Stop & Shop Closing 43 In-store Starbucks

Jon Chesto writes in the Patriot Ledger that Stop & Shop and its Giant Food affiliate are shutting down nearly half of their in-store Starbucks kiosks.

“It was a business decision we arrived at with Starbucks,” said Faith Weiner, a spokeswoman for Quincy-based Stop & Shop Supermarket Co. “We did a business review together, and we decided these kiosks were not performing at levels that were acceptable and would allow them to continue to operate.”

The kiosk closures began last month and will be completed by mid-September, Weiner said. The affected kiosks are in 26 Stop & Shop stores and 17 Giant stores.

All of the kiosk employees work directly for Stop & Shop and Giant, which are part of the same operating division of Dutch conglomerate Royal Ahold, and the supermarket company is a Starbucks licensee. Weiner said none of the affected employees will be forced out of work: They are being offered other jobs in Stop & Shop and Giant stores.

After the closures, there will be 56 Starbucks kiosks in Stop & Shop and Giant stores, Weiner said. Another five Starbucks kiosks will open by the end of the year.

Royal Ahold last week reported that the operating income of its Stop & Shop/Giant division – more than 500 supermarkets – would include an impairment charge of $7 million primarily related to the closing of the in-store Starbucks kiosks.

In some locations where Starbucks kiosks are closing, Stop & Shop will replace them with automated Van Houtte coffee kiosks, Weiner said.

In certain other Stop & Shop stores, shoppers can stop at a Dunkin’ Donuts kiosk for coffee. Weiner said some locations in upstate New York have self-serve stations with Green Mountain coffee instead.

“We know that customers do like to have coffee when they shop,” Weiner said. “It’s a nice convenience. We continue to try to figure out what the best way is to offer that option to customers.”

Patriot Ledger

Lenders Hesitating to Back New Franchises

Alex Robinson, writes in the Star Tribune  that Don McFee had lost his job for the last time.

In November 2007, after he’d been told to clean out his desk for the third time in 13 years, the former construction project manager went home and told his wife, “I don’t know what I’m going to do, but I’m not going to do it for anybody else.”

McFee, like many newly unemployed, decided to go into business for himself and buy a franchise.

The franchise sector usually fattens during recessions; real estate is cheaper, there’s a spike in laid-off workers from corporate America and franchises are usually considered less risky than starting an independent business. But because of the credit crunch, many in the industry are expecting this recession to be different.

The International Franchise Association (IFA) predicts a 1.2 percent decrease in the number of U.S. franchises in 2009. That’s a small dip, but it’s also the first year-over-year decline in more than a decade.

“This really is a big marker for us,” said Alisa Harrison, a spokeswoman for the IFA. “We always see an uptick during a recession.”

The drop is multiplied in Minnesota, which had 1,186 franchises in fiscal 2009, down 8.6 percent from 1,299 in fiscal 2008, according to the Minnesota Department of Commerce. Also, there was a 22 percent decrease in franchise applications in 2009 compared with 2008.

The reason? Many banks, hobbled by the credit crunch and under closer scrutiny from regulators, no longer want to cough up loans for new small businesses, Harrison said. The IFA predicts franchisees in the United States will borrow 27 percent less this year.

Read more at: Star Tribune

Legislative Update from the CFA – Summer Recess 2009

The Coalition of Franchisee Associations (CFA) which DDIFO is a member of has also been active.

A number of high priority CFA issues have been reintroduced prior to the Summer Recess including the Employee Free Choice Act (“Card Check”), the Arbitration Fairness Act and the Credit Card Fair Fee Act.

The 111th US Congress will resume after Labor Day on September 8th, 2009.

As issues important to you as a business owner move on the Hill, be sure to stay tuned for Action Alerts and updates from DDIFO.

FEDERAL ISSUES

Health Care

Congress  continues working on a comprehensive health care reform package. While both the Senate and House have introduced their own versions of the bill, employer-mandated health care will most likely be included in all versions.

Specifically, one house suggestion requires employers to offer health insurance to their employees (both full and part-time) or pay a fee of 8% of payroll. To avoid the fee, employers would need to contribute a minimum of 72.5% of premiums for individual employees, and 65% for family plans. Another suggestion includes a “free rider” penalty for employers failing to offer “affordable” health care (possibly <12.5% of income). The employer would pay a penalty of ½ of the average Medicaid costs, which currently are $6,500 per person.

The Senate Health, Education, Labor and Pensions (“HELP”) Committee issued its suggestions last month, which included a provision that employers with more than $500,000 in total payroll must offer full-time employees health insurance or pay an excise tax based on the employers’ annual payroll. It noted fines for not paying both full and part-time employees’ health care. The Senate Finance Committee has yet to issue its version.

CFA sent an Action Alert to all members regarding this issue last week. If you haven’t already done so, please log onto www.cfavotes.com and click “Take Action” to voice your opposition to employer-mandated health care.  

Immigration Legislation

In July, Senator Charles Schumer (D-NY) included biometric-based employee verification as a key element in an immigration bill which he plans to introduce in the fall.

Senator Schumer, Chairman of the Senate Judiciary Subcommittee on Immigration, presented his principles for immigration reform in remarks before the Immigration Law and Policy Conference at the Migration Policy Institute in Washington, D.C. “Many occupations already require biometric identification for employees, and consumers are regularly given the option of securing their identity through use of a biometric identifier.  It only makes sense to use the best technologies that are available to guarantee a legal workforce,” said Mike Aitken, Director of Government Affairs, Society for Human Resource Management and member of HRI. 

No-Match Rule

On July 8, Department of Homeland Security (DHS) Secretary Janet Napolitano announced the Department’s intention to rescind the Social Security No-Match Rule. DHS will be proposing a new regulation rescinding the 2007 No-Match Rule, which was blocked by court order shortly after issuance and has never taken effect. 

That rule established procedures that employers could follow if they received SSA No-Match letters or notices from DHS that call into question work eligibility information provided by employees. These notices most often inform an employer many months or even a year later that an employee’s name and Social Security Number provided for a W-2 earnings report do not match SSA records—often due to typographical errors or unreported name changes. The Department believes that E-Verify addresses data inaccuracies that can result in No-Match letters in a more timely manner and provides a more robust tool for identifying unauthorized individuals and combating illegal employment.

Shortly after the DHS announcement, the Senate passed an amendment to the DHS appropriations bill prohibiting funds in the bill from being used to rescind the no-match rule. However, it is unlikely the Senate move would reverse DHS’ decision. The amendment, which was sponsored by Sen. David Vitter, R-La., only states that DHS cannot use the appropriation funds to rescind the rule. It does not block DHS’s decision.

The House had previously passed its own DHS appropriations bill; the two will now have to be reconciled.

I-9

In a press release issued earlier this month, Immigration and Customs Enforcement (ICE) announced that it is launching a new I-9 inspection program in order to increase employment eligibility compliance.  As part of this new initiative, ICE issued Notices of Inspection to 652 employers nationwide – more than they issued throughout all of last fiscal year. According to the press release, these employers were chosen for an audit based on investigative leads and other information. The new Assistant Secretary for ICE has stated that employers should be held accountable for their hiring practices and procedures, which ultimately begin with the Form I-9.  

Senate Political Shift

The Minnesota Supreme Court ruled in favor of Democrat Al Franken in July, allowing for him to be declared the winner of November’s Senate election. Franken was sworn into office on July 7, giving Democrats a key 60th vote in the Senate.

The court ruled 5-0 to reject former GOP Sen. Norm Coleman’s contention that a lower court should rehear the case because it erred by not requiring rejected absentee ballots to be counted. Barring a federal court injunction, GOP Gov. Tim Pawlenty is expected to sign a certificate of election declaring Franken the winner by 312 votes.

While the ruling officially gives Democrats 60 seats – enough to block GOP filibuster efforts – Senate Majority Whip Durbin noted that seating Franken will not have a dramatic impact in the short run because of the illnesses of democratic senators Edward Kennedy (MA) and Robert Byrd (WV).

The Employee Free Choice Act (“Card Check”)

In July, Card Check was dealt a serious blow as a handful of senators dropped their support of the private ballot provision in the Employee Free Choice Act.

While this seems like a step forward in the battle to defeat this bill, legislators seem to be more willing to compromise in order to obtain the 60 votes needed to obtain cloture, or a filibuster-free vote. Specifically, provisions have been offered to speed up union elections and give employers less time to campaign against unionization. The business community, including CFA, continues to oppose the bill, which still includes several unacceptable provisions, including a binding mandatory arbitration clause which would empower government-appointed officials to make decisions about your businesses.

If you haven’t yet done so, please contact your Members of Congress and tell them to OPPOSE the current compromises to the Employee Free Choice Act and OPPOSE employer mandates in the “America’s Affordable Health Choices Act.” You can do so by going to CFA Votes! At the CFA Votes Site there are ACTION Steps yopu can take in regards to:  Health Care Reform , The Employee Free Choice Act, Credit Card Fair Fee Act, Health Famlies Act, Labeling and Education and Nutrition (LEAN) Act of 2009.

STATE ISSUES

Paid Sick Leave

New Jersey – The New Jersey Temporary Disability Benefits law went into effect this month, providing up to six (6) weeks of Family Leave Insurance benefits to covered individuals to bond with newborn or newly adopted children and to care for sick family members. As an employer, if you are covered under the New Jersey Unemployment Compensation Law, your employees are now covered for Family Leave Insurance.

 For more information on the Family Leave Insurance Program, please go to the NJ Department of Labor’s website at http://lwd.dol.state.nj.us/labor/fli/fliindex.html

Taxes

Massachusetts – As part of the state budget for the new fiscal year that began earlier this month, Gov. Deval L. Patrick and state legislators have approved a 0.75 percent local tax on restaurant meals, with proceeds going to communities that decide to approve the local tax. The tax can go into effect Oct. 1. The Springfield Finance Control Board approved the local tax on restaurant meals, and other communities may soon follow.

Newton, Massachusetts – Newton Mayor David Cohen wants the city to support new taxes on restaurant meals that could eventually raise nearly $2 million a year in new revenue. In a letter to the Board of Aldermen, Cohen announced that he will schedule a request to the Board this week for the tax hikes. City spokesman Jeremy Solomon said the item would be referred to the board’s finance committee, and the full board could vote on it in August. If that happens, Solomon said, the city could implement the new taxes on Oct. 1. The new taxes are allowed under legislation signed by Governor Deval Patrick.

New Jersey – On July 1, New Jersey employers began paying a higher payroll tax to replenish the unemployment trust fund. The increase, which for some employers could top 20 percent, will ensure benefits continue to a wave of jobless workers. But it also is another expense for employers who themselves are struggling through the recession. The increase was automatically triggered in March after the state’s trust fund dropped below what was considered an adequate capital level. New Jersey has paid about $3.2 billion in unemployment benefits during fiscal 2009 — a period that has seen the jobless rate rise from 5.5 percent to close to 9 percent.

New ID theft regs get better reviews

Jim O’Sullivan/State House News Service writes at Wicked Local Arlington that, after employers called an earlier round of regulations aimed at preventing identity theft too harsh, the Patrick administration on Monday released a rewritten set of data protection rules that earned markedly better reviews from business groups.

The regulations, set to take effect next March, instruct businesses to author security plans on how to protect private data and allow for more flexibility among small businesses, advocates said.

Shifting from an earlier draft released in February, the new version permits a “risk-based approach” based on a company’s size, resources, nature of data, and other factors, rather than mandating every component regardless of specifics.

Municipalities are expressly exempted from the regulations, as are many portable devices from encryption requirements.

“I think it’s a significant improvement, particularly for small businesses,” said Jon Hurst, president of the Retailers Association of Massachusetts.

Hurst said that “the fundamental concerns remain” with technological implementation and questioned why Beacon Hill would impose ID theft prevention rules on businesses while excluding government agencies.

“If government can’t comply with it, how can we expect employers to comply with it?” Hurst asked.

Since the ID theft law passed in 2007, employers have fought against what they called overly burdensome measures. The regulations published Monday appeared to appease many of their concerns.

In a press release, consumer affairs and business regulations undersecretary Barbara Anthony said, “In listening to the concerns of small business leaders, we understand there were issues regarding the impact these regulations have on those companies. These updated regulations feature a fair balance between consumer protections and business realities.”

Business groups complained about earlier compliance deadlines and said many of the requirements of the anti-ID theft law would likely prove too onerous. They were quick Monday to offer praise for the softened regulations.

“They have really done a great job in terms of engaging the business community to discuss this and try to find a balanced approach toward doing what we all want to do,” Brad MacDougall, associate vice president for government affairs at the Associated Industries of Massachusetts, said of Patrick administration officials.

The regulations hinge on “technical feasibility,” defined in a summary as “reasonable means through technology to accomplish a required result.” Blanket computer security provisions apply where technically feasible, as do encryption requirements for portable devices.

The administration pointed out in its summary that scant encryption technology exists for cell phones, BlackBerries, net books, iPhones and similar devices, while the technology is available for laptops.

The rules permit smaller businesses to take more modest protection steps. The summary says that small businesses that house only employee data can lock files in a storage cabinet and lock the door to that room. Customer and employee information, though, would require more aggressive protection.

Wicker Local Arlington

Dunkin’ Donuts’ Loss Prevention Department Wants You! Now What?

From time time DDIFO is please to present Guest Commentary from valued contributors. The following is an article written and submitted by Robert Zarco and Robert Salkowski attorneys at law,  from Zarco Law Bank of America Tower at International Place, 100 S.E. 2nd Street, Suite 2700, Miami, FL 33131, Telephone:(305) 374-5418

It starts simple enough. You receive a letter from a “Loss Prevention Analyst” at Dunkin’ Donuts that begins with the following introduction:

Dear Franchisee: We have selected your above-mentioned shops for a Document Examination. The purpose of the examination is to ensure that you are in compliance with the franchise agreement, including the reporting of royalties and Dunkin Brands Incorporated’s records keeping policy. Please mail to us copies of all of the documents listed below. Please also complete and return the enclosed Document Collection Checklist and Receipt, postmarked no later than [date]. Please forward Documents to:

It is possible that Dunkin’ Donuts simply wants to ensure that you are accurately paying your royalties and maintaining your required records. More often, however, a more nefarious reason is behind the letter. It could be the result of a tip received from an anonymous e-mail or phone call, or from a disgruntled current or former employee.

Or, because Dunkin’ Donuts questions your attitude or lifestyle, including the cars your drive or the vacation home you own. Regardless of the reason, Dunkin’ Donuts suspects that you have engaged in some type of questionable conduct in the operation of your shops, and is using its Loss Prevention Department to find “proof” necessary to justify the termination of your franchise agreement.

You are now the “target” of an open loss prevention investigation case.

 

Dunkin’ Donuts’ Loss Prevention Department employs certified public accountants, former FBI and IRS agents and investigators, financial analysts, and others whose mandate and purpose is to investigate you, the franchisee, for violations of state and federal law. Overseeing this department is Dunkin’ Donuts’ General Counsel, who is himself an attorney and former prosecutor for the federal government. The enforcement of the franchise agreement is the claimed purpose for the investigation. However, this is often a mere pretext. Dunkin’ Donuts wants to increase its revenues and, when a violation of law is discovered, no matter how technical, Dunkin’ Donuts uses that purported violation as a basis to extract large monetary penalties from you as a condition to allow you to sell your store or to remain in the system. Notably, these penalties are not disclosed in Dunkin’ Donuts’ Franchise Disclosure Document.

Dunkin’ Donuts’ franchise agreements almost all uniformly obligate the franchisee to provide Dunkin’ Donuts with all financial documents and materials related to the operation of the shop. However, what comes next could very well determine your ability, or that of your legal counsel, to protect and defend your interests in any future termination case.

Once Dunkin’ Donuts receives the requested documents and financial records, its trained financial analysts and investigators scour the records looking for anything that could trigger a non-curable default under the franchise agreement’s “obey all laws” clause. Of significant interest to the Loss Prevention Analyst is evidence which he or she believes supports:

1. your failure to pay the proper amount of overtime wages to your hourly employees;
2. your failure to properly document the eligibility of your employees to work in the United States through the preparation and retention of form I-9s;
3. your failure to properly report and pay all taxes due to the United States and to your respective state agencies;
4. your issuance of form 1099s to individuals who you claim are independent contractors, but who instead should be categorized as employees whose compensation is recorded through form W-2s;
5. the transfer of an interest in your franchise without the prior consent of Dunkin’ Donuts, as evidenced by the issuance of form K-1s to individuals who are not identified on the franchise agreements; and
6.  improperly expensing personal expenses through your business.

