As part of its annual Franchise Legal Players issue, 1851 profiled the top franchise attorneys in the field to shine a spotlight on the work they do for the franchise industry.
1851: Tell us about your background and your firm.
Carl Zwisler, Principal at Gray Plant Mooty: I began my career in franchising on the IFA staff, where I was responsible for IFA’s legal and governmental affairs programs. Since leaving IFA, I have been engaged in the private practice of franchise law in Washington, D.C., principally representing franchisors and master franchisees, with an emphasis on outbound and inbound international franchising. For the last 10 years, I have worked in the Washington office of Gray Plant Mooty, a 153-year-old general business firm which hosts an elite team of 30+ full-time franchise lawyers and six franchise paralegals.
1851: What are some must-ask questions when franchisors and franchisees are vetting potential franchise attorneys?
Zwisler: ‘What experience do you have representing franchisors and franchisees? Who are your clients? What distinguishes you and your franchise group from other franchise lawyers? What experience do lawyers from other practice areas in your firm, such as IP, corporate, employment and tax law have with franchising issues? Why is your firm more efficient than others at providing franchising legal services? How are you and your firm recognized by third parties for their franchising practices?’
1851: In broad terms, do you have a particular case that stands out to you as an industry learning experience?
Zwisler: The anti-poaching investigations and state attorneys generals’ demands that franchisors eliminate anti-poaching language from their franchise agreements throughout the U.S. provide a real learning experience for franchisors. Anti-poaching language was adopted by many franchisors to protect the investment that their franchisees make in training managers and key employees, and to encourage cooperation among franchisees, while minimizing inter-brand bickering. Until the end of 2017, only one or two cases involving this language had been addressed in reported cases, and the franchisors involved had prevailed in them. Then, after observing that workers’ wages were not growing, despite increased economic growth and growing rates of employment, two economics professors published a paper, which was summarized in The New York Times, postulating that anti-poaching language in franchise agreements could be the cause of stagnant wages in franchise systems. Although anyone who carefully reads the study can see flaws in the assumptions and conclusions presented, politicians and class action plaintiffs’ lawyers saw opportunities for headlines and payouts, and incorporated the findings into class action claims, state attorney general investigations settlement demands and into proposed legislation.
Because franchisors had rarely, if ever, enforced the clauses, and did not want to incur six- to seven figure defense costs, virtually every franchisor has agreed with state AGs to delete anti-poaching language from their agreements. They have done it, not because the law does not support the enforceability of the language—recent intervention in anti-poaching cases by the U.S. Department of Justice indicates that the clauses may often be lawful in the franchising context—but because they don’t want to incur the cost of dealing with it. They would rather deal with some unhappy franchisees than pay the costs of defending the claims.
The lesson: When drafting language in franchise agreements, especially when enforceability of a provision may be unclear, discuss the likely cost of enforcing the clause, and determine if a less problematic approach to the problem can be drafted.
1851: What is the most rewarding aspect of your work?
Zwisler: The most rewarding aspect of my work is helping clients find ways to resolve complex questions in a relatively simple and straightforward manner. In our international practice, we help our clients to find the most economical ways to achieve their objectives, bringing to bear our experience, legal knowledge and our network of excellent local franchise counsel throughout the world. Structuring and implementing an international program can be complicated. When we can provide strategic options that others had not considered to close a deal or to resolve a dispute, we have had a good day.
1851: What are your top concerns for the franchise industry in the next year?
Zwisler: Dealing with backlash from foreign governments and foreign franchisees and prospects over U.S. trade and economic and defense policies is a concern, especially for international franchisors. We are concerned that worries about what will happen next will cool the ardor for U.S. brands. We are also seeing significant regulatory threats to franchising in a growing number of countries, including in Australia, Egypt, the Netherlands and Saudi Arabia, to name a few countries. We will also be watching the study of franchising that is being undertaken by the E.U., to see if the E.U. proposes comprehensive E.U.-wide franchise regulation. In the U.S., we will be watching proposals to make post-term noncompete clauses unlawful or impractical at both the state and federal levels.
1851: What are you most optimistic about in the franchise industry in the next year?
Zwisler: So long as the U.S. economy continues to be strong, franchising will remain strong. We are optimistic that the FTC Franchise Rule will not undergo material changes and that the FTC will leave the Rule in place. Since the Rule became effective, only one state has adopted a franchise registration law and the Rule has brought general uniformity to franchise disclosure requirements. We also anticipate improved regulations explaining when joint employer liability will exist and what the consequences will be.