Some unintended consequences began to take shape in late June 2011, when the Federal Reserve (Fed) issued its final rule implementing the law. While its initial proposals suggested that fees between 7 and 12 cents seemed “reasonable and proportional” to the costs incurred, the Fed’s final rule concluded that all future swipe fees would be capped at 21 cents plus .05 percent of the transaction amount to account for fraud losses. This was below the past average debit fee of 44 cents per transaction. However, swipe reform supporters were disappointed at the significant concessions the Fed made to big banks and credit card companies, especially since 44 cents was only an average. They felt there were many other transactions, such as small ticket purchases, that fell well below the average rates.

While the 21-cent-cap decision was higher than expected, many agreed that overall swipe fees would decrease. What no one expected, however, was that the credit card and banking industries would find a way to generate MORE revenue–not less–from imposing swipe fees. Worse, the businesses in which franchisees sold lower-ticket items were the ones that were about to be hit the hardest.

How did MasterCard and Visa manage to profit from regulations intended to lower swipe fees? Prior to oversight by the Fed, the credit card giants were imposing differing fee schedules based on multiple factors like industry segment, size of the transaction and volume processed. As a result, fees on small-ticket transactions were 4 cents plus 1.55 percent. After the Federal Reserve issued the final rule, however, MasterCard and Visa set new rates that treated the 21-cent cap as a floor for debit card fees. That meant that almost ALL transactions, regardless of cost or size, would be subject to a 21-cent fee. Therefore, franchisees selling lower-ticket items would now be paying a much higher percentage of the cost to the credit card companies. The result: every transaction made below $15 on a non-exempt card now has a higher network-imposed interchange fee than it did prior to the law’s enactment. Further, interchange swipe fees on purchases under $2.50 have now tripled in price because of the decisions by participating networks to raise all rates to the cap.

How did this happen? According to the organization primarily responsible for advocating the law’s passage, the Merchants Payments Coalition (MPC), two parties are to blame for this result: the Fed and the credit card companies.

According to MPC, the Fed did not set a truly reasonable and proportional standard and therefore is now allowing banks to collect almost six times the transaction cost in debit swipe fee revenue. Also, because the Fed did not require merchant routing choices on every transaction (i.e., a signature or PIN number), they limited the competition between Visa, MasterCard and the other debit networks. As for the credit card companies, MPC points out that while the 21-cent rates are not required by law, Visa and MasterCard still raised the debit swipe fee to the 21-cent cap, which now serves as more of a floor in the eyes of the networks.

In late November 2011, retailers began fighting back. The National Retail Federation, the Food Marketing Institute, the National Association of Convenience Stores and other organizations filed a suit against the Fed for setting too high of a cap on interchange fees; buckling to pressure from the banking industry; and considering outside expenses, such as fraud, when determining swipe fees. The suit maintains that the Fed’s cap is an “unreasonable interpretation” that exceeds its authority under the law. In addition, the suit contends that the Fed wrongly interpreted another provision in the law—one that requires merchants have a choice of which network handles their transaction.

In the long term, hopefully the networks will begin to face some competitive pressures and swipe fees will decrease. Until that happens, however, franchisees need to write to their members of Congress and relay their personal stories of how the new swipe fee law is hurting–rather than helping–their business.

Members voted 263-159 in favor of the bill; more than two dozen Democrats voted for it.

The bill, H.R. 527, would also require a review of past rules, and give small companies more authority to fight rules they say are too burdensome.

The legislation is the latest of several proposals that Republicans have advanced in the name of trying to create a more hospitable environment for job creation. House Small Business Committee Chairman Sam Graves (R-Mo.) said the bill would remove several loopholes that federal agencies have used to avoid complying with the Regulatory Flexibility Act (RFA), which was meant to ensure federal rules are mindful of small companies.

Democrats argued that Republicans are effectively trying to regulate the regulators to the point that they would not be able to work.

“What it does is require agencies to engage in so much analysis and so much new procedures that it basically befuddles the agencies to bring forth any rules in the future,” said Rep. Steve Cohen (D-Tenn.). “It is elimination by burdensome regulation, and while it doesn’t say they’re eliminating rules, that’s the effect of it.

“The cumulative effect of this and other changes in H.R. 527 will be to undermine the ability of agencies to effectively regulate consumer health and product safety, environmental protection, workplace safety, and financial services industry’s misconduct, among other critical concerns,” Cohen added.