After its review, the Loss Prevention Analyst will ask to interview you and possibly your manager, your accountant or tax preparer, or one or more current employees, all without you or your attorneys present. This interview is designed to allow the Loss Prevention Analyst to gather as much evidence against you as possible, allowing the analyst to build his or her case. Often, the Loss Prevention Analyst downplays the importance of these interviews, by misleadingly suggesting that he or she simply wants to ask a “few simple questions” about the contents of your documents or the manner in which your “business is run.”

Almost always, the Loss Prevention Analyst is accompanied by another Dunkin’ Donuts’ employee or Dunkin’ Donuts’ outside counsel, whose presence is intended to corroborate the testimony of the analyst in any future court proceeding.

During the interview, you will be asked a series of questions prepared well in advance by the Loss Prevention Analyst based on the documents you have provided, as well as other aspects of the analyst’s investigation. Never will you be given the opportunity to review these questions before the interview. Instead, you will be asked to answer the analyst’s questions off the top of your head and explain the contents of numerous documents, many of which you may not have seen in months or years.

After the interview, which is analogous to a criminal interrogation, the Loss Prevention Analyst prepares a document entitled “Memorandum of Interview” that is used to support the findings of the Loss Prevention Analyst in a Loss Prevention Report provided to Dunkin’ Donuts’ General Counsel. Consider the Memorandum of Interview as your “confession,” as the interview may contain admissions that you, your employees, or accountants made during the interview that will serve to negatively impact your position, or will otherwise suggest your participation in some type of questionable conduct. This is not to say however, that you in fact engaged in any questionable conduct. Instead, the Loss Prevention Analyst, who may very well have years of training and experience in interrogating individuals based on his or her former law enforcement training, may have lulled you into a false sense of security, and may have otherwise coerced you into making statements and admissions that you would otherwise not have made if you were adequately prepared.

There are several things that you should consider in order to protect your interests in the event that you become the target of a loss prevention investigation case.

These considerations include:

1. Retain counsel to advise you during this process.
   Dunkin’ Donuts comes armed to the game, backed by experienced attorneys and former federal and state agents and investigators. So should you. It cannot be said more strongly the importance of retaining competent franchise counsel to advise you during each step of the investigation, and to represent your interests should you decide to meet with the Loss Prevention Analyst. Do not wait until you receive a notice of termination or when you are served with a lawsuit. The time to retain counsel is now, even if counsel stays in the background and simply advises you of your rights while the investigation proceeds.
2. Respond timely to all document requests.
   You have an obligation under your franchise agreement to timely respond to all document requests. However, do not be afraid to ask the Loss Prevention Analyst for more time to provide the documents, if needed. Before producing the documents, discuss the categories of documents being requested with your attorney or accountant, as well as the substance of the documents themselves. Often, you or your advisor are able to identify the focus of the investigation from the documents requested, which will assist you in the future.
3. Retain copies of all documents that are provided to Loss Prevention.
   By retaining copies of all documents that you provide the Loss Prevention Department, including the date on which the documents were delivered to Dunkin’ Donuts, Dunkin’ Donuts would not be able to ever question your production at a later date, or claim that you otherwise failed to produce the required documents. You may also want to consider numbering each document that is provided to the Loss Prevention Analyst, as a means to further ensure no future dispute.
4. Do not meet with the Loss Prevention Analyst. Period.
   Resist the temptation to talk! Regardless of whether you have anything to hide, do not meet with the Loss Prevention Analyst, no matter how routine or inconsequential you believe the interrogation may be. Although your individual franchise agreement must be reviewed for a complete understanding of its terms, Dunkin’ Donuts’ typical form franchise agreement does not obligate you to meet with the Loss Prevention Analyst or make yourself or your employees available for examination. The Loss Prevention Analyst should never be considered your friend, and you should not confide anything in this person. They want to win and you to lose. Moreover, in those instances where your conduct may suggest a breach of the franchise agreement, your non-participation in this interrogation will avoid you making any admissions that you will later regret. This is not the time to defend yourself or explain your actions, and do not believe that you will be able to convince the investigator of your innocence. Remember, knowledge is power, and the less knowledge the Loss Prevention Analyst has, the less ability that person has to determine whether “proof” exists to find you in violation of your franchise agreement.
5. Do not allow your accountants or employees to meet with the Loss Prevention Analyst.
   For the same reasons that you would not meet with an agent for the FBI without your lawyer, or an IRS agent without your accountant, you should not be meeting with a Loss Prevention Analyst without an experienced franchise attorney, and more specifically, with the Dunkin’ Donuts system. You should not allow your employees or accountant to be interrogated. In addition, many states, as well as federal law, recognize the accountant/client privilege, which in the most general sense, prevents the disclosure of anything you and your accountant discuss. Think of this privilege as akin to an attorney/client privilege. By granting the Loss Prevention Analyst the right to interview your accountant, you would likely waive the right to later successfully prevent the accountant from being forced to produce documents or testify in any formal judicial setting.
6. Resist the temptation to talk. Dunkin’ Donuts’ Loss Prevention Department has been successful in the past because franchisees have mistakenly believed that it was in their best interest to defend themselves. This is human nature. In doing so, admissions were made by the franchisees that were directly contrary to their best interest.
7. Despite the best advice given by your accountant or legal advisor, should you decide to meet with the Loss Prevention Analyst, consider the following:
   • Control the process. Before being interrogated, ask the Loss Prevention Analyst the subject of the investigation, and document the analyst’s response in a letter. If necessary, this may allow you later to challenge the integrity of the analyst and the investigation. Continue to ask questions throughout the investigation, and document all comments or statements that are favorable to you.
   • Ask the Loss Prevention Analyst for the written questions that will be asked of you at the interrogation. There is no reason why you should not be given these questions beforehand. If the purpose of the interview is merely to “ask a few simple questions,” there is no reason why you should not be given the opportunity to be fully prepared beforehand.
   • In addition to your attorney, attend the meeting with a witness, preferably someone who does not have a stake in the outcome. Do not let the witness speak during the interview. Also, never allow an employee or accountant to be interviewed outside the presence of you or your counsel.
   • Advise the Loss Prevention Analyst that you want a copy of the Memorandum of Interview before it becomes final to make sure that your interview was properly documented. If the analyst refuses this reasonable request, document that refusal in a letter to the analyst, which will allow you to challenge the substance of the interview at a later date.
   • Immediately after the interview, write down all questions that you recall, and provide those questions to those persons within your network who will be interviewed later in this process.
   • DO NOT make any admissions of wrongdoing during the interview. Do not speculate about an answer. It is okay to simply say that “I do not remember at this time.” Never adopt an answer suggested by the analyst.
   • Always try and answer the analyst’s questions with “yes” or “no” responses, giving as little information to the analyst as possible.
   • Document anything that you find improper during the interrogation. If you believe the analyst’s questions are improper, suggest a racial motive, or make you otherwise uncomfortable in any way, make sure that you retain a written record and raise those issues with the appropriate individuals.
   • Always remember that the Loss Prevention Analyst is not your friend, period. Do not believe that the analyst wants to help you, and do not confide anything in that person.

