Joe Brown and his Main Street Garage were synonymous. A highly skilled auto mechanic who had earned a coveted “Expert Technician” certification from the State Board of Mechanics, Joe had been in the industry for 30 years. Recently, however, he decided to dramatically reduce his workload. Although Joe would continue to work on a few cars per month, most repairs would now be performed by his son, Jake, who had only five years of experience and did not have the same certification. Further, Joe forbade Jake to operate the high-tech, computerized diagnostic equipment that he himself used.

Free of his daily constraints, Joe took greater interest in his role as managing shareholder of the closely held corporation that owned the business. In particular, he adopted a marketing strategy that would capitalize on his personal accomplishments and his fatherly persona. Inspired by Dave Thomas, the late founder of the Wendy’s® restaurant chain, Joe made himself the sole focus of both the garage’s website and its advertisement in a local magazine. The site and the ad each featured a large picture of Joe and the following captions:

• “A Mechanic with 30 Years’ Experience!”
• “Specially Certified by the State Board of Mechanics as an Expert Technician!”
• “State-of-the-Art Diagnostic Equipment!”
• “JOE BROWN WON’T SLOW DOWN!”

Joe was confident that he could justify each of the captions. A still-active mechanic in the business, he did have that experience, he had earned the certification, and he did operate state-of-the-art diagnostic equipment. The fourth caption, Joe believed, was no more than a catchy slogan.

Little did Joe realize that he might have unwittingly subjected his company and himself to liability for consumer protection violations under the Federal Trade Commission Act (the “FTC Act”) or a state law equivalent (a/k/a a “Little FTC Act” or “Consumer Protection Act”). Under these laws, the existence of good faith intentions are often irrelevant, the non-existence of consumers who were actually “harmed” is often irrelevant, and, in some cases, the existence of a corporate structure will do nothing to shield a company’s principal from personal liability.

The federal law empowers the FTC to bring different types of legal action against certain businesses that it contends have engaged in deceptive trade practices that cause or are likely to cause “substantial injury to consumers.” One type of action is an administrative proceeding in which the FTC seeks a “cease and desist” order against the business and can obtain penalties for violation of that order. The other type is an actual lawsuit in which the court can impose fines of up to $10,000 “per violation.”

The state “Little FTC Acts,” which are based on – and usually interpreted consistently with – the FTC Act, are typically more specific and detailed as to what exactly is prohibited. In addition to the many specific prohibitions, however, the state laws will often generally forbid the making of misleading statements or omissions that have the “capacity” or “tendency” to deceive consumers. These laws also tend to impose tougher consequences on violators. In addition to empowering a state agency to seek “cease and desist” orders and financial penalties against violators, these laws often allow an “injured” consumer to sue for damages – and, depending on the terms of the particular state’s Consumer Protection Act, maybe obtain (i) “punitive” damages, double damages, or triple damages; and/or (ii) reimbursement by the business for attorneys’ fees the he/she incurred in the lawsuit.

In the case of the Main Street Garage, one could argue that the ad “tends” to mislead consumers into believing that (i) Joe, whose picture dominates the marketing materials and “won’t slow down,” will personally work on their cars; (ii) the mechanic devoted to them personally has 30 years of experience and a special certification reserved for particularly competent mechanics; and (iii) they will benefit from the garage’s use of high-tech, state-of-the-art diagnostic equipment. In truth, Joe probably won’t work on their cars, the mechanic who will probably work on their car has only a few years of experience and lacks the certification, and the high-tech equipment probably will not be used. Although he might not have intended to deceive anyone with his ads, his inability to appreciate the difference between permissible “salesmanship” on the one hand and a possibly “deceptive trade practice” on the other could prove costly.

As a business owner, you aren’t necessarily qualified to make this distinction – but you should be conscious that it exists. If in doubt about your great new advertising concept, quickly run it by your business lawyer.

The possible consequences of “spoliation,” the improper destruction of evidence by one who is in litigation or who reasonably should expect to be in litigation, generally fall into three categories:

1. Discovery sanctions. A court may impose punishment “sanctions” in connection with its supervision of “discovery,” the formal pretrial process through which each litigant may obtain facts and information from other parties and non-parties to the suit. Courts typically are afforded wide discretion to impose sanctions on those who engage in improper discovery tactics. In extreme circumstances, in fact, a court might even (i) find certain disputed evidentiary facts to be “established” at trial in favor of the non-sanctioned party, (ii) dismiss or strike the sanctioned party’s claims or defenses, or (iii) enter judgment against the sanctioned party.
2. Negative evidentiary inference. A court might instruct a jury to draw – or if there is no jury, the court itself can draw – a “negative inference” against a party who negligently or intentionally destroyed relevant evidence. That is, the court might instruct the jurors to assume that any relevant, but improperly destroyed, evidence would have been harmful to the document-destroyer’s case. In some circumstances involving more egregious misconduct, the court might even tell the jurors to assume that the party that destroyed the evidence did so out of awareness that he/she/it had a weak case. (Note that standards vary from state to state and between the federal and state courts.)
3. Separate legal claim or defense. A separate legal claim or defense of spoliation is available only under the laws of certain states.

Making these threats even more perilous is the fact that there is no easy, fool-proof way to determine what documents must be maintained in any particular case. Not only do facts differ from dispute to dispute, but different courts (and different judges on the same court) are likely to draw lines at different locations. A highly respected opinion regarding the federal court standard says that an actual or potential litigant – while under no obligation to save every single document in its control or every single copy of the same document – does have

“a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.”

Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217-18 (S.D.N.Y. 2003) (quoting William T. Thompson Co. v. General Nutrition Corp., 593 F.Supp. 1443, 1455 (C.D. Cal. 1984)). If that legal jargon sounds like gobbledygook to you, you’re probably not alone. In fact, any entrepreneur who decides, without legal guidance, that certain documents are not “reasonably calculated to lead to the discovery of admissible evidence” or “reasonably likely to be requested during discovery” – and therefore are okay to destroy – is taking a tremendous risk of error.

The risk is even higher for businesses that regularly engage in periodic, routine destruction of hard and/or electronic documents. In order to protect itself from spoliation-related penalties, a business that learns of a potential lawsuit should immediately impose an internal “litigation hold” and notify its employees and document custodians of it in writing. This hold would effectively suspend the business’s normal document retention and destruction practice to the extent necessary to preserve lawsuit-related documents and would cover all company employees and contractors who are likely to have relevant information.

Spoliation is a very real issue, and it’s probably not on the typical business owner’s radar. When in doubt, err on the side of caution and contact an attorney before destroying documents.

As I explained in detail in a previous post, you should make sure that no one but key employee(s) can access valuable information such as confidential customer lists, secret price lists, and business strategies. In addition to the obvious reasons to restrict access, your efforts could later help you prove that the information qualifies as protectable “trade secrets” under state law. If you can convince a court or arbitrator that the employee unfairly put one of your trade secrets to her own use or shared it with a third party, you might win a claim for misappropriation.

In addition, you might consider entering into one or more “restrictive covenants” – such as a confidentiality agreement, a non-solicitation agreement, and / or a non-compete agreement – with the key employee. A restrictive covenant is a type of contractual agreement, and thus would require each party to do something for, or promise something to, the other party.

Confidentiality Agreements

A well-drafted confidentiality agreement will, among other things, clearly delineate the type of information that is considered confidential and prohibit the employee from using the information against you or revealing it to a third party. In addition to contractually binding the employee, the agreement could have the effect of bolstering your “trade secret” argument.

Non-Solicitation and Non-Competition Covenants

You might also decide to have the employee agree to a non-solicitation and / or non-competition requirement that would be in effect both during employment and for period of time afterwards. A non-solicitation agreement (or a non-solicitation clause that’s part of a larger agreement) might prohibit the employee from (i) seeking business from your clients, (ii) seeking to hire your employees away from you, or (iii) a combination of both. The non-competition requirement, in contrast, would forbid her from engaging in the same type of business as yours for a period of time in a particular geographic area.

Please note, however, that courts do not automatically enforce non-solicitation and non-compete agreements. In an effort to protect an employee against unfair terms, a court will sometimes void such an agreement or reduce its scope. With regard to a non-solicitation agreement, for example, the court might shorten the time period that the restriction is in effect. When faced with a non-compete, the court might shorten the time period and / or shrink the geographic scope. (For example, the court might reduce a statewide, 2-year prohibition to one that applies only to certain nearby counties and lasts only 18 months.) Such a decision is often left to the court’s discretion and depends on the particular facts of each case.

Regardless of possible enforcement issues, a restrictive covenant is often worth considering. The mere existence of the agreement often prevents the very behavior that it seeks to address. And even if the agreement doesn’t achieve the desired chilling effect, it might convince a court to award you the legal relief you need.

The “uniform application” provision reads as follows:

Uniform Application of Brand Standards: Franchisors shall maintain consistent operating standards under a specific franchise system brand name and uniformly apply such standards in a non-discriminatory manner.

I must admit that this sounds good. After all, aren’t most of us in favor of “equal treatment” and against “discrimination”?

When one scratches below the surface, however, the “uniform application” standard looks less attractive. To begin with, the term “non-discriminatory” might be unintentionally misleading to a non-lawyer – or at least to an inexperienced franchisee. Most people probably associate the term “discrimination” with racist, sexist, or other bigoted conduct that results in a civil rights violation. In the franchise context, however, “discrimination” is interpreted much more broadly to mean that no two franchisees – not just those, for instance, of different races – may be treated differently. (Incidentally, there is a non-franchise-specific federal law that protects racial minorities from race-based discrimination in the formation and enforcement of contracts.)

The question, then, is whether we – franchisees and the people who advocate for them – should encourage franchisors to blindly impose the same franchise brand standards on everyone, regardless of circumstance. What if, for example, a franchisee’s particular financial condition and competitive realities make it reasonable for her to seek a postponement, reduction, or waiver of a franchisor-imposed “major renovation requirement”? If the franchisor has accepted the UFBOR as written and incorporated it into its Franchise Agreements, it might be (or at least feel) constrained to take a hard line with this franchisee – even if it feels otherwise inclined to give her a break. While certain co-franchisees might applaud the adherence to “uniformity,” the truth is that the requirement doesn’t necessarily help all of them – and it sometimes doesn’t help any of them. In short, rather than prompting the franchisor to occasionally give a franchisee a good deal, it might instead lead to all franchisees getting the same bad deal.

Another downside to the UFBOR language is that it arguably provides the franchisor with a mandate to mark an otherwise excellent franchisee down on QA inspections or even hold that franchisee in default for trivial reasons. (What’s worse, it gives an excuse to a franchisor that, for whatever ulterior motive, is looking for reasons to declare a default.) For example, it is difficult to see the harm suffered by a fast-food franchise system – or its franchisees – if one of the franchisees uses non-conforming salt shakers. While a franchisor might decide on its own that such a rigid requirement is necessary, the franchisees as a group probably don’t need to insist on it.

I do understand, though, why franchisees might want to require some, or at least a great deal, of uniformity. Indeed, a Maryland-based McDonald’s franchisee could reasonably argue that the franchisor’s failure to maintain standards in other states – and therefore to ensure the general public essentially the same McDonald’s experience throughout the country – would negatively impact the brand’s image and thus harm that franchisee’s business. The problem, however, is that the UFBOR provision doesn’t recognize nