Understanding the Franchise Disclosure Document

If you have ever looked into acquiring a franchise, you are probably familiar with the term Franchise Disclosure Document (“FDD”) and for us older franchise attorneys, Uniform Franchise Offering Circular (“UFOC”).  The FDD has replaced the UFOC in name, but the disclosures in the document have remained largely the same.  Understanding the types of disclosures and some of the red flags can be very helpful to any prospective franchisee.

The FDD has 23 listed “Items” and numerous exhibits, all required by federal law.  Roughly half of the Items are simply an analysis of the franchise agreement, which is an attachment to the FDD.  While the analysis may be helpful, the franchise agreement is binding and the FDD is not.  Understanding the franchise agreement is a topic for another day.  The remaining Items and the information they convey can add critical insight into the health and strength of the franchisor, whether it is growing or shrinking and whether it is a good or not so good investment.

  • Item 1 – in the first item of the FDD you find out about the type of business you are buying, how long the franchisor has been selling franchises, what kinds of competition exist and other relevant facts. Item 1 sets the framework for your basic understanding of the franchise opportunity being offered.
  • Item 2 – Item 2 describes the business experience of the principal officers of the franchisor. The best franchise companies have experienced leadership.  Individuals who understand franchising, not just the business opportunity being offered.  Operating a restaurant and, for example, selling restaurants and making sure the individuals buying those restaurants are successful, are two  vastly different businesses requiring different business skills.  Look for franchisors that are knowledgeable about their industry but also knowledgeable about franchising and running a successful franchisor.
  • Item 3 – identifies litigation in which the franchisor is a party. If this Item has numerous disclosures of lawsuits between the franchisor and individual franchisees, stop, read no further, keep your money in your pocket and look for another franchise opportunity.  Regardless of the reasons for the litigation, you don’t want to be involved with a litigious franchisor and multiple lawsuits are both a distraction and a financial drain.  There are other opportunities.
  • Item 4 – is bankruptcy.  If the Item doesn’t state that there is no information that needs to be disclosed, then you have another red flag.  But in this case, check the financial disclosures the franchisor makes as part of Item 21 and the Exhibits to the FDD to determine if it is financially sound.  If it is not financially sound and there is a history of bankruptcy, that’s probably not a winning combination.  In fact with or without a history of bankruptcy, if the franchisor is not financially sound, it is probably best not to invest your money in that franchise system.
  • Items, 5, 6 and 7 – are all financial disclosures.  Review these carefully with your financial advisor.  Prepare a pro forma and determine what your annual costs will be and the revenue you need to cover costs, pay any debt service you may have and bring home enough to live on.  Your financial analysis is a critical part of determining whether this is the right business opportunity for you.
  • Items 8 through 17 – contain information that can also be found in the franchise agreement.  The franchise agreement is what controls, so here is where experienced legal counsel can advise you if the franchise agreement is fair to the franchisee, more standard in the industry (which typically heavily favors the franchisor) or so severe as to be unfair to the franchisee and even a bar to pursue the franchise opportunity.  Some franchisors are so intent on protecting themselves they do so to the extreme detriment of the franchisee.
  • Item 18 – identifies public figures associated with the franchise.
  • Item 19 – contains financial information which should be reviewed carefully as discussed above.
  • Item 20 – contains all kinds of helpful information on both franchised outlets and company owned outlets. Is the franchise system growing?  Is the franchisor selling new units but then they fail to open in a reasonable timeframe?  Are existing franchisees selling and getting out of the system?  Are units simply closing and not being replaced?  Obviously, these are important questions and there answers can paint a picture as to whether the franchised system is growing, declining or stagnant.
  • Item 21 – – contains financial information which should be reviewed carefully as discussed above.
  • Item 22 – lists the contracts attached as exhibits to the FDD.
  • Item 23 – is simply a receipt signed by the prospective franchisee acknowledging that she/he received the FDD and the date of receipt.

Prospective franchisees can get a good deal of information from the FDD and franchise agreement in determining whether a particular franchise opportunity is the right one for them.  A good final check is to call some successful franchisees and some ex-franchisees that may have failed (or left the system for one reason or another).  Doing your due diligence can mean the difference between future success or failure.

