Thursday, September 27, 2012

A Spouse and the Non-Competition Agreement

The enforceability of a non-competition agreement on a non-signing spouse has been the source of much litigation over the years. The courts are divided as to whether or not a non-signing spouse can be held to the terms of the non-competition agreement. A recent Wisconsin ruling has brought this issue to the forefront of business owner’s minds as they try to sort through what can and cannot be enforced.

In Everett v. Paul Davis Restoration, Inc., 2012 U.S. Dist. LEXIS 133682 (E.D. Wis. Sept. 18, 2012) the Wisconsin court held that the non-signing wife had not directly benefited from her husband’s franchise agreement and therefore could not be bound. The court wrote, “In order to hold Ms. Everett to a contract she did not sign, PDRI must show that she benefitted directly from the contract, not the business that the contract made profitable.” This case is particularly egregious to many in the franchise industry due to the fact that the signing husband “sold” the business to his wife. He stopped being a franchisee, but his wife took the concept and began operating a competing business.

However, several other courts have held exactly the opposite. Tennessee, Indiana and Massachusetts all have cases that hold in favor of the franchisor or the business being harmed by the violation of the non-competition agreement by the non-signing spouse. (See: Servpro Indus., Inc. v. Pizzillo, 2001 Tenn. App. LEXIS 87 (Tenn. Ct. App. Feb. 14, 2001); McCart v. H & R Block, 470 N.E.2d 756, 761 (Ind. Ct. App. 1984); Sulmonetti v. Hayes (1964), 347 Mass. 390, 198 N.E.2d 297).

If you are a business owner, how can you know if your non-competition agreement will be upheld against a non-signing spouse? Ultimately, the courts finding a violation of the agreement against a non-signing spouse examine the issue on three levels.

First, did the spouse benefit from the agreement at the heart of the non-competition agreement? If a spouse worked in the business (franchise or otherwise) then there is a more likely argument that the spouse received an actual benefit from the agreement.

Second, is the non-signing spouse acting as the alter-ego of the signing spouse. Similar to a corporate veil argument, many courts will look at who is actually running the business and how much information from the prior business is being used to make the current business successful. One Illinois court put it this way, “there must be evidence that she aided or operated in concert with the covenantor to breach the covenant or that she was the alter ego of the covenantor.” Norlund v. Faust, 675 N.E.2d 1142, 1157 (Ind. Ct. App. 1997).

Third, how much confidential information did the non-signing spouse have access to? This is difficult to prove, but the greater the access to confidential information, the more likely the non-compete will be enforced.

The safest way to move forward if you are worried that a spouse might try and circumvent the purposes of the non-competition agreement, is to have every spouse sign an agreement. This presents problems in and of itself, but it does give the protection that many courts fail to provide to franchisors and other business owners.

Monday, September 24, 2012

Food Trucks -Part II: Franchising

Last week we posted on the food truck revolution in the United States. The post dealt with broad issues related to the food truck industry. Today’s post is about the food truck in the franchise context.

The Pros and Cons set out in last week’s post (Food Truck (R)evolution) all apply in a franchise setting. The ability to test a market, the advantage of the travelling billboard and ability to move to the customers all are advantages to a franchisor. However, determining whether or not a food truck can and should be a part of your franchise is something that takes a lot of consideration and analysis. This post is meant to give a few ideas on how a food truck could work into your existing franchise system, or how it can become a franchise system all on its own.

The existing franchise system can use the food truck in a number of ways. The most apparent way, at least to me, is to add a food truck as a separate franchise offering. Instead of offering a restaurant franchise in the traditional store-front sense, you can offer a prospective franchisee to become your food truck franchisee. The advantage is potential cost savings with lower overhead and start-up costs for the franchisee. If you do decide to go this route, you have the option of either wrapping in the food truck concept into your current Franchise Disclosure Document (“FDD”), or to have a separate FDD for the food truck concept. The decision on which route to take should be made with your qualified franchise attorney.

