Archive for August, 2013

What You Can Learn From My Summer Vacation

Wednesday, August 21st, 2013

By Sabrina Presnell Rockoff

Our second August post comes from the Chair of our Labor & Employment Team, Sabrina Presnell Rockoff. Sabrina has her own regular blog where she discusses human resources topics at www.mwbavl.com/employmentblog/

Well, it happened. This morning we woke up earlier; the sun rose (or I’m assuming it did somewhere despite the rain); we dropped right back into the routine of eating bowls of cheerios at the kitchen bar; we sat through the car pool line; and just like that—school started again. In classrooms all over the country over the next three weeks, kids are going to be asked in one form or another to share what they learned over summer vacation. In homage to this decades-old ritual, I want to share something you can learn from my summer vacation.

The first weekend in August my husband and I took a trip to Nashville, Tennessee –our own three day “grown up” vacation. I had never spent a lot of time in Nashville, and as a fan of great, old country music, I was mesmerized. We visited the Country Music Hall of Fame, the Ryman Auditorium, the Johnny Cash Museum, and the famous bar Tootsies, where Hank Williams, Sr., would go to drink in between Opry sets (sometimes he made it back for the second set; sometimes, he didn’t). By Saturday at noon, all of the restaurants and bars along the main drag were hopping with live bands. We ducked in and out of several places, hearing everything from original music to songs made famous by Alabama, Little Big Town, Merle Haggard, and Buck Owens.

As I happily sang along off-key with each band, I had two thoughts: 1) I wonder if this place is correctly applying the tip credit for those bartenders (perhaps a post for another day); and 2) I wonder who has the license for that music and if this bar should be allowing that band to play that song. This isn’t exactly an employment law topic, but it is a serious one that you should consider if you have an establishment that allows any type of live music or that plays canned music for your patrons. Whether you are a restaurant or bar with a Friday night cover band or a dentist office that plays music in the waiting room for patients, you could be in violation of copyright laws and not even realize it. Based on recent past experience, even if you don’t realize you are in violation, the companies that own the copyrights to the music may—and legally, your ignorance is no excuse from statutory copyright violations.

Federal copyright laws regulate when copyrighted music can be played for the advantage of a business. If you have a cover band or play other music for your customers, even if they are not directly paying you for the chance to listen to the music, you may still be considered to be playing the music for your own financial benefit as a business owner and/or operator. If you have such music playing in your place of business without having the proper license for the music, you may be in violation of the copyright laws, which provide for statutory damages and attorneys’ fees. The federal copyright laws also allow, in certain situations, for personal liability by the owner/operator, regardless of the corporate structure of the entity involved.

All well and good you may say, but practically speaking, how are these laws enforced? The companies that own the copyrights (just a handful own most copyrights to popular songs) are charged with protecting their rights. So these companies hire individuals to go into places with live music or with canned music that the companies know do not have licenses to play their music. These individuals write down each song they hear played and report that back to the companies. The companies then file a lawsuit. Think it can’t happen to you? It is happening in Asheville, Charlotte and Raleigh.

So what should you do? If you play canned music, for example through a cable music channel, ensure that you have the proper license through the company providing the channel to play the music for customers. If you have live music, either restrict the music that can be played in your establishment to the original music of the musician or negotiate a license from the major music copyright holders. You should also have live music acts sign agreements regarding what licenses they hold and the type of music they agree to play or not to play. These agreements are not an absolute defense to a copyright violation claim, but could be helpful. The federal copyright laws are very specific. Before attempting to review your current agreements or draft new ones, you should consult legal counsel. At our Firm   Rick Jackson  focuses in this area of the law and can help you determine the best way to protect yourself and respect the copyright laws.

Meanwhile, if you would be excited, as I was, to see Bobby Bare sing “(Margie’s at) the Lincoln Park Inn” at the Grand Ole Opry live, we should talk music sometime!

