Item 1 – The Franchisor, and Any Parents, Predecessors, and Affiliates. This item provides information on the corporate status of the franchisor, whether it is a subsidiary, and any other related business entities. It will include information on how long the franchisor has been in business and how long it has offered franchises. The franchise opportunity may involve contracts with more than one business entity. For example, the opportunity may involve leasing real estate and a building, but the company that owns the property may be an affiliate of the franchisor and not the franchisor.
Item 2 – Business Experience. This item provides information on the directors, partners, officers, and key employees of the franchisor who have responsibility for the sale and oversight of franchises. This information will include the positions and roles they have played during the past five years.
Item 3 – Litigation. In this item, the FDD must disclose any involvement in criminal, administrative, or civil litigation during the ten-year period before the date of the FDD. Any such information must be disclosed if it involved the franchisor, any affiliated company, any related business that provides financing to franchisees, and any director, partner, officer, or key employee of these businesses.
Item 4 – Bankruptcy. The FDD must disclose any bankruptcy filing or discharge by the franchisor or its affiliated companies during the ten-year period before the date of the FDD. This information must be provided for the franchisor, any related business, any director, partner, officer, or other person with management responsibility over the sale and operations of franchises. Detailed information must be included that identifies the bankruptcy case and any discharge in the case.
Item 20 – Outlets and Franchisee Information. In this item, the FDD must provide information on the number of “outlets” (both franchised and company owned) during the three years before the date of the FDD. Item 20 should include at least five tables providing information on: (a) the number of outlets; (b) transfers of outlets (from one franchisee to another); (c) changes in the status of outlets (opened, terminated, purchased by franchisor); (d) the status of company-owned outlets; and (e) projected openings.
Item 21 – Financial Information. In Item 21, the FDD must provide audited financial statements for the franchisor and, in some cases, affiliated businesses. This section must include financial statements and comparison chart covering at least the previous two fiscal years.
What Information Does the FDD Contain About the Franchise Fees, the Franchisee’s Investment, Franchisor Financing, and Representations about Financial Performance? The FDD must provide information about franchise fees, start-up costs, and financing in Items 5, 6, 7, 10, and 19. The following are thumbnail summaries of these items:Item 5 – Initial Fees. In this item, the franchisor must state all fees, payments, and commitments to pay for services and goods from the franchisor or any affiliate before the franchisee opens for business. If the initial fees are calculated by a formula, the formula must be disclosed.
Item 6 – Other Fees. The FDD must disclose all other fees that the franchisee must pay to the franchisor in Item 6. This information will be set forth in table format and discuss fees for royalties (for the trademark use), leasing and related costs (for example, remodeling), training, advertising, purchasing cooperatives, audits, accounting, and other fees and costs. The table will also provide other information such as when the fees will be due.
Item 7 – Estimated Initial Investment. In Item 7, the FDD must provide information in table format on the franchisor’s investment, which might be thought of as start-up costs. The initial investment costs can include, among other things, the initial franchise fee, training, real estate purchases or leases, equipment, fixtures, remodeling, utilities, and deposits.
Item 10 – Financing. If financing is offered by or arranged through the franchisor, the terms of the financing must be provided in Item 10 and may be presented in table format. The information must include what the financing covers, the identity of the lender and its relationship to the franchisor, detailed information on the financing (term, interest rate, etc.), any waiver of defenses, and whether the franchisor or affiliate intends to sell or transfer the financing.
Item 19 – Financial Performance Representations. The franchisor is not required to make any representations about the anticipated financial performance of the franchise opportunity. If any statements about expected financial performance are made, the franchisor must have a reasonable basis for the representations (and be able to back it up with documentation). This information must include how the representations were developed—for example, based on historical data, a subset of all franchises, and basis for financial forecasting.
What Information Does the FDD Provide About the Franchisee’s Obligations and the Franchisor’s Support? In Items 9 and 11, the FDD must include information on the franchisee’s obligations and the support provided by the franchisor. These items are briefly summarized as follows:Item 9 – Franchisee’s Obligations. Item 9 provides a table listing over 20 different franchisee obligations and cross-references to the section in the franchise agreement or other agreement that relates to the obligation. The key obligations that must be indexed in this table include following, but keep in mind that some franchise opportunities will not involve all these obligations:
Item 11 – Franchisor’s Assistance, Advertising, Computer Systems, and Training. Item 11 is intended to help the potential franchise purchaser understand the assistance and support that will be provided by the franchisor. More importantly, this item helps the potential franchisee understand the operational and other support that will not be provided by the franchisor. The areas addressed in item 11 cover:
Item 12 – Territory. Territory is a key provision of the franchise agreement, and the FDD’s Item 12 must provide information on the territory included in the franchise opportunity. This part of the FDD will discuss:
Item 13 – Trademarks. The trademark is another key part of the franchise opportunity, and it may be the most-important driver of the franchisee’s business success. Item 13 will provide information on whether the trademark is registered with the U.S. Patent and Trademark Office, any state trademark registration, pending registrations and challenges or opposition to the registration, and any pending federal or state court litigation regarding the trademark.