If you have questions about franchises or the franchise disclosure document, please contact Joel D. Rosen at (610) 275-0700 or jrosen@highswartz.com. Our Franchise Law attorneys provide comprehensive legal services to assist in all of these matters.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Joel D. Rosen Appointed to the Hepatitis B Foundation Board of Directors

High Swartz partner, Joel D. Rosen has been re-appointed Board of the Directors for the Hepatitis B Foundation for a 3 year term. Joel is also Chairman of the Board.The Hepatitis B Foundation is a national nonprofit organization dedicated to finding a cure and improving the quality of life for those affected by hepatitis B worldwide. Their commitment includes funding focused research, promoting disease awareness, supporting immunization and treatment initiatives, and serving as the primary source of information for patients and their families, the medical and scientific community, and the general public. To learn more about the Hepatitis B Foundation, visit their website at http://www.hepb.org/.Joel D. Rosen is  Managing Partner of High Swartz LLP. With more than 30 years of legal experience, his areas of practice include franchise law, business and commercial law, employment law, trademark/copyright law and commercial leasing. Mr. Rosen has counseled numerous businesses with regard to general corporate and commercial transactions, including, formation, mergers & acquisitions, licensing, sales, and financing projects. Mr. Rosen’s corporate client base spans a broad spectrum of industries, including: biotechnology, franchise, weight loss, food and restaurant, consumer products, media and entertainment, software and technology and nonprofit organizations.About the Hepatitis B Foundation: The Hepatitis B Foundation is the nation’s leading nonprofit organization solely dedicated to finding a cure for hepatitis B and improving the quality of life for those affected worldwide through research, education and patient advocacy. To learn more, go to www.hepb.org, read our blog at http://hepb.org/blog, follow us on Twitter @HepBFoundation, find us on Facebook at www.facebook.com/hepbfoundation or call 215-489-4900.About High Swartz LLP: High Swartz LLP is a full-service law firm serving clients in the Delaware Valley and throughout Pennsylvania from offices in Norristown and Doylestown. Established in 1914, High Swartz serves the needs of businesses, municipalities, government entities, nonprofits and individuals. With offices in Bucks County and Montgomery County, the full-service law firm provides comprehensive counsel and legal support to individuals and business entities of all sizes across a broad spectrum of industries throughout Pennsylvania and New Jersey. For more information, go to www.highswartz.com.# # #

High Swartz Attorneys Lead Committees within the Montgomery Bar Association

High Swartz attorneys affirm their commitment to take on leadership positions in the community. High Swartz attorneys are taking positions within the Montgomery Bar Association in 2018.

Richard C. Sokorai – Chair – Fee Dispute Committee

Melissa M. Boyd – Co-Chair – Community Network Committee

Mark R. Fischer, Jr. – Vice-Chair – Law Reporter Committee

David J. Brooman – Vice-Chair – Environmental and Energy Law Committee

Elizabeth C. Early –Chair – Family Law Section Motions Court

High Swartz attorneys have been recognized for their contributions to the legal profession, including taking leadership roles in bar association groups, in client representation, in teaching and in service to the legal community and civic organizations. Throughout our history, members of the firm also have been active in our nation’s military and in public service at the local, state and national levels.About High Swartz LLP: High Swartz LLP is a full-service law firm serving clients in the Delaware Valley and throughout Pennsylvania from offices in Norristown and Doylestown. Established in 1914, High Swartz serves the needs of businesses, municipalities, government entities, nonprofits and individuals. With offices in Bucks County and Montgomery County, the full-service law firm provides comprehensive counsel and legal support to individuals and business entities of all sizes across a broad spectrum of industries throughout Pennsylvania and New Jersey. For more information, go to www.highswartz.com.# # #