Posted in Copyright, Intellectual Property | No Comments »

The Court of Appeals Clarifies the Level of Judicial Scrutiny for Non-Competition Provisions in Franchise Agreements

Thursday, August 8th, 2013

By Joseph P. McGuire

On August 6, 2013, the North Carolina Court of Appeals issued an opinion clarifying whether the level of judicial scrutiny for a non-competition provision in a franchise agreement should follow the standards for such a provision in an employment contract or the standards for such a provision in a contract for the sale of a business. The issue is significant because it is well-established under North Carolina law that non-competition agreements contained in an employment contract are more closely scrutinized than those contained in a contract for the sale of a business, due to concerns that employees have only their labor to sell and may more readily accede to an unreasonable restriction at the time of their employment than franchisees.

In the case before the Court of Appeals, Outdoor Lighting Perspectives Franchising, Inc. v. Harders, (No. COA12-1204), the plaintiff franchisor appealed an order from the North Carolina Business Court declining to enforce a non-competition provision in a franchise agreement authorizing franchisees to engage in the design, construction, and installation of residential and commercial outdoor lighting products. The franchise agreement prohibited the defendant franchisees from operating another outdoor lighting business within a specified area for a period of two years beginning on the date upon which the franchise agreement terminated or expired.

After expiration of its franchise agreement and upon learning that the defendants were operating an outdoor lighting business, the plaintiff franchisor filed suit to recover damages and injunctive relief. The defendants successfully moved to have the dispute designated for hearing by the Business Court, which is a trial court with offices in Raleigh, Greensboro and Charlotte that specializes in deciding complex business cases. Upon hearing the plaintiff’s motion for a preliminary injunction, the trial court ordered the franchisees to return and refrain from using certain allegedly proprietary information of the franchisor, including customer-related information, manuals and similar protected items. However, the trial court denied the plaintiff’s request for the issue of a preliminary injunction prohibiting the former franchisee from operating an outdoor lighting business. The franchisor appealed the denial of a preliminary injunction.

On appeal, the franchisor urged the Court of Appeals to adopt the standard generally utilized in cases arising from the sale of a business to evaluate the non-competition provision in the franchise agreement, while the franchisees argued that the greater scrutiny applicable to non-competes in employment contracts should govern. Finding that the franchisor-franchisee situation is a hybrid that differs from both the employer-employee and the sale of business arrangements, the Court pointed out that a franchisee is likely to possess a skill set that makes him capable of earning a livelihood in a variety of different businesses, and yet a franchisor is likely to retain and sell to a new franchisee some portion of the good will built up by the departing franchisee. Accordingly, the Court adopted elements of the tests utilized in both the employee-employer and the business sale contexts to analyze the validity of a non-compete in a franchise agreement.

The Court of Appeals concluded that the proper standard in the franchisor-franchisee context is whether the non-competition provision is no more restrictive than is necessary to protect the legitimate interests of the franchisor, with the relevant facts to be considered being the reasonableness of the duration of the restriction, the reasonableness of the geographic scope of the restriction, and the extent to which the restriction is otherwise necessary to protect the legitimate interests of the franchisor. In applying this new standard, the Court determined that the geographic scope of the restriction at issue was not reasonable in prohibiting the defendants from engaging in the outdoor lighting business within the territory assigned to any of the franchisor’s affiliates, especially since two of the affiliates were engaged in lines of business totally unrelated to outdoor lighting. In that the non-competition agreement was impermissibly broad, the Court of Appeals concluded that the trial court correctly determined that the franchisor had no likelihood of success on the merits and affirmed the denial of the franchisor’s motion for a preliminary injunction.

The analysis by the appellate court indicates a flexibility to consider the substance of a hybrid contract that does not fit neatly within prior case law involving either the employer-employee or the sale of business situations, and provides helpful guidance to franchisors and franchisees in evaluating non-compete provisions in their franchise agreements

Posted in Business Purchase/Sale Transactions, Franchise, Non-compete Provisions | No Comments »