Item 15 – Obligation to Participate in Actual Operation of the Franchise Business. In this item, the FDD must disclose whether the franchisee will be obligated to personally participate in the operation of the franchise. If the franchisee is not required to be personally involved in operations, the FDD must state the franchisor’s recommendations or restrictions regarding supervision of the franchise by another person and requirements related to hiring a supervising manager or employee.
Item 17 – Renewal, Termination, Transfer, and Dispute Resolution. The “term” or length of a franchise agreement can be quite long—eight years, ten years, or longer. To help the franchise purchaser understand the long-term commitment, Item 17 provides an explanation of the renewal provision of the agreement, how to terminate the franchise agreement as the end of the term approaches, how to transfer (sell) the franchise to another franchisor, and the system for resolving any disputes that may arise.
Item 22 – Contracts. The FDD must include complete copies of the franchise agreement and any other contract related to the franchise opportunity.
Conclusion Purchasing a franchise is a significant investment of money, time, and effort, and the financial risk should not be taken lightly. The purpose of the FDD is to provide lengthy and detailed information about the franchise, which allows potential franchise buyers to gain a full understanding of the franchise opportunity, the upside potential of the franchise, and the downside risks. Because of the detail and complexity of the FDD, the best approach for anyone new to owning a franchise or running a business is to discuss the FDD with an attorney before signing a franchise agreement. Attorney James D. Griffith at Endurance Business Law, PLLC, is an experienced business attorney who can review FDDs and provide advice and guidance on the legal risk. To set up a consultation regarding a franchise FDD, please call our office at (480) 997-2951 or use the Contact form on this website.]]>misleading. But a business can stay compliant and maintain its reputation by understanding the basic principles set forth in the rules and taking practical preventive measures. This post briefly summarizes the key rules on endorsements and testimonials and offer practical compliance tips.
TABLE OF CONTENTS
The Consumer and the Manufacturer: A Practical Example of the FTC Regulations
An Introduction to the Regulations on Endorsements and Testimonials
Testimonials or Consumer Endorsement Such as Online Reviews
Disclosure of Relevant Connections
THE CONSUMER AND THE MANUFACTURER: A Practical Example of the FTC Regulations
Did the influencer endorse the dog food, or was it an online review?To start, let’s look at a scenario involving online reviews and endorsements. This scenario is an abbreviated and paraphrased version of an example in the regulations on endorsement and testimonials. See 16 C.F.R. § 255.0(g)(7). The following is, however, only an example. Whether a specific endorsement or testimonial is deceptive will be evaluated on a case-by-case basis:
Basic Scenario. A consumer regularly purchases a particular brand of dog food. One day, the consumer decides to purchase a more-expensive dog food from the same manufacturer. The consumer posts on their social media account that the more-expensive dog food has made their dog’s fur noticeably softer and shinier, and that the dog food was worth the additional expense.
Was the Consumer’s Post an Endorsement? No, because the consumer does not have any connection to the manufacturer other than being an ordinary consumer. The answer would still be “no” if the consumer’s post was a consumer review on an independent review website.
What If the Review Was Posted on the Manufacturer’s Website? In this situation, the post will be interpreted as an endorsement if the manufacturer chooses to highlight the post in some way.
What If the Consumer Received the Dog Food as a Free Trial Bag? The consumer’s post will not be interpreted as an endorsement if the manufacturer did not do anything to request that the consumer write and post a review. If the manufacturer requested the review, the post will be seen as an endorsement because the free bag of dog food was an inducement to write the review, which affects how potential consumers view the credibility of the review.
What if the Consumer Voluntarily Participates in a Program to Receive Free Products from Various Manufacturers and Write Reviews? Again, this will be seen as an endorsement because the sample of the manufacturer’s dog food was free, and the no-cost sample served as an inducement to write the review.
What If the Manufacturer Provides Coupons for a Year’s Worth of Free Dog Food to an Influencer? Suppose that the consumer’s dog is a “dog influencer” with a social media account and a large following, and the manufacturer asks the consumer to feature the brand in the dog’s social media feed. In this situation, any review would be considered an endorsement even though the consumer could have decided not to feature the dog food. Also, any review would need to disclose how the consumer is connected to the manufacturer and the supply of dog food.
AN INTRODUCTION TO THE REGULATIONS ON ENDORSEMENTS AND TESTIMONIALS
The FTC gets it regulatory authority from the Federal Trade Commission Act of 1914. Under the FTC Act, advertising must be truthful, not misleading, and “substantiated.” A claim about a product in an advertisement is substantiated if it is backed up or supported by some reliable evidence. In short, the FTC Act and regulations adopted by the FTC are intended to promote truth in advertising and protect the public from deceptive advertising and marketing practices. The FTC’s website is a good source of information on regulations affecting advertising and trade practices.