If you do not want to add the food truck as a franchise offering, you could purchase a franchise truck (or several), outfit it, wrap it and offer it for ‘rent’ to your franchisees in an area so that they can use it for special event purposes. This increases your exposure and helps to reach out to an audience that might not know your restaurant exists. This also is a great add-on benefit to your franchisees that are looking for ways to increase business and to get their name more fully into the community.

A new restaurant concept that starts as a food truck could expand their food truck business by offering food truck franchises. Unlike an existing restaurant franchise system, this type of franchise is limited to just the food truck. The advantage is that it potentially keeps franchisee costs down and gives someone the option for a (often seemingly) part-time business that the traditional store-front restaurant often does not allow for.

No matter how you choose to incorporate the food truck into your business, always talk to a qualified professional, including attorneys, and those in the industry, who can help you decide the best option for your business. 

Tuesday, September 18, 2012

The Food Truck (R)evolution

The food truck business has been around for decades. In recent years we have seen the food truck evolve from the ice cream truck to the truck with gourmet and specialty food offerings. Even television has picked up on the trend with the Food Network offering a reality show called The Great Food Truck Race.

Many have stated the food truck is a fad, but from what I have read, it appears that this next generation of food truck trend is here to stay. Many franchises are taking advantage of this trend and opting for a mobile expansion as part of their franchise offerings. Other food service businesses are opting for the straight food truck model forgoing the traditional brick and mortar location. There are pros and cons in determining both if the food truck business is right for you and whether it is a good business move for your business.

The biggest pro to the food truck option is the lower overall cost. A food truck is going to cost a lot less than a traditional storefront space. In addition, there are typically fewer employees and lower utility costs. And since location is everything in a business, the food truck can easily pick up and move its location to one that will better capture the market share. Food trucks also offer a level of convenience that many traditional restaurants struggle with.

This type of business is also a traveling advertisement. The traveling billboard saves on marketing and advertising dollars that a traditional restaurant would have to invest. With the growing interest in food trucks by the public, and the wider variety of food options offered by food trucks, free or low cost social media marketing was made for this type of business.

Food trucks also offer the customer a different type of food experience and because of the small size, it can provide for a more personal interaction between the owner and the customer. Businesses can engage the customer in a new way that may prove highly beneficial.

Lastly, the food truck offers the opportunity to test a market or location, without a lot of risk. If you are considering opening a traditional restaurant in a specific market or location, the food truck can help you determine relatively quickly and easily if there is interest in your concept.

If you think that a food truck will be an easy and simple business that you will only have to run 2-3 hours a day a couple of days a week, you are probably in for a big surprise. While open for businesses only 2-3 hours at a time, the successful food truck business can take up many more hours in a day. It has been referred to as a part time business requiring a full time effort.

The food truck that cannot get its food delivered quickly and efficiently to the customer, will fail. A food truck’s menu has to be compatible with the smaller layout and the different format for preparing and serving food. In one food truck experience I had, I waited for 35 minutes in 105ยบ weather. Needless to say, they lost a customer. The business needs to be structured in a way to meet the expectations and needs of the food truck customer.

There are also more permits that may be required from the state, county and city/town which can often cost more in terms of time and money. 

Tuesday, September 11, 2012

Forgotten Essentials: Estate Planning for Business Owners

Business owners understand better than anyone that there are not enough hours in the day. With all the time, effort, and duties surrounding owning a business, a business owner can get overwhelmed with the number of items on their to-do list. Often a business owner will overlook one legal area that may ultimately be most important: estate planning.

Business owners work hard to build their businesses. This is usually done with the goal of providing for their family. However, without some estate planning, if the business owner passes away, all the hard work will not have been worth it because the family will not be protected.

The first estate planning tool for a business owner to consider is a buy sell agreement. This is an agreement that governs what happens if an owner dies or chooses to leave the business. This protects the interests of all owners. By agreeing beforehand how to handle these situations, the owners reduce the risk of lawsuits or other issues which could harm or ultimately ruin the business.