But Republicans rejected this, and said the bill would only require agencies to do more to ensure small companies can comply with their rules.

“Opponents will argue that the bill stops agencies from issuing regulations,” Graves said. “However, the reality is that H.R. 527 will force agencies to consider how their actions affect small businesses and other small entities.

“More importantly, if the effects are significant, agencies, not small entities, will have to develop less burdensome and costly alternatives,” he added.

With House passage, the bill goes to the Senate, which is not expected to consider the legislation.

The suit, filed in U.S. District Court for Massachusetts, seeks forced compliance with remodeling guidelines and damages from Leal Donuts Inc. of North Adams, Mass.; Maria Donuts Inc. of Hudson, N.Y.; and Pico Donuts Inc. of Catskill, N.Y. The companies’ principal shareholders also are named as defendants.

According to Dunkin’s complaint, franchisees must abide by decor guidelines. Timelines laid out in the suit suggest the parent company showed considerable patience in waiting for the defendants to act accordingly.

The suit argues that franchisees that are out of compliance are inappropriately benefiting from advertising by Dunkin’ and other franchisees.

Read more at: Boston Business Journal

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Dunkin’ Not Shy in the Courtroom: More Franchisees Sued

NEW YORK

Employers argue that paid sick leave would increase operating expenses and  further hamstring businesses already struggling in the down economy, leading to  reduced economic and job growth.

If the measure passes, New York would become the third city behind San  Francisco and Washington, D.C., to require businesses to offer paid sick leave  to employees. Similar measures have been introduced in 15 states, including  Connecticut, New Jersey, Maine and Ohio, although none have passed into law. At  the federal level, the Healthy Families Act, which would provide up to seven  days of paid sick leave, was introduced earlier this year in the House and  Senate, and has garnered support from President Obama.

Read more: http://nrn.com/article/paid-sick-leave-takes-center-stage-nyc#ixzz1dkmQYr26

Denver voters reject sick leave bill

Denver voters on Tuesday shot down a proposal to require employers to offer  paid sick leave after weeks of divisive debate that pitted business owners  against their workers.

Known as Initiative 300, the paid sick leave mandate was on a ballot  initiative on which 104,217 people voted. Of those, 36 percent, or 37,498 voters  said yes, while 64 percent, or 66,719, rejected the measure.

Read more: Nation’s Restaurant News

Related Story: Paid sick leave takes center stage in NYC

Essential Pizza claims the franchisor failed to disclose significant tax expense and liability in the amount of $1.2 million when preparing financial documentation for the sale.  The multi-unit franchisee alleges there was also additional liabilities that should have been disclosed including “the crippling burden of fighting extensive class action litigation” by Papa John’s delivery drivers. He states, “Papa John’s negligently opened itself and its franchisees up to liability for wage violations related to complying with minimum wage laws” with its policy of charging a set “delivery fee” to customers for every delivery.

Read more at: BlueMauMau

U.S. District Judge Laura Taylor Swain in Manhattan said the plaintiffs failed to show that they had a right to share in money left in the plexiglass cube containers, known as tip boxes, that Starbucks places beside cash registers.

She also said the plaintiffs did not support their claim that Seattle-based Starbucks coerced or else required them to put tips that customers left them personally into the boxes.

According to the opinion, Starbucks’ written policy on tips lets baristas and shift supervisors, who are typically part-time hourly workers, handle and receive tip box proceeds.

In contrast, store managers and assistant store managers, who are typically salaried, full-time workers receiving other benefits such as holiday and sick pay and life insurance, do not handle tips. The policy is silent about individual tips.

Adam Klein, a lawyer for the workers, did not immediately return a request for comment. Starbucks spokesman Alan Hilowitz had no immediate comment.

The 2008 lawsuit was brought by five former assistant store managers who worked in Starbucks stores in New York City or Long Island and sought class-action status.

They said Starbucks violated state labor law by denying them tips, given that they performed similar duties to eligible workers, and forcing them to contribute to tip pools.

But Swain said the “plain language” of state labor law does not grant workers any right to share in such pools.

“Plaintiffs’ claims that Starbucks improperly retained gratuities that plaintiffs were entitled to receive fail as a matter of law,” she wrote.

The case is Winans et al v. Starbucks Corp, U.S. District Court, Southern District of New York, No. 08-03734.

The bills, which will be the subject of legislative hearings today, have implications for the state’s nearly 14,000 franchise businesses and the 150,000 people who work at them. A franchise is an independently owned business that has been granted a license to market a company’s goods or services.

