Defining Moment A new franchise definition?

A recent decision by a California Court of Appeal has manycompanies shaking their fists and shaking in their boots. Choosingto uphold a lower-court decision, the Court of Appeal found thatindependent sales agents for Dallas-based Safeguard BusinessSystems Inc. are protected under the California FranchiseInvestment Law.

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

According to Safeguard, if this case stands as it is, it couldset a precedent in jurisdictions nationwide, opening up businesseswith distribution forces or independent sales agents to retroactivecriminal 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 ofrelationship, an independent contractor sales force, is common buthas never before been held to constitute a franchise relationship.The California court pushed the envelope on this further thananyone had ever thought possible."