Hear Robert Zarco and Partner Robert Salkowski speak at the DDIFO Members Meeting, 9/22/09 at the DCU Center, Worcester, MA. Register Here

Grassroots Efforts Needed on Health Care Reform

Health Care Reform Summary

The U.S. Congress and Obama administration have made passing comprehensive healthcare reform their top priority. All versions of the bill that have been presented by the Senate and House to this point would require employers to pay for healthcare in some form or fashion. One Senate version has employers paying at least 60% of premiums or a $750 fine per year PER EMPLOYEE. A House version requires a minimum contribution of 72.5% or a fine of 8% of average wages!

Now is the time to contact your Members of Congress and let them know that these proposals may very well bankrupt you business!

Take Action: Health Care Reform

TELL YOUR SENATORS AND REPRESENTATIVES TO PROTECT SMALL BUSINESS

 

House of Representatives

The House Energy and Commerce Committee recently came to an agreement that will allow the stalled health care bill to be voted out of committee. Specifically, under the new agreement, businesses with $500,000 (previously $250,000) or less in total payroll will be exempt from the employer mandate. Businesses with payrolls between $500,000 and $750,000 will be subject to a sliding scale tax, while those above $750,000 will have to pay 8 percent of total payroll if they do not provide health insurance.

In the larger version of the bill, an employer must provide individual and family coverage while non-offering employers must pay an 8% payroll tax. Specifically, employers must contribute 72.5% of premiums for individuals and 65% of premiums for family coverage. A proportional amount must be given to part-time employees. For employees who decline employer coverage, employers must contribute directly to the public health insurance exchange. Employers who do not pay for health care must pay a fine of 8% of their average wages.

Also included in the bill is an exemption for small business owners. Small employers are defined as those whose annual whose annual payroll for the calendar year does not exceed $400,000. Those whose payrolls are greater than $250,000 have graduated penalties ranging from 2-4%.

 Now all three versions of the bill must be reconciled before heading to the House floor.

Senate

The Senate HELP Committee’s version of the healthcare bill stipulates that employers with 50 or fewer full-time workers who pay 60% or more of their employees’ health insurance premiums get tax credits for subsidizing coverage. Additionally, employers with more than 25 employees who don’t offer qualifying coverage OR who pay less than 60% of their employees’ monthly premiums are subject to a $750 annual fee per uninsured full-time employee and $375 per uninsured part-time employee.

 The HELP bill also includes the LEAN Act/MEAL Act menu labeling compromise.

Meanwhile, the Senate Finance Committee continues to work behind closed doors. Committee members confirm, however, that a broad employer mandate and public option would not make the final bill.

The Finance Committee’s proposal is set to include a  “free rider” provision where businesses with 50 or more employees must contribute to the cost of tax credits for eligible workers in the in the public program. Employers also would have to contribute 50 percent of the national average Medicaid costs for workers enrolled in the low-income federal healthcare program.

Health Care Talking Points

• As a small business owner, I provide jobs to those in the community. Employer mandates may well put my stores out of business and my employees out of work.
• An employer “pay or play” requirement does nothing to address the cost hurdles facing small employers like me. Instead of an employer requirement, Congress should enact reforms that expand the number of affordable choices available to employers and their employees.
• Employer mandates and one-size-fits-all coverage does not provide the flexibility that employers need to design benefits to workforce needs and thus provides a disincentive for responsible spending and health insurance cost containment.
• The existing market needs more choices – not less. The potential inability of existing insurers to compete with a tax-payer funded government health plan threatens the stability of the private market.  

Last Talking Point: Calculate the Cost to YOUR Business!

It is crucial that you share statistics on how these proposals will impact your businesses. Giving your members hard numbers will help them understand the effect that this bill will have on their constituents.

For your Senators: According to the Senate HELP Committee’s proposal, this bill will cost me:

($750 x number of full-time employees PLUS $375 x number of part-time employees) for non-compliance  OR
(60% x monthly premium costs x 12 x number of employees) for compliance 

For your Representatives: According to the House proposal, this bill will cost me:

(Annual payroll x 8% x number of employees) for noncompliance OR
72.5% of monthly premiums x 12 x # of individual employees PLUS 65% of monthly premiums x 12 x number of employees on family plans)

This will increase my operating costs by ()% and/or this cost may well put me out of business, leaving my ____employees unemployed.

