employer of its franchisee’s personnel?

Michael Brennan, DLA Piper LLP, Chicago, United States

The current standard applied by the US National Labor Relations Board (NLRB) to determine joint-employer status is that the putative joint-employer’s control over employment matters should be direct, immediate and substantial. Recently some have argued that a broader ‘potential control’ test should apply, which is sufficiently vague to turn many franchisors into joint employers with their franchisees contradicting the fundamental principle that franchisors and franchisees are independent contractors. This article analyses these developments in detail and concludes that it will always be imperative for franchisors to strike the right balance with respect to control over franchisees and their businesses.

The duty of 'good faith' in franchise agreements: the latest English court decisions

Victoria Hobbs, Bird & Bird LLP, London, UK

English franchise lawyers have generally been of the view that there is no implied obligation of good faith in a franchise relationship. However, a landmark 2013 High Court judgment held that 'good faith' in the sense of honesty should be implied into commercial agreements which are relationship-based and which require ongoing communication and cooperation between the parties. This principle was first tested in a franchising context in a recent case, which led some commentators to conclude that the principle does not apply to franchising relationships. The author argues however that a standard of good faith is taking shape under English commercial contract law and that it will apply, but only in the right case and on the right facts.

Post expiration and termination issues in master franchising – the fate of the unit franchises and other issues

Leonard Polsky, Gowling Lafleur Henderson LLP, Vancouver, Canada, Mark Abell, Bird & Bird, London, UK, Ruby Asturias, Pacheco Coto, Guatemala City, Guatemala and Sun Chang, Lee & Ko, Seoul, Korea

What is the fate of the unit franchises once the master franchise expires or terminates? This article explores the consequences of expiration or termination of a master franchise agreement, under both common law and civil law, in various jurisdictions across Europe, Asia and Latin America. The analysis focuses on the relevant issues for each particular region, such as termination of unit franchises, reversion of the master franchise, assignment of the unit franchise agreements, ancillary agreements such as subleases, ongoing support, brand names, re branding, local law, and others, that are important to the fate of the unit franchises.