Top Trending: Apple Wants to Teach You How to Make Apps

Defining Moment

A new franchise definition?
  • ---Shares
This story appears in the May 1998 issue of Entrepreneur. Subscribe »
Reader Resource

Apply now to be an Entrepreneur 360™ company. Let us tell the world your success story. Get Started »

A recent decision by a California Court of Appeal has many companies shaking their fists and shaking in their boots. Choosing to uphold a lower-court decision, the Court of Appeal found that independent sales agents for Dallas-based Safeguard Business Systems Inc. are protected under the California Franchise Investment Law.

In 1992, 10 distributors brought a class-action suit with 17 claims against office products manufacturer Safeguard. The court tried only one issue: whether the distributor/Safeguard business relationship constituted a franchise agreement. A California judge ruled for the plaintiffs, granting each of them a $6,000 settlement. Safeguard then took the case to the Court of Appeal, but it upheld the prior decision--and Safeguard filed a new petition with the California Supreme Court in March.

According to Safeguard, if this case stands as it is, it could set a precedent in jurisdictions nationwide, opening up businesses with distribution forces or independent sales agents to retroactive criminal penalties, civil suits and recision suits. David J. Kaufmann, a senior partner with New York City law firm Kaufmann, Feiner, Yamin, Gildin & Robbins LLP, says, "This type of relationship, an independent contractor sales force, is common but has never before been held to constitute a franchise relationship. The California court pushed the envelope on this further than anyone had ever thought possible."

The plaintiffs, however, maintain that Safeguard operated as a franchisor without registering as such and that the decision protects distributors and franchisees. "There is nothing startling about this decision," says Bruce C. Fishelman, the plaintiffs' attorney and a partner with Los Angeles law firm Stanbury & Fishelman Inc. "I think it has virtually no effect on any business that uses true manufacturer's representatives."

Contact Sources

Kaufmann, Feiner, Yamin, Gildin & Robbins LLP, 777 Third Ave., 24th Fl., New York, NY 10017, (212) 755-3100

The Pizza Maker Inc., (248) 698-1414, http://www.pizzamaker.com

RFC Inc., 1013 Obispo Ave., Coral Gables, FL 33134, jsbeck@mediaone.net

Stanbury & Fishelman Inc., (310) 278-1800, fax: (310) 278-1802.

Edition: May 2017

Get the Magazine

Limited-Time Offer: 1 Year Print + Digital Edition and 2 Gifts only $9.99
Subscribe Now
OK

This website uses cookies to allow us to see how our website and related online services are being used. By continuing to use this website, you consent to our cookie collection. More information about how we collect cookies is found here.