*CFA has been asked to provide monetary figures on the specific impact of this legislation on your business. Please send us specific figures on:

-Cost of an 8% payroll tax

-Cost to pay 60% of premiums for full-time workers

-Cost of paying $750 penalty for each full-time worker and $375 per part-time worker

-Cost of paying 72.5% of premiums for individuals and 65% of premiums for family coverage for your current employees

-Total impact on profits

Advancing DDIFO Legislative Affairs

After a year of voluntarily leading the DDIFO’s government relations initiative, Robert Branca’s role has been formalized. In June, DDIFO President Jim Coen officially named Branca – a Dunkin’ Donuts franchise owner and operator in four states – as DDIFO Legislative Affairs Coordinator.  It remains an unpaid position.

“Being a franchise owner, Rob understands firsthand what impact government regulations have on the operations and management of the business. Rob’s passion is to make sure franchise owners have a say in directing government to effect more positive changes and minimize harmful regulations,” said Coen. “Our businesses impact tens of thousands of families, so there’s a lot to protect, and Rob has the capacity and dedication to do just that.”

Branca says he and his partners were evaluating their membership in various organizations, including the DDIFO, a little more than a year ago. Considering the increasing government regulatory issues affecting their business, they determined there were specific things they wanted the DDIFO to focus primarily  matters concerning government relations. They felt that legislators and regulators were not aware of the impact of their actions – including costs and other consequences of compliance – on Dunkin’ franchise owners. Indeed, Branca notes that “Regulations are issued on a seemingly whimsical basis, often requiring a business owner to be in violation of one set of rules to comply with another.”  Branca also points out that Dunkin’ Brands recognized the need to  establish its own formal  government relations team rather than relying on the IFA lobby as it had for years, but he still believed franchisees needed their own independent input. “We felt that a strong voice and a more direct approach was necessary to put a face on the small business owner,” said Branca.  “While Dunkin’ Brands has been highly effective, by virtue of its size it simply cannot be seen as the face of local shop owners.  Franchise owners need to fill that role and distinguish our small businesses from the large corporate lobbying interests that are so negatively viewed by the public.”

When Jim Coen became DDIFO president, Branca approached Coen and the DDIFO Board about placing a high priority on legislative affairs, and he volunteered to spearhead the initiative. The new leadership gave Branca the go-ahead to take up government relations and Branca began reporting to Coen and working with Joseph A. Giannino, of Government Relations Group, the firm retained by the DDIFO. Due to the myriad of complex legislative and regulatory issues now facing Dunkin’ franchisees, as well as the outstanding work Branca has been doing, Coen and the Board felt it was time to formalize Branca’s role, especially as he has no other function in the other initiatives or daily business of the DDIFO.

“Essentially, we’ve created a powerful government relations team by combining Rob’s and Joe’s efforts and areas of expertise,” said Coen. “Rob was an attorney who worked with a lot of Dunkin franchise owners before becoming one himself, and worked on national banking legislation as a member of the Washington, D.C. bar, so he has a deep understanding of both the Dunkin’ system and the legislative process. He is a top-notch spokesperson for us because he can so eloquently speak to legislators and regulators about the real-life consequences of their actions.”

Joe Giannino echoes Coen’s assessment. “It’s been an exceptional experience working alongside Rob in an effort to promote our agenda,” said Giannino. “His instincts – both political and practical – are spot on, and the credibility he brings to meetings from the legal and ownership perspectives is very effective.”

Galvanizing franchise owners to get involved and become more politically active is one of Branca’s most pressing tasks. “As small business owners, we already have power with legislators because – whether they are conservative, liberal or somewhere in between – they all want to be seen as champions of small business,” stated Branca. “As Dunkin’ franchisees, we have to take advantage of this power by engaging with our legislators. We need to make sure our representatives know who we are, the vital role we play in our communities and the issues of greatest concern to us. We need to make Dunkin’ Donuts a political presence in our respective districts by attending fundraisers, making political contributions, and talking with and writing to our legislators.”

Branca says if franchise owners aren’t comfortable with the political process or don’t have the time to engage personally, they can request that he find someone to speak with legislators on their behalf. They can also band together with other franchisees in their district and approach or support legislators as a group, or have one of their group deliver their message for all of them. In addition, they can use the CFA Votes tool to easily send letters about key issues to their elected officials. That website can automatically generate letters or emails to the proper federal representatives when a user simply types in his or her address. Go CFA Votes and give it a try.

“You have to remember the truth in the saying, ‘the squeaky wheel gets the grease,’ and there is a proven way to make your voice heard as a business owner: be engaged in the process and support the officials that support us. Franchise owners should make a point of reading the DDIFO Legal & Legislative Updates and not hesitate to contact me or Jim Coen with any questions they might have about legislative issues,” said Branca. “If you care about the future of your business and preserving something for your children, you need to be actively engaged in the political process. If you do not speak out about an issue, your legislators assume that you don’t care or support what is being done, and you can and will safely be ignored.”

Branca calls attention to the following legislative/regulatory issues facing franchisees:

• State Nutrition Labeling/Calorie Content Regulations
Officials from the Massachusetts Department of Public Health (MA DPH) wanted to require chain restaurants to prominently display the calorie content of their food offerings on menu boards. In a late spring meeting with these officials, Branca and Giannino successfully demonstrated the negative implications of such regulations for Dunkin’ franchisees, highlighting the costs for new signage – including costs to the state if shops had to close for installations, requiring permits, new inspections, etc. – as well as the real possibility that these state regulations could be superceded by federal regulations within a year’s time, resulting in even more expense for franchisees and the state. Branca and Giannino persuaded the MA DPH to delay the implementation of state regulations at least until a there is a clearer picture of the federal regulations.