One bill would clarify the employment status of franchise owners and protect parent corporations from having to pay them overtime and the costs of certain benefits. The legislation follows recent rulings by the Massachusetts Supreme Judicial Court, which found that cleaning franchise owners were essentially working as employees of the corporate parent, Coverall North America Inc., and entitled to overtime pay, worker’s compensation insurance, and unemployment insurance.

The other bill would give local franchise owners greater legal protections in their dealings with parent companies. It would require parent firms to prove there is a legitimate business reason for terminating or failing to renew a contract. It would ensure that franchise owners are paid for the value of businesses upon termination; grant them monetary damages if a new outlet opened nearby hurts sales; and give them the right to take corporate parents to court, instead of arbitration, to which many contracts limit them.

In Massachusetts, a local owner could lose all the investment in the store if a franchise company ended the contract, said Robert Zarco, a Miami lawyer who represents franchise owners around the country. “These franchise agreements are extremely one-sided,’’ said Zarco. “You are left on the street with nothing.’’

That’s what former Dunkin’ Donuts franchisee Irwin Barkan said happened to him. In 2005 Dunkin’ Donuts gave him seven days to repay his $1.8 million debt to the company. When he couldn’t, he said, Dunkin’ terminated the contract for his Rhode Island stores and refused to compensate him for the $3 million he had invested.

Barkan filed a lawsuit against Dunkin’ Donuts, which was thrown out by a federal judge last year. At the time, Dunkin’ officials praised the decision, saying there was no breach of contract and that Barkan’s franchises flourished under new management. Rhode Island subsequently passed a law similar to the one under consideration in Massachusetts, which includes a requirement that franchise owners get 90 days’ notice before an agreement is terminated.

Read more at: Boston Globe

 The Senate left in place pending federal rules that will cap the fees charged by banks each time a consumer swipes a debit card, ending for now a fight that rekindled populist fervor against Wall Street.

But the attempt Wednesday to roll back the regulations and preserve the higher fees came within six votes of passage, ensuring that the long-running battle will continue.

Danielle Jordan became dizzy, disoriented and light-headed after drinking the sugary brew and ultimately had to be hospitalized because of diabetic shock, according to the suit. Jordan claims her diabetic symptoms have worsened as a result of the incident and she has had to increase the medications she uses for treatment.

The resulting difficulties have deprived Jordan of  ”her usual customary duties, activities, avocations and occupations” to her “great financial detriment and loss,” according to the suit.

Jordan’s lawyer, Kenneth Rodgers, said his client got her drink on the way to a downtown mall and that’s where she became ill. A security guard noticed Jordan’s plight and called for paramedics, who transported her to a hospital. She was discharged a few hours later. Jordan couldn’t tell from the taste of the drink that she got sugar instead of her preferred artificial sweetener, Rodgers said. “She didn’t drink it all, but she drank more than half of it,” Rodgers said. Jordan would have been able to pick out the difference in a side-by-side comparison, he said.

Dunkin’ Donuts was negligent in allowing employees to add sweetener to coffee out of the customer’s presence, the suit claims. Jordan is seeking unspecified damages.

A legal liaison for the Canton, Mass.-based chain, Leshia Evans, told the Philadelphia Daily News on Friday that she couldn’t comment on the case but said customers receive only what they’ve ordered.

“If they request a medium coffee, they will get a medium coffee,” Evans said. “If you fail to request a sugar substitute, we can’t read your mind. We sell doughnuts, not crystal balls.”

Insurance Journal

Chipotle officials declined to reveal the locations of the units that were visited, but news reports cited Georgia, California, Washington, D.C. and Minnesota, among others.

In a call to analysts last month following the release of first-quarter results, Chipotle co-chief executive Monty Moran confirmed that the criminal division of the U.S. attorney’s office in Washington, D.C., had asked to review documents related to an ongoing investigation being conducted by the U.S. Immigration and Customs Enforcement agency, or ICE.

Moran described the criminal probe as typical following ICE sweeps.

Officials with the 1,100-unit chain said Wednesday that the company has not been forced to dismiss large numbers of employees based on the current probe.

Earlier this year, Chipotle dismissed 450 workers after ICE officials questioned the validity of immigration documents required to prove eligibility to work in the United States. The ICE investigation was later expanded to include Chipotle locations in Virginia and Washington, D.C., where another 40 employees were dismissed.

 Read More at: Nation’s Restaurant News