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Defining Moment

A new franchise definition?

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This story appears in the May 1998 issue of Entrepreneur. Subscribe »

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.

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