To keep pace with more-recent developments—namely, the internet, online marketing strategies, and influencers—the FTC adopted the new rules on endorsements and testimonials in 2024. The regulations on endorsements and testimonials can be found here. The following is brief summary of some of the key provisions of the rule:
Endorsements – 16 C.F.R. § 255.1: Section 255.1 covers various aspects of endorsements, especially celebrity and expert endorsements. Here are some of the key guidelines in this section:
Honest Opinion, Belief, or Experience.
Endorsements should be based on actual experiences of the person endorsing the product. “Endorsements must reflect the honest opinions, findings, beliefs, or experiences of the endorser” and “may not convey any . . . representation [a statement] that would be deceptive if made directly by the advertiser.”
An advertiser cannot present an endorsement out of context or distort the endorsement that would be inconsistent with the endorser’s opinion or experience.
An endorsement from a celebrity cannot misrepresent the product, the claims about it, or the celebrity’s experience or use of the product. 16 C.F.R. § 255.1(a)-(b).
Disclosure of Relationships.
An endorsement cannot mislead or make an unsubstantiated statement, and any unexpected relevant connection between the advertiser and the endorser must be clearly disclosed in the advertisement.
A celebrity endorsement usually implies payment for the endorsement, but a commercial that appears to be based on a random interview of pedestrian in a large city may not imply payment. If the advertiser paid the pedestrian, but did not disclose it, the endorsement would likely be deceptive. 16 C.F.R. § 255.1(d).
Expert Endorsements.
Experts have knowledge and qualifications in their area of expertise, and consumers can reasonably expect that an expert’s endorsement is based on his/her analysis, knowledge, and experience. Both the advertiser and the expert may be liable if the endorsement is misleading, unsubstantiated, or the product does not perform as advertised.
On the other hand, if the expert asks the advertiser for evidence to support the claims about the product, and the advertiser possesses but does not provide the results of a study that undermines the advertiser’s claims, the expert would not be liable. 16 C.F.R. § 255.1(e) and (h)(3).
Testimonials or Consumer Endorsement Such as Online Reviews – 16 C.F.R. § 255.2: This part of the rule covers endorsements by consumers:
An advertiser must have adequate substantiation to support claims about the product that are made in an endorsement even if the endorsement is made by a consumer. 16 C.F.R. § 255.2(a).
A consumer endorsement or review on an advertiser’s website is interpreted as stating that other consumers will, in general, achieve the same or very similar results as the endorser experienced. 16 C.F.R. § 255.2(b).
An advertisement must use the endorsement of an actual consumer if the advertisement states or implies that the consumer endorsement is from an actual consumer. 16 C.F.R. § 255.2(c).
Advertisers cannot change, suppress, edit, or distort a consumer review or comment about the advertiser’s product. 16 C.F.R. § 255.2(d).
Disclosure of Relevant Connections – 16 C.F.R. § 255.5: This section requires disclosure of relevant connections that may affect how the audience interprets the advertisement:
Basic Rule. Any connection between the advertiser and the endorser must be disclosed in a clear and conspicuous manner if: (1) the connection might be relevant to the weight or credibility of the endorsement; and (2) the connection will not be reasonably apparent to the audience.
What Is a Connection? Connections can be a business, family, or personal relationship, and they include payments to the endorser, and other benefits such as early access to a product, the chance to win a prize, or appearing in a promotion.
When Is Disclosure Required? Disclosure is required when a “significant minority” of the audience does not understand or expect the connection.
TIPS FOR COMPLIANCE
The endorsement and testimonial regulations may seem complex or difficult to understand, but businesses can stay within the legal framework and minimize the chances of a violation. Here are some tips that businesses can follow:
Gather Authentic Feedback: Always ensure that customer testimonials and reviews are based on real experiences. Fake reviews can lead to serious penalties.
Disclose Relationships: If you provide incentives (like discounts or freebies) for testimonials, make sure to disclose these arrangements. Transparency fosters trust with your audience.
Train Your Team: Educate your marketing staff about the FTC regulations. Offering training sessions can help everyone understand the importance of compliance.
Be Clear About Results: When using testimonials to showcase product effectiveness, ensure that the results mentioned align with typical results for most consumers. Avoid exaggerating claims that could mislead customers.
Review Content Regularly: Monitor your advertising material and any consumer endorsements that show up online. Regular checks can help ensure that no misleading content slips through.
Focus on Authenticity: Instead of solely relying on endorsements and testimonials, explore diverse formats like case studies or video testimonials that present real experiences in a compelling way.
CONCLUSION
Understanding and complying with the FTC regulations on endorsements and testimonials helps to safeguard your business and maintain consumer trust. By adhering to the FTC regulations, being transparent, and providing real customer experiences, you can market your products ethically and effectively. Embrace the regulations and compliance with them as opportunities to foster honesty and integrity for your brand.