Next the business owner must consider estate planning documents that apply if the owner is incapacitated. This includes powers of attorney and advanced directives. A power of attorney is an authorization for someone to act on behalf of another regarding that person’s financial or legal needs. If an owner is incapacitated, then someone needs to have the power to make decisions and keep the business operating until the owner is able to do so himself or herself. Advanced directives are a set of written instructions for taking care of the health care decision of someone who is incapacitated. This helps ensure that the wishes of the owner regarding the medical they would receive if incapacitated are followed.

Finally, the business owner should make a will and consider using a trust, family limited partnership or LLC for certain property. This ensures that the business owner’s assets are divided between his or her heirs in the way that the business owner believes is best. The estate planning tools used by the business owner may have significant tax consequences.

In making any of these estate planning decisions, a business owner should consult an attorney to decide what would be best for his or her circumstances.



Friday, September 7, 2012

Protecting Your Brand -Trademark Registration

When it comes to branding your business, your trademark should be at the center of the discussion. A trademark or service mark can be a word, a logo, a slogan, a color and even a sound. And making sure your trademark is registered is of primary importance to ensure that you retain full rights in your name, slogan, logo, etc. Protecting your trademark, protects your business.

Broad Spectrum Registration
While many people understand the importance of trademark registration with the United States Patent and Trademark Office (“USPTO”) for their business, most forget that the trademark or service mark (“Mark”) should be registered for all uses of the mark. In other words, if you have a registered Mark for restaurant services, but not for clothing and apparel, arguably, those shirts you are selling with your logo are not protected; anyone can use your trademark on clothing and apparel or any other use that is not a restaurant service. Multiple registrations for different classes of goods helps protect your valuable Mark. (A good example of this is McDonald’s mark in “I’m Lovin’ It®”. They have registration of this in 4 classes of goods).

Use it or Lose it
You need to be actively protecting your Mark and using your Mark. If you have a registered Mark that you stop using, you will lose your rights. The same goes for not protecting your rights –if you don’t try to stop infringing users, you may lose your rights to stop that user from infringing on your Mark. Regular searches on search engines such as Google and Bing, as well as looking at the USPTO registry, and on YouTube, Facebook and Twitter can help alert you to those users who are infringing on your Mark.

Liability and Facebook

According to Facebook’s “Facebook for Business” page[1], there are over 900 million people currently holding Facebook accounts. That is a staggering amount. It is no wonder that in 2011 it was estimated by[2] that nearly two-thirds of all small businesses had a Facebook page. Clearly Facebook is an advantageous marketing tool because the page itself is free and the advertising offered is relatively inexpensive when compared to the price to reach a similar market volume.

However, businesses should be aware of the potential liabilities created by having a Facebook page. Recent court decisions by the Advertising Standards Board in Australia demonstrate the liabilities created by allowing public comments to be made on a company’s Facebook page. Although the decisions are Australian-based, for those companies in the United States, these decisions provide guidance on what steps can be taken to prevent or at a minimum, limit, liability.

The Advertising Standards Board issued this opinion:

“A Facebook site of an advertiser is a marketing communication tool over which the advertiser has a reasonable degree of control and could be considered to draw the attention of a segment of the public to a product in a manner calculated to promote or oppose directly or indirectly that product… As a Facebook page can be used to engage with customers, the Board further considered that the Code applies to the content generated by the advertisers as well as material or comments posted by users or friends.[3]

The advertising of US-based businesses, including franchises, is regulated and businesses should understand and be aware of the regulations and guidelines and make sure that they are complying in all their marketing and advertising –including on Facebook and other social media sites.

In July we posted a blog about what employers should know about social media policies (see In order to help avoid liability from customer posts on a business’s Facebook page, the social media policies should include the manner in which the company plans to handle posts that have the potential to create liability, and these policies should be shared with employees and any outside parties that have access to or control your social media sites.