• Massachusetts Tip-Pooling Statute
While intended to prevent business owners and managers who don’t work in direct service operations from skimming employees’ tips, the statute is so ambiguously written that “literally construed, the statute can be read to deny tips to nearly everyone in the team service environment that we have in our shops,” said Branca. “Because the statute says that no one with “managerial authority” can collect tips, there are countless scenarios in Dunkin’ shops in which someone who is not a true manager would be denied tips despite doing precisely the same work as everyone else on the shift.” Further, the statute has been spurring class action lawsuits, including at least one against a Dunkin’ franchisee and was recently revised to make  triple damages plus 12% interest and attorney fees mandatory; judges have no discretion in such lawsuits. Branca and Giannino are working with important state legislators to amend the statute to repair the inherent inequities, and Branca is working alongside the Brand and DDIFO legal counsel, Carl Lisa, with the Mass. Attorney General’s office regarding the AG’s role in matter. DDIFO members will be notified which legislators were helpful and which were not in protecting Dunkin’ franchise owner interests.

• Credit Card Legislation
A host of credit card-related legislation is pending on the federal level, including the Credit Card Fair Fee Act.  Some of the proposed laws would require credit card companies to negotiate directly with merchants in setting and disclosing interchange fees, some deal with issues of PCI compliance, some with ability to charge different prices for cash transactions versus credit/debit card transactions and the liability and costs incurred by merchants in holding identifying data as required by credit card companies.

• Healthy Families Act
Put simply, this legislation would require business owners to maintain any paid vacation/leave programs they already offer employees while additionally mandating several weeks of paid sick leave, and be a potentially substanial source of litigation and costs.

Branca and Giannino are keeping a close eye on developments with the credit card legislation, the Healthy Families Act, and other laws and regulations with potentially devastating effects on franchise owners. What’s more, they are proactively meeting with decision makers to make the case for amendments or repeals that would best benefit Dunkin’ franchiseees, thru both DDIFO and the Coalition of Franchisee Associations in Washington, D.C.

Another priority for Branca is working toward Dunkin’ franchise owners forming their own Dunkin’ Donuts Franchisee Political Action Committee (PAC). Branca and John Paul Motta, a Dunkin’ franchise owner, are working together on this with the support of the Brand. They are trying to establish the PAC through the national DCP Board because of the shared issues and concerns among all Dunkin’ and Baskin-Robbins franchisees. “If we can speak together through our own PAC, we can perhaps influence some of the more harmful legislation that is coming our way and even introduce legislation that would be helpful to all of us.  John and I feel strongly that this is a necessary tool for franchisees.”

DDIFO members should feel free to contact Branca at robertbranca@hotmail.com with legislative concerns and questions or for advice on effectively stepping up political involvement.

Dunkin’ Donuts v. Grand Central Donuts

Corbin Williston reports at Blue MauMau that a federal judge has ruled that franchisees may explore Dunkin’s ulterior motive in terminating their franchise agreements.

For the past decade, Dunkin’ has faced allegations of spying, intrusions into franchisee’s love lives, and assorted bare-knuckles tactics in terminating franchisees. One of the most famous franchise journalists was threatened with a lawsuit if she wrote about the tactics.

Now a federal judge has ruled that Dunkin’ must disclose documents which may shed more light on the controversial practices followed by the Dunkin’ attorneys.

Dunkin’ Donuts Franchised Restaurants LLC v. Grand Central Donuts Inc (19 July 2009) is a set of allegations familiar to franchise industry observers.

• Between 2003-2005, the franchisees opened 5 locations.
• In February 2006, they allege that Dunkin told them that Dunkin would be buying their stores.
• The franchisees refused.
• Dunkin commenced an audit in June 2006.
• On September 24, Dunkin told the zees that they had filed inaccurate W-2 forms and transferred an interest in the franchises.
• Dunkin told the franchisees that their franchises were terminated.
• On September 26, Dunkin brought suit in federal court.

A steady stream of franchisees from Detroit to Brooklyn to Ohio have told similar tales of being pushed out by Dunkin’ at fire-sale prices, many losing their life savings when they refused the Dunkin’ offer.

In many cases, Dunkin’ alleges underreporting, and the Dunkin’ personnel charged with audits are paid based in part on how much they claim the franchisee underreported sales. Since December 2001, Dunkin’ has inserted a clause into franchise agreements stating that failure to comply with tax laws is grounds for termination, and routinely “audits” the franchisee’s tax returns and reports to the IRS; one franchisee who sued Dunkin in 1999 got hit with four dozen counts of a criminal tax fraud.

Customarliy, the allegations are that Dunkin’ wants to force small operators to sell to favored operators at below-market prices: the Brooklyn case involved stores which were coveted by mega-franchisee Konstantino Skrivanos, known as “The Greek.”

Although on June 19, 2009 Magistrate Judge Marilyn D. Go ordered the production of Dunkin’ emails, it is unlikely that many recent emails will turn up. On Ocober 4, 2007, Dunkin’ Director of Operations Len Hohmann had warned fellow Dunkin’ execs: “moving forward, please do not email… and let’s communicate by phone.”