Attorney James D. Griffith at Endurance Business Law, PLLC, is an experienced business attorney who provide advice and guidance on compliance with FTC regulations and the endorsement and testimonial rule. To set up a paid consultation regarding a legal matter, please call our office at [nap_phone id="LOCAL-REGULAR-NUMBER-1"] or use the Contact form on this website. If we establish an attorney-client relationship, the consultation fee will be deducted from the fees for our services.
Contact Us]]>The Five Cs of Credit for Business Loans
Before summarizing the Five Cs, let’s clarify a few terms. In most cases, the business is the loan applicant, and if the loan transaction is finalized, the business will be the borrower. The business owner(s) serve as the guarantor(s) for the loan and will be liable if the business defaults on the loan. Banks examine both the business’s and the owner’s creditworthiness, which is likely to include personal credit reports on the owner.
The definitions above will help in understanding the following Five Cs of Credit:
Character: In this context, character signifies the business’s credit history or reputation for debt repayment. Credit reports play a significant role in this assessment.
Capacity: Capacity concerns the business’s ability to both cover ongoing expenses and service the loan. This is a crucial factor for the bank. Income statements and monthly or quarterly income statements from several periods will be scrutinized.
Capital: Capital refers to the financial resources available to the loan applicant based on the owner's capital contributions, the business’s savings, and investments. Capital also reflects the business owner's personal investment in the business. The bank typically expects to see that the owner has placed personal financial resources at risk.
Collateral: Some loan transactions require a security interest in an asset as collateral (a potential source of repayment) if the borrower and/or guarantor defaults. Under a “collateral security agreement,” the borrower and/or guarantor agrees to give the bank a security interest in one or more assets owned by the borrower, such as equipment, a building, or a bank account. The agreement allows the bank to enforce the security interest and take possession of the asset if the loan is not repaid.
Conditions: This term refers to the purpose and amount of the amount loaned, the local business climate, industry factors, and recent economic trends affecting the business and the loan application. These risk factors may reduce the business’s ability to repay the loan in a timely manner.
Banks and other lenders will evaluate a business loan application using the Five Cs. The evaluation process is a “factor analysis.” The Five Cs may not be considered as having equal importance, and no factor is determinative in all loan evaluations.
Conclusion
Small- and medium-sized enterprises often rely on banks for operating capital and business growth, and business owners assume responsibility for loan repayment through personal guarantees. Given the significant business and personal risks involved in business loans, understanding the Five Cs and the factors that banks consider when evaluating a business loan application is highly beneficial to borrowers. Business owners can also leverage this knowledge to enhance their chances of loan approval and address any deficiencies in the five considerations.
Bank loan officers and branch managers usually welcome discussions with business owners regarding their businesses and how to increase the chances of getting approved for a loan. But loan transactions often involve complex legal documents, and because the bank aims to protect its interests, a wise business owner will consult a lawyer and ask the lawyer to review the loan documents. Attorney James D. Griffith at Endurance Business Law, PLLC, can review proposed loan transaction documents and provide advice and guidance on the legal aspects of the loan documents. To set up a paid consultation, please call our office at [nap_phone id="LOCAL-REGULAR-NUMBER-1"] or use the Contact form on this website. If we establish an attorney-client relationship, the consultation fee will be deducted from the fees for our services.
]]>All businesses have a need to protect information considered proprietary or confidential information. Other businesses have trade secret information that is directly related to a product or service that generates income. This information, especially trade secret information, can be essential to finding a competitive edge and must be protected to maintain that edge. Such information is legally protected under certain common law claims and the Arizona Uniform Trade Secrets Act. This article explores the basics of protecting proprietary and trade secret information under Arizona law.
What is Proprietary Information?
“Proprietary information” is a very broad term that covers intellectual property protected under federal law (patents, copyrights), confidential information, and trade secrets. Proprietary information is confidential if it relates to a business process, procedure, or personnel and is maintained by the business for internal use only. Proprietary information and confidential information can include formulas or spreadsheet for calculating a bid, marketing plans, design specifications, customer lists, business records, software developed for or by a business for its own use, human resources files, among other types of information. It can be protected under common law but does not have the stricter level of legal protection provided by statutes affecting trade secrets.
What is a Trade Secret?
Under Arizona law, a trade secret is any information that:
Has “independent economic value, actual or potential,” because it is not generally known to and cannot easily be ascertained “by proper means by, other persons.” The “other persons” are persons who do not have the information but can use it for financial gain if the information is disclosed; and
Was kept secret by the use of reasonable efforts under the circumstances.
A.R.S. § 44-401(4). In short, a trade secret is any information that has economic value because it is not known to others, would difficult to discover through independent efforts, and was kept secret by reasonable efforts. An oft-cited example is the secret formula for Coca Cola™, but any method, formula, design, ingredient list, software, data, or other information can, potentially, be a trade secret.
