Hunton Retail Law Resource

On September 10, 2020, the United States District Court for the District of Massachusetts issued a Memorandum and Order granting summary judgment in favor of a franchisor in response to claims by a purported class of franchisees that they were not truly independent contractors, but employees of the franchisor. This ruling is particularly applicable to retailers using the franchise business model (especially those in Massachusetts), as it aids in the preservation of the franchise business model and the rights of franchisors to operate in compliance with federal law.

In a 2017 interview, Nigel Travis, former CEO of Dunkin’ Brands, stated that “delivery will be the next wave” in the restaurant industry and that it would “be like a revolution,” occurring “faster than anyone thinks.” Travis was not wrong; in fact, recent statistics shared by Melissa Wilson at the 2018 Restaurant Leadership Conference show Travis’ prediction quickly taking hold – 86% of consumers are using off-premise delivery services at least monthly and one third of consumers are using it more than they did a year ago. By some estimates, delivery services are projected to grow at least 12% per year over the next five years. While a handful of restaurants are filling the delivery demand themselves, more and more restaurants are looking to third-party delivery service providers to help them connect with the consumer. In fact, “third-party delivery services like UberEats, Grubhub, and Postmates currently represent $9 billion in restaurant sales today, and they are predicted to account for $16 billion in sales by 2022.”

This past week, several consumer actions made headlines that affect the retail industry.

FTC Crack Down on “American Made” Marketing Claims Continues in Settlement with Bollman Hat Company

The FTC announced a settlement in the third case in the last 12 months involving deceptive “Made in USA” claims. Here, the FTC alleged that the Bollman Hat Company and its subsidiary deceived consumers with marketing campaign slogans of “Made In USA,” “American Made Matters,” and “Choose American” for its hats and third-party products, despite more than 70 percent of their hat styles being wholly imported finished products. The FTC also alleged that Bollman launched an “American Made Matters” seal campaign in 2010 that misled consumers in which and how many products Bollman and the companies that leased the seal were actually made in America.

Recently, Kurt Larkin and Ryan Glasgow, partners on Hunton & Williams’ Labor & Employment team, discussed the possible effects of a recent Fourth Circuit Court of Appeals case that creates an altogether new and incredibly broad joint employment standard under the Fair Labor Standards Act (“FLSA”). They opine that the decision threatens to redefine the contours of joint employer liability under the FLSA and severely impact key business arrangements, like the franchise model.

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As reported in the Hunton Insurance Recovery blog, a federal judge in Alabama ruled Tuesday that a grocer could not rely on its legacy business insurance policies – including an “electronic data” coverage extension – to protect against third-party claims after customer data was compromised by a point-of-sale cyber attack. The decision in Camp’s Grocery, Inc. v. State Farm Fire and Casualty Company is another reminder to retail policyholders to ensure that their cybersecurity programs include both adequate cybersecurity safeguards and appropriate first-party and third-party cyber/crime insurance coverages. Failure to maintain either may jeopardize coverage for resulting cyber losses.

On June 3, 2016, Hunton & Williams LLP published a video discussing a 2015 ruling by the National Labor Relations Board (“NLRB”) as it relates to the real estate industry, which fundamentally alters the joint-employer standard. The ruling has already been making waves in the retail industry as the NLRB seeks to apply the new standards to hold certain franchisors liable for the employment violations of its franchisees. The decision comes in an era of increased reliance on third party contractors and staffing agencies to fulfill companies’ staffing requirements and, with recent NLRB action, is being expanded to hold franchisors liable as joint-employers. Under the new standards, an entity can be held liable, as a joint-employer, for the violations of another if the entity retains to itself the ability to effect the terms and conditions of the other’s employees.