Although past efforts to claim pretextual termination and violation of the implied covenant of good faith and fair dealing have generally been unavailing for franchisees, in this case the franchisee attorney pointed out that Massachusetts law applied, and the court held that:

Under Massachusetts law, a party may breach the implied covenant of good faith and fair dealing without breaching the express terms of the contract… notwithstanding an express contractual right to terminate, including the termination of a franchise agreement, ‘under some circumstances a party to a contract is not free to terminate it according to its terms’…

Even if [Dunkin'] had objectively reasonable grounds for terminating the franchise agreements, whether [Dunkin'] had an ulterior motive for terminating the agreements may be relevant to [franchisee's] counterclaims… The [franchisees] could have fairly expected that Dunkin would exercise its rights to terminate and reject new stores in good faith, rather than for the purpose of profiting from a transfer of ownership or favoring other franchisees.

Blue MauMau

Boston Councilor Hot for Banning Foam Coffee Cups

Plastic foam disposable coffee cups dispensed by fast-food chains such as Dunkin’ Donuts and other coffee shops would be banned in Boston under a measure being introduced today before the Boston City Council.

The nationwide coffee giant says it is already climbing on the eco-bandwagon. But at-large City Councilor Stephen Murphy wants to see the Hub follow the lead of cities such as Seattle, San Francisco and Portland, Ore., and outlaw all nonrecyclable No. 6 plastic beverage and food-service containers.

“This No. 6 plastic is the most dangerous for the environment. (The cups) don’t sink. They float in the ocean. They are a detriment to marine life. If you put them in a landfill, they remain intact for over 1,000 years,” said Murphy, who will unveil his proposed ban at today’s council meeting.

Dunkin’ Donuts, one of the largest coffee retailers in the city, said in a statement that it is already using paper cups for its small hot coffee and espresso beverages.

“We are also actively researching alternatives to foam for our medium, large and extra-large cups. Additionally, at our first Leadership in Energy and Environmental Design certified Dunkin’ Donuts in St. Petersburg, Fla., which serves as our prototype for future green efforts, we are testing alternative cups to our foam cups as well as a reusable mug program,” said the Canton-based company said.

Boston Herald

Credit Expected to Stay Tight for Another Year

Kent Hoover writes in the Phoenix Business Journal that lending standards will remain tight until the second half of 2010, according to senior loan officers at large banks.

The Federal Reserve Board’s survey of bank lending practices over the past three months found that domestic banks continued to tighten standards and terms on all major types of loans to businesses and consumers. Demand weakened for all types of loans except prime residential mortgages.

A net 30 percent of domestic banks tightened standards on commercial and industrial loans to large companies, while 35 percent tightened standards on loans to small businesses. The good news is the number of those tightening credit for small companies is down significantly from January’s 70 percent.

An uncertain economic outlook and reduced tolerance for risk were the main reasons cited for tightening credit standards.

About 45 percent of domestic banks reported weaker demand for loans from large companies, and 55 percent reported weaker demand for loans from small businesses.

A U.S. Treasury Department report on lending by the 22 banks that have received the most government funds through the Capital Purchase Program predicts that weak demand for business loans will continue through the third quarter of 2009.

Outstanding loan balances at these banks fell 1 percent in June, and new loan originations increased by 13 percent. Small-business loan originations, including renewals, increased by 26 percent at these banks. Wells Fargo originated the most small-business loans, totaling $2.9 billion, followed by Bank of America ($1.7 billion) and BB&T ($1.1 billion).

Wells Fargo also leads banks in U.S. Small Business Administration-backed loans. Both of the SBA’s main guaranteed-loan programs are down significantly this year. Through Aug. 14, only 36,055 7(a) loans had been approved during this fiscal year, down 43 percent from the same period a year ago. Only 5,173 504 loans, which are used primarily for real estate, had been approved, down 35 percent.

Those numbers would be even lower if the SBA had not reduced or eliminated fees on these loans in March and raised the government guarantee on 7(a) loans to 90 percent — enhancements made possible by the economic stimulus legislation.

More lenders are beginning to participate in a new emergency bridge loan program also created by the stimulus bill. As of Aug. 14, 470 lenders had made a total of 1,375 America’s Recovery Capital loans. That’s an increase of about 120 lenders in a two-week period.

Small businesses can borrow up to $35,000 interest-free through the ARC program to make up to six months of payments on existing debt. They don’t have to start repaying the ARC loan until 12 months after the final disbursement. To qualify, small businesses must show they have been profitable in one of the past two years and can generate sufficient cash flow in the future to pay off their loans.

The SBA, however, expects a default rate of more than 60 percent for these ARC loans. The SBA guarantees 100 percent of the amount of the loans, but some lenders fear they’ll have trouble collecting that guarantee. Other complain the monthly interest rate the SBA pays lenders on these loans — prime plus 2 percentage points — is not enough to make the loans worthwhile.

For more: www.federalreserve.gov or www.sba.gov.

TALF extension could help commercial real estate

The Real Estate Roundtable praised the federal government’s decision to extend its Term Asset-Backed Securities Loan Facility into next year.

The Federal Reserve Board and the Treasury Department announced Aug. 17 that they would continue to make TALF loans to investors in new securities backed by commercial real estate mortgages through June 30, 2010. TALF loans for investments in securities backed by consumer and business loans, and existing commercial mortgage-backed securities, will continue to be made through March 31.

The TALF program was created to thaw the frozen market for these types of securities. It had been scheduled to expire Dec. 31.

The extension “sends a clear signal to markets that the Fed and Treasury understand the gravity of the problem in commercial real estate credit markets,” said Jeffrey DeBoer, president and CEO of the Real Estate Roundtable.

DeBoer said it is “virtually impossible for borrowers to refinance commercial real estate loans. The lack of a functioning credit market is putting downward pressure on property values and is causing an increasing number of commercial property owners to face maturity defaults on their loans.”

The extension of TALF should allow more commercial mortgages to be securitized, DeBoer said, which would enable lenders to make more new loans.

For more: www.rer.org.

Read more at: Phoenix Business Journal

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