What Is Misappropriation under the Arizona Uniform Trade Secrets Act?
The Arizona Uniform Trade Secrets Act (“AUTSA”) is a state law that protects against misappropriation of trade secrets. A trade secret is misappropriated if it was either:
Obtained by a person who knew or had reason to know the trade secret information was acquired by improper mean (in other words, by theft or misrepresentation); or
Disclosed or used by a person without authorization, and the person:
Used improper means to obtain the trade secret;
Knew or had reason to know the trade secret was obtained by improper means; or
Knew or had reason to know the information was a trade secret but gained knowledge of it by accident or mistake.
A.R.S. § 44-401(2); see also A.R.S. § 44-401(1). In sum, the AUTSA applies to misappropriation of trade secret information either by direct use of improper means or by disclosure or use of the information in almost any circumstance except by a third party with no prior knowledge that it was a trade secret.
The most-important remedy for misappropriation of trade secret information is an injunction, which is a court order directing a person to stop using the trade secret information and/or take other steps to return or destroy the information. A.R.S. § 44-402(A). The AUTSA also allows the business to recover monetary damages for the person’s misappropriation. The monetary damages can include both the value of any actual loss resulting from the misappropriation and any “unjust enrichment” (financial benefit) not covered by the actual loss calculation. The damages may be calculated as a royalty during the period of any unauthorized disclosure or use. A.R.S. § 44-403; see also A.R.S. § 44-402(B). Finally, the AUTSA also allows claims for attorneys’ fees against the person who misappropriated the trade secret. A.R.S. § 44-404.
How Do I Protect Proprietary Information and Trade Secrets?
Many techniques are available for the protection of proprietary information and trade secrets. Some businesses only need to protect proprietary and confidential information, but other businesses also need to protect trade secrets, which requires stronger and more well-developed techniques. The following is a brief overview of common techniques that are used to protect proprietary and trade secret information, but the list should not be considered exhaustive. Although I can address the legal perspective on protecting this information, I am not a security or cybersecurity expert, and depending on your business, the information to be protected, and how it is stored, you may need to consult a security or computer consultant:
Nondisclosure and Non-Compete Agreements / Clauses. Nondisclosure agreements or clauses are commonly used with employees and persons outside the company who will be allowed access to the proprietary or trade secret information. The employee or other person agrees not to disclose or use the information as part of the agreement for employment or access to the information. The agreement or clause will remain in effect after employment or access to the information ends.
Non-compete agreements or clauses require that an employee or other person not engage in competition with the business, especially if the competition is based on the proprietary or trade secret information. These agreements and clauses, however, can be difficult to enforce.
Policies and Procedures that Limit Access. Policies and procedures, whether written or unwritten, provide evidence that a business has identified information or files that are proprietary, confidential, or a trade secret and has taken steps to protect the information from misuse or misappropriation. A primary feature of the policies is that access to the protected information is limited only to those within the business who have a need to know. Because a trade secret has “independent economic value,” policies and procedures can be very useful confirmation that the business took steps to treat the information as a trade secret. The best approach is to document the effort to protect the information by developing written policies and procedures.
Employee Training. Policies and procedures will have little effect if a business’s employees do not know or understand them. This is where training of employees (at least the employees with access to the information) is important. A good approach is to train all new hires on the policies and procedures covering proprietary and trade secret information and schedule additional trainings at least annually. Document the training sessions by using a sign-in list and issue certificates of training or keep some other documentation of the employee training. If some misappropriation occurs, the documentation serves as proof that the person knew and understood the policy.
Security and Cybersecurity. In today’s fast-paced and technology-driven workplace, security and cybersecurity are an important consideration. Although some businesses are large enough to employ security professionals, many businesses will need to hire security consultants who can help identify gaps that employees or others can exploit. Similarly, IT consultants or cybersecurity experts can be retained to review technology systems for possible vulnerabilities. Finally, regular security audits can be essential to ongoing protection of proprietary, confidential, and trade secret information.
Conclusion
Protecting proprietary information and trade secrets is vital for the success of any business in Arizona. With a good understanding the legal framework and a practical approach, business owners can make informed decisions about protecting their business’s proprietary information and trade secrets. An experienced attorney can provide guidance and help businesses navigate the legal complexities and take appropriate measures to secure their proprietary information and trade secrets. Attorney James D. Griffith at Endurance Business Law, PLLC, can provide advice and guidance on protecting and preserving this valuable information, and, if necessary, litigate proprietary information and trade secret matters. To set up a paid consultation, please call our office at (480) 997-2951 or use the Contact form on this website. If we establish an attorney-client relationship, the consultation fee will be deducted from the fees for our services.