Highlights on the New Tax Law

While we are still waiting for the U.S. Department of Treasury to issue guidance on the new tax laws, here is what we know:
  • Estate and Gift Tax Changes
The federal estate, gift and GST tax exemptions have doubled to $11,180,000 per person ($22,360,000 for a married couple). This will sunset on 1/1/2026, reverting to 2017 exemption amounts ($5,490,000/person and $10,980,000/married couples) as indexed for inflation.This enormous increase provides high net worth individuals with the ability to transfer potentially $22,360,000 estate and gift tax free during their lives or at death. Depending on the individual’s goals, some planning opportunities include Spousal Lifetime Access Trusts, Grantor Retained Annuity Trusts, and Dynasty Trusts. Whatever technique is used, it is important to take advantage of this opportunity before the sunset date.
  • Fiduciary Income Tax Changes
2018 Fiduciary tax changesThe calculation of income tax on capital gains remains the same. Estates and trusts will use $2,600 as the upper limit on the 0% tax rate and $12,700 as the upper limit on the 15% tax rate.Unfortunately, income tax deductions will not be allowed in the years 2018 through 2025 for miscellaneous itemized deductions which are subject to the 2% floor. We believe that estates and trusts will still be able to deduct expenses that are not subject to the 2% floor under I.R.C. §67(e). Such expenses are those paid or incurred in connection with the administration of the estate/trust that would not have been incurred if the property were not held in the estate/trust. Examples of these permissible above the line deductions include tax preparation fees for estate, GST, inheritance and fiduciary income tax returns; probate fees; legal publications; fiduciary commissions and attorneys fees. However, investment management fees may not be deductible if those fees are of the same type that would be paid by an individual instead of an estate/trust.
  • Individual Tax Rates
Tax brackets for 2018 actThe Standard Deduction has increased to:
  • $24,000 (joint return or a surviving spouse)
  • $18,000 (unmarried with at least one qualifying child)
  • $12,000 (single)
All Miscellaneous Itemized Deductions (subject to 2% floor) have been suspended including unreimbursed employee expenses, tax preparation fees, expenses to maintain income producing property, and most tax advice expenses. In addition, expenses attributable to the trade or business of being an employee, such as home office expenses, are also suspended.The Act has also increased the limitation for charitable cash contributions by individual taxpayers to 60% (prior to the Act it was limited to 50%) of the individual’s adjusted gross income for taxable years beginning December 31, 2017, and before December 31, 2026.In summary, the Tax Act has provided individuals with the opportunity to transfer millions of dollars out of their estates, generally tax free. Individuals who don’t fit into this category should still have their estate plans completed and reviewed at least every five years, as there is more to planning than just the avoidance of federal estate tax. Of course, there is always Pennsylvania inheritance taxes to worry about.If you have questions about the next tax law and how it may affect you, please contact Stephanie A. Henrick at (610) 275-0700 or shenrick@highswartz.com. Or contact anyone of our attorneys in Bucks or Montgomery Counties. Our Wills, Trusts & Estates attorneys provide comprehensive legal services to assist in all of these matters.The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Thomas E. Panzer Elected to the Bucks County Bar Association Board of Directors

High Swartz partner, Thomas E. Panzer has been elected to the Bucks County Bar Association Board of Directors. The Bucks County Board of Director Position is a three (3) year term following an election of the general membership of the Bucks County Bar Association. The Board meets monthly to transact the general business of the Bar Association.In addition, Douglas M. Wayne, long standing member of the BCBA, has been elected to Co-Chair of the Workers’ Compensation Section.Thomas E. Panzer represents both claimants and defendants in workers’ compensation matters, which has made him a sought-after and frequent lecturer on Pennsylvania workers’ compensation topics. Mr. Panzer’s practice also focuses on the areas of administrative litigation, including zoning. He has represented multiple zoning hearing boards over the past 20 years.Douglas M. Wayne practices workers’ compensation defense, personal injury, contract, real estate, employment law and general civil litigation. Prior to his time at High Swartz, Doug was a workers’ compensation claimants’ counsel, Social Security advocate, and civil litigator in Pennsylvania since 1993 and in Bucks County since 1995.High Swartz LLP is a full-service law firm serving clients in the Delaware Valley and throughout Pennsylvania from offices in Norristown and Doylestown. Established in 1914, High Swartz serves the needs of businesses, municipalities, government entities, nonprofits and individuals. With offices in Bucks County and Montgomery County, the full-service law firm provides comprehensive counsel and legal support to individuals and business entities of all sizes across a broad spectrum of industries throughout Pennsylvania and New Jersey. For more information, go to www.highswartz.com.# # #

Thomas D. Rees and James B. Shrimp presented at MBA Employment Law CLE Seminar

Two High Swartz partners presented at the Montgomery Bar Association Employment Law CLE.Thomas D. Rees presented on employment contracts and employee non-compete agreements. He spoke about recent case developments arising from both employer enforcement of non-competes and employee challenges to non-compete agreements. The talk provided both management and key employee perspectives on drafting and negotiating employment contracts and non-compete agreements.James B. Shrimp presented on the Trump Effect, focusing on policy changes in the new administration, including the reconsideration of Obama-era NLRB decisions on concerted activities, micro-unions, joint-employer liability, and union election rules and the rollback of regulations on overtime pay, prevailing wage, and OSHA enforcement.Thomas D. Rees focuses his employment practice on advice, negotiations, and litigation over employment terminations; restrictive covenants, trade secrets, and confidential information; employment discrimination and sexual harassment issues; and employment contracts.James B. Shrimp counsels and represents businesses in employment and commercial disputes, including employment discrimination, wage and hour, and restrictive covenants.  Mr. Shrimp also counsels and represents business in Franchise Law and Trademark issues.High Swartz LLP is a full-service law firm serving clients in the Delaware Valley and throughout Pennsylvania from offices in Norristown and Doylestown. Established in 1914, High Swartz serves the needs of businesses, municipalities, government entities, nonprofits and individuals. With offices in Bucks County and Montgomery County, the firm provides comprehensive counsel and legal support to individuals and business entities of all sizes across a broad spectrum of industries throughout Pennsylvania and New Jersey. For more information, go to www.highswartz.com.# # #