]]>The FMLA and its regulations are detailed and can be difficult to interpret in some situations. This article provides a brief overview of the FMLA and cannot be considered legal advice. If you are an employer and have questions about an FMLA request, reinstatement to work, or related matters, the best approach is to obtain advice from a legal professional to ensure compliance. For a consultation regarding the FMLA, please contact Endurance Business Law, PLLC, via our Contact page or by calling (480) 997-2951.
The General Rule: The Employee’s Right to Leave under the FMLA
General Rule. At the heart of the FMLA is a legal right that requires employers grant employee requests for up to 12 weeks of unpaid leave within any 12-month period if the employee is eligible for FMLA leave and the request falls under one of the following family or medical reasons:
The birth of a child if the leave is taken within one year of the child’s birth;
The placement of an adopted or foster child with the employee if the leave is taken within one year;
A serious health condition affecting the employee;
The need to care for a spouse, child, or parent with a serious health condition;
Certain conditions arising from an employee’s spouse who is on active-duty status in the military.
Serious Health Condition. A “serious health condition” is defined as “an illness, injury, impairment, or physical or mental condition” that: (1) affects the employee’s ability to perform one or more essential function of his or her job; and (2) involves inpatient care or ongoing treatment by a medical provider. Under this definition, cosmetic treatments generally are not serious health conditions, while dental restoration or plastic surgery after an injury is a serious health condition.
Eligibility Requirements. To be eligible for FMLA leave: (1) the employee must have worked for the employer for at least 12 months; (2) the employee must have worked at least 1,250 hours in the 12 months before the FMLA leave commences; and (3) the employer must employ at least 50 employees within 75 miles of the employee’s work location.
Intermittent Leave or Reduced Work Schedule. An employee may request intermittent leave or a reduced work schedule if the request qualifies for FMLA leave and the cumulative total leave does not exceed 12 weeks. To accommodate intermittent leave or a reduced work schedule, the employer may temporarily transfer the employee to another position if the employee is paid an equivalent pay rate and his or her benefits are maintained.
Covered Employers. As noted above, the FMLA applies only to employers with 50 or more employees in 20 or more workweeks of the current calendar year or the prior calendar year.
Requests for FMLA Leave
Processing FMLA Leave Requests. The steps for processing an FMLA leave request are well established. The U.S. Department of Labor has posted an Employer’s Guide to the Family Medical Leave Act to assist employers with FMLA leave requests. The Department of Labor has also created two forms that can be used by employees and employers to help insure compliance with the FMLA: (1) Form WH-380-E for leave requests involving the employee’s serious health condition; and (2) Form WH-380-F for leave requests involving a family member’s serious health condition. All FMLA forms can be found here.
Advance Notice of FMLA Requests. Employees are required to submit FMLA leave requests well before the leave will begin whenever the need for leave is foreseeable, but the FMLA does not state how many days’ notice of the request must be given by the employee. In general, employers can follow their internal procedures for advance notice of other leave requests, such as requests for vacation. Employees can request FMLA leave in circumstances where the need for leave was not foreseeable. Employers often have policies requiring employees to use all other available leave before using FMLA leave.
Certification from a Healthcare Provider. Employers may request certification from a healthcare provider as evidence of the employee’s serious health condition or the immediate relative’s serious health condition. The employee must provide the certification within 15 days unless the employee can show a good reason why additional time is needed. The employer must notify the employee in writing of any deficiencies in the completeness of the certification within five days after receipt and allow time for the employee to overcome the deficiencies.
For more detailed information on the process, please see the Department of Labor’s Employer’s Guide.
Reinstatement and an Equivalent Position
Upon completion of the FMLA leave, the employee has the right to reinstatement to the same position or an equivalent position with the same pay and benefits. An employer cannot terminate or make an adverse employment decision affecting the employee during the FMLA leave unless the employer can show that the employee would not have been employed for some unrelated reason when reinstatement was requested. For more information on reinstatement, please see the Department of Labor’s Employer’s Guide.
Conclusion
The FMLA was enacted to help employees balance their work responsibilities with their family obligations. Although employers can expect employees to work in support of achieving the employer’s goals and objectives, employers also need to comply with laws and regulations that protect employees and their families. Often, routine FMLA leave requests can be handled and processed without legal assistance, especially if the employer is large enough to employ experienced and well-trained human-resources personnel. The FMLA and its regulations, however, are detailed, can be difficult to interpret, and some FMLA leave issues do not neatly fit the regulatory scheme. To minimize the chances of an FMLA claim, the best approach for an employer is to seek advice from a lawyer if any question arises about whether and how the FMLA applies to an employee’s request for leave or reinstatement. Attorney James D. Griffith at Endurance Business Law, PLLC, can provide advice and guidance on the legal aspects of the FMLA and an employee’s request for leave, reinstatement, and other questions about the FMLA. To set up a paid consultation, please call our office at (480) 997-2951 or use the Contact form on this website. If we establish an attorney-client relationship, the consultation fee will be deducted from the fees for our services.
]]>Real-World Examples
Here are a couple of examples of situations where a review of the contract would have been beneficial:
A commercial roofing business enters a contract to install a roofing system on a long-term storage facility. The roofer agrees to install the roof using a design that includes a ventilation system. After installation is complete, the storage facility owner refuses to pay because the installed ventilation system does not follow the design specified in the contract. The system as installed performs as well as or better than the specified design, but the contract makes no mention of whether an equal or superior ventilation design can be provided. An attorney reviewing the contract would have identified the potential ambiguity and recommended ways to clarify the contract.
An individual, Max, is a member of a limited liability company and owns a 20% interest. He agrees to sell his interest to another person, Gloria. Max and Gloria agree to terms for Gloria’s purchase of Max’s ownership interest that include a promissory note and payments over one year. Max and Gloria sign a contract stating that the promissory note will have a principal amount of $10,000, with interest at six percent. The contract states that the promissory note attached as Exhibit A to the contract will be used, but the attached promissory note states the principal amount is $12,000 and interest will be calculated at ten percent. After she discovers the inconsistency, Gloria objects to the signed promissory note because it differs from the contract language. An attorney would have identified the inconsistency and recommended changes to the contract.
The Value of Contract Review by an Attorney: Safeguarding Interests and Avoiding Expensive Litigation
Contracts are essential building blocks that can significantly impact a business’s success. A well-drafted contract will protect the business’s interests and promote smooth operations and financial success. If the contract is poorly drafted, the enforceability of the contract can be challenged, and ambiguous contract language can result in confusion and conflict between the parties and potentially lead to expensive litigation. Here are some reasons why contract review by an attorney can be crucial:
Identifying Potential Risks. Transactions often involve exposure to risks that may come up during performance of the contract, such as damage to goods during transportation or an injury to a third party. Other risks of contracting relate to hidden clauses or unfavorable terms, such as one-sided indemnification clauses or a requirement that a lawsuit can only be filed in the other party’s state. By understanding the transaction and the law of contracts, attorneys can identify these potential risks and recommend changes to the proposed contract.
Avoiding Confusing and/or Ambiguous Language. Contracts can be detailed, confusing, and lengthy. Sometimes ambiguous language is used in the contract, such as a contract for the purchase of the seller’s “blue car,” and the seller owns two blue cars. Attorneys are adept at identifying language that is ambiguous or may allow differing interpretations, and they can revise and add language that clarifies and provides specificity.
Regulatory Compliance. Different industries and businesses need to comply with laws and regulations that apply to their line of work. An attorney’s review of a contract may need to consider the client’s or the other party’s compliance with these laws and regulations. For example, a landowner who contracts with a general contractor to put up a commercial building needs language in the contract that requires the contractor and all subcontractors to be licensed and bonded.
Negotiation. If a proposed contract or revised language must be negotiated with the other party, an attorney can provide a strategy and guidance to the client or step in and negotiate the changes. A good rule of thumb is to have an attorney handle the negotiations if the other party’s attorney is handling the negotiations or the contract is a high-value or mission-critical contract.
Dispute Resolution. A dispute-resolution provision can help resolve a disagreement and prevent expensive litigation if a dispute comes up between the parties. A provision for dispute resolution can require negotiation to resolve any disagreement and/or require mediation before a lawsuit can be filed by one party against the other. A dispute-resolution provision can also require that the parties use an arbitration process in place of litigation. An attorney can provide advice and guidance on drafting a provision that fits the transaction and needs of the parties.
The Contract Review Process: What to Expect
Hiring an attorney to review a contract typically involves several steps. The following is a general overview of the process, but the exact process followed is less important than the attorney’s substantive review of the contract and its terms and conditions, which is the intended result of the review process:
Initial Consultation. To initiate a review, the business owner will discuss the proposed transaction with the other party in some detail as well as any questions or concerns that the business owner may have about specific contract provisions.
Thorough Review by Attorney. In this step, the attorney carefully and thoroughly reviews the draft contract. This review starts from a contract-law perspective to ensure that the basic elements of a contract have been met, but it also examines the details and language of the contract for clarity, consistency, and other potential issues.
Feedback and Recommendations. Attorneys often prepare a report, letter, or email that provides his or her concerns and suggested changes. Another common approach is to provide the client with a “redline” that shows deletions, changes, and additions recommended by the attorney. Redlines allow the client to quickly review the recommended changes.
Negotiation Assistance. If necessary, the attorney can assist with negotiating changes to the contract and reaching a final draft. If the other party has retained an attorney, your attorney can only negotiate with the other party’s attorney.
Final Review and Changes. After the client has discussed the recommended revisions with the attorney and after any negotiations, a final version of the contract is prepared.