Franchisees – Things to Watch Out for in 2018

Increased ICE EnforcementAs many of you have probably read about already, on January 10, 2018, Immigration and Customs Enforcement (“ICE”) performed raids at over 100 7-Eleven convenience stores checking on the immigration status of those stores’ employees.  After the raids, Acting ICE Director Thomas Homan cautioned employers that “today’s actions send a strong message to U.S. businesses that hire and employ an illegal work force – ICE will enforce the law, and if you are found to be breaking the law, you will be held accountable.” He continued – “businesses that hire illegal workers are a pull factor for illegal immigration and we are working hard to remove this magnet. ICE will continue its efforts to protect jobs for American workers by eliminating unfair competitive advantages for companies that exploit illegal immigration.”If you are a franchisee that relies on minimum wage labor, make sure you obtain proof of legal immigration status and have a copy of the I-9 in all employees’ files.  Importantly, a violation of Federal regulation/statute is a default pursuant to most franchise agreements.  Therefore, not only are you as the franchisee going to be dealing with fines and legal action with respect to your employment of undocumented workers, you may also be dealing with the loss of your business.In short, any savings you might be realizing by hiring undocumented workers is not worth the risk, especially in this environment.Browning-Ferris Overruled by NLRB – Franchisors Will Reassert Control Over BrandingIn late December 2017, the National Labor Relations Board (“NLRB”) overruled the Browning-Ferris decision of two years ago regarding joint employer.  You may remember that the Browning-Ferris decision caused franchisors concern, because over-asserting control over the brand, in relation to employment standards, policy standards, etc… might lead to liability on the franchisor for the acts of the franchisee. Thus, franchisors seemingly had to choose between tight brand control, with potential liability for the acts of the franchisee, or loose brand control, but no risk of liability for the acts of the franchisee.In December’s Hy-Brand ruling, the NLRB restored the traditional joint employer standard, requiring proof that the alleged joint employer actually “exercised joint control over essential employment terms (rather than merely having ‘reserved’ the right to exercise control) and that “the control must be ‘direct and immediate’ (rather than indirect), and joint-employer status will not result from control that is ‘limited and routine.’”As a result, franchisees will likely see franchisors reasserting control over the brand – meaning more inspections, more policies and more training.  In addition, for new franchisees you will also likely see more control of the brand/business set forth in the franchise agreement.If you have questions about franchise law, please contact James B. Shrimp at (610) 275-0700 or jshrimp@highswartz.comOur attorneys in Bucks County and Montgomery County are here to assist you.The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Top 10 Tips for Child Custody Issues