Conclusion
In many situations, the value of an attorney’s contract review cannot be overstated. Attorneys have the skill and knowledge to review detailed, complex, and often lengthy contracts; and the attorney’s review provides assurance that the contract will be valid, legally enforceable, and clear, and protect the client’s interests while also achieving the purpose of the transaction. Attorney James D. Griffith at Endurance Business Law, PLLC, is an experienced business and contract attorney who can review contracts and provide advice and guidance on protecting your interests and minimizing the chances of litigation over a contract. To set up a paid consultation, please call our office at (480) 997-2951 or use the Contact form on this website. If we establish an attorney-client relationship, the consultation fee will be deducted from the fees for our services.
]]>What is a Commercial Lease?
In short, a commercial lease is a legally binding contract between a landlord and a business tenant setting forth the terms and conditions for the tenant’s right to occupy and use a commercial property. Because it involves real property, the lease must be in writing. The types of properties covered by commercial leases include office space, retail stores, warehouses, and industrial facilities.
Key Provisions of a Commercial Lease
The following are some of the key provisions in a commercial lease agreement that business owners need to consider before signing a lease:
Lease Term: The “term” of a lease refers to the duration of the lease agreement. Although the term of a commercial lease can be very short (a few months), many commercial leases have terms as long as five or ten years. A five- or ten-year lease is a significant commitment, which is why a business owner needs to make sure the lease agreement allows assignment of the lease.
Rent: Rent is the amount paid by the tenant in return for the landlord’s agreement to lease the property or space. Typically, rent must be paid monthly, but quarterly and annual rent payments are occasionally used. In long-term leases, the rent may increase annually over the term of the lease. See below for more on rent provisions and expenses that may be added to rent in some commercial leases.
Security Deposit: The landlord may require a security deposit to cover property damage or unpaid rent. A fair and balanced lease agreement will outline the amount and conditions for its return.
Use Clause: The lease agreement will define how the space can be used. This usually aligns with the zoning regulations where the property is located and protects the landlord’s interests by ensuring that the tenant's business complies with the regulations.
Termination Clause: A termination clause sets forth conditions that allow one party to terminate the lease before the end of the lease term. These clauses usually require some cause (a reason) for termination based on the other party’s action or failure to act, such as a landlord’s failure to make a repair or a tenant’s failure to pay rent. A termination clause may include a notice requirement that gives the other party a chance to correct the issue and may include penalties for termination.
Maintenance and Repairs: Commercial leases vary when it comes to whether the landlord or the tenant is responsible for maintenance and repairs. In general, the landlord tends to have more responsibility for maintenance and repairs in leases for office and retail space.
Rent Provisions in Commercial Leases
In leases of commercial properties, the landlord is often in a position to negotiate terms that require the tenant to pay some expenses related to the property. The following are three common approaches to rent provisions:
Gross Lease: In a gross lease, the tenant pays a fixed amount for rent, and the landlord is responsible for most or all expenses such as utilities, maintenance, and property taxes.
Net Lease: Under a net lease, the tenant must pay a portion of the property expenses in addition to rent. Common net leases include:
Single-Net Lease: Under single-net leases, the tenant must pay a set amount for rent plus the property taxes.
Double-Net Lease: The tenant must pay a fixed amount for rent as well as property taxes and insurance.
Triple-Net Lease: Under triple-net leases, the tenant must pay the amount set for rent, plus the property taxes, insurance, and maintenance costs.
Percentage Lease: Under a percentage lease, the landlord is paid a percentage of the tenant's sales in addition to base rent. These are common in leases for retail space.
Considerations When Entering a Commercial Lease
For the small-business owner or first-time tenant, many factors need to be considered before signing a commercial lease agreement. Among other factors, these include:
Location: The property's location can significantly impact a business's success. A commercial real estate agent can help business owners find available space or property in a good location for the business.
Zoning Regulations: Business tenants need to consider whether the property is zoned for the intended commercial use. Zoning laws affect the types of businesses that can operate in a given area.
Negotiation: Commercial leases are often negotiable. Don't hesitate to discuss terms with the landlord to reach a mutually beneficial agreement.
Legal Review: Before signing a lease, it's wise to have a legal professional review the document. They can help identify potential issues and ensure your interests are protected.
Future Growth: Consider your business's future needs. A lease that allows for expansion or subleasing can provide flexibility as your business grows.
Conclusion
The decision to enter into a commercial lease agreement is one of the most important decisions a small-business owner will make. By learning about key provisions, types of leases, and important considerations, along with the advice of a legal professional, the business owner can make an informed decision that supports the business's goals and objectives. Attorney James D. Griffith at Endurance Business Law, PLLC, can review proposed leases and provide advice and guidance on the legal aspects of commercial leases. To set up a paid consultation, please call our office at [nap_phone id="LOCAL-REGULAR-NUMBER-1"] or use our Contact form. If we establish an attorney-client relationship, the consultation fee will be deducted from the fees for our services.
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