Child custody issues are some of the most difficult to deal with no matter the marital status of the parents. The High Swartz Domestic Relations team knows that every case is different, and the people involved in these cases may feel vulnerable and overwhelmed. Each of us has focused our practice on Family Law and Domestic Relations because we, each for our own reasons, felt the need to pay attention to the more personal and human side of law. We don’t work on cases, we work with people.When custody is part of a divorce or just the amicable split of an unmarried couple, most parties hope the child custody arrangements can be agreed upon quickly and amicably. Unfortunately, child custody can become contentious. In the event that custody has to be decided by a judge or arbitrator, you can help your own position by following these tips.
  1. Don’t badmouth your ex out of anger. Verbally airing your grievances with the other parent may be emotionally satisfying in the moment, but ultimately, it has the potential to be very damaging if it’s not for the safety of the children. Unpleasant sentiments about your ex are particularly damaging when they’re said within earshot of your children – that’s still their father or mother who you’re talking about, and they may remember the worst of your outbursts for a very long time. In addition, these feelings have an uncanny knack for finding their way back to their subject. Particularly extreme ideas, even if they were said in the heat of anger or pain and not intended to be taken seriously, can be taken out of context, with potentially dire consequences for child custody.
  2. Ditch social media. Or, at the very least, start thinking very carefully about what information you share on social media and who can see it. Even if you’re no longer “friends” with the other parent on Facebook, Snapchat, or other platforms, others who know them might be willing to share your social media activity with them. Even if the information that reaches them seems harmless, it’s easier than many realize to take social media posts out of context and use them to put their author in a bad light – in front of friends, family, and oftentimes family court judges.
  3. Document, document, document everything. Keep a diary or calendar of any communications, events, incidents, or even confrontations with the other parent, particularly if they involve the children or their schedule. In a contentious custody dispute, it’s difficult to know ahead of time what information might be relevant to a domestic relations office or a family court judge.
  4. Encourage your child(ren) to have a relationship with the other parent. One of the most unfortunate choices that one or both parents can make is to attempt to place the children in the impossible role of arbitrating the custody dispute. This happens when one or both parents asks the children effectively to choose sides in the split by pressuring them to express a preference for one parent or a dislike for the other. There are reams of psychological information on how damaging this is to a child’s sense of familial belonging, but it also has the effect of making the custody dispute an order of magnitude more adversarial. Please encourage your children, through words and actions, to have a relationship with both parents. Clearly, there are exceptions to this guidance, particularly in cases where the other parent may have committed abuse. In these situations, consult with your attorney about the options which may include supervised visitation.
  5. Develop a custody schedule. Be specific. The custody schedule should spell out the days, times and locations of when and where the children will transfer from the custody of one parent to the other. At a minimum, in addition to the routine custody transfers, there should be language that covers major holidays, birthdays, anniversaries, and the coordination of vacation travel with the custody schedule.
  6. Specific doesn’t mean rigid. Well done – you’ve worked out a custody schedule with your ex. Now that you have, though, be flexible. The schedule should be a guideline, not a hard and fast rule. Life is often chaotic and unpredictable. Work schedules change on short notice. Cars break down. Illness strikes. When your ex asks you to make an adjustment to the schedule, look for reasons to accommodate rather than to obstruct. When something unexpected happens to you, you might need them to be flexible. Laying the foundations for practical cooperation in the early stages of your child custody arrangements will help the entire family’s relationships over the long run.
  7.  Support family traditions (even if they’re not your own). As mentioned, trying to enlist your children’s support in your side of a custody dispute is a no-no (see #4). That said, ensuring that they’re comfortable and happy in your home will help your case in the view of any third parties examining the child custody question. One of the best ways to do this is by ensuring the continuity of any family-specific routines to which the children have become accustomed. If the other parent read them a story or sang them a song at bedtime, it’s time for you to pick up the routine. The same goes for any practices or traditions associated with birthdays, holidays, religious observances, etc.
  8. Welcome new traditions. Even as you’re working to preserve the routines and traditions to which your children have become accustomed, it’s important to create a new and different family unit from what came before. It is possible – and encouraged – to celebrate that unity without disparaging the past. Create new traditions and routines that help your children develop a sense of identity around the home they share with you.
  9. Give your child an outlet outside of home. The division of your marital home can affect your children profoundly, even if they appear to be “doing fine.” Seek information and support to assist your children in coping with separation and divorce. Many children, however, will not be completely comfortable discussing all their feelings with either of their newly separated parents. Try to ensure that they have another trusted adult who they can talk to. This may be a grandparent, a family friend, a teacher, a coach, or a paid counselor.
  10. Families can survive the end of their parents’ relationship. Even when there are disputes over the specifics of child custody, it’s the fortunate truth that most parents have a genuine, heartfelt interest in the well-being of their children. Used as a basis for common ground, rather than rivalry, a sound and sustainable child custody agreement can help a divided family maintain a modified form of unity that will provide the children with a sense of security and stability until adulthood and beyond.
When parents split, they don’t need to drag their children through the mud along with them. If you are part of a custody dispute, remember to put your children first by setting the best parental example possible. And know this, family courts are very intolerant of selfish antics.Each child custody dispute is different, and the facts in every case are unique to the family involved.  We work closely with you in order to help you identify and articulate your objectives, develop a sound understanding of your rights and obligations under the law, and execute the legal strategy that is right for your goals and circumstances.If you have any questions about child custody, please contact Melissa Boyd, at 610-275-0700 or via email at mboyd@highswartz.com or one of our experienced Family Law attorneys in Bucks or Montgomery Counties.The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.This article was originally printed in the digital issue of MontCo Today and the December issue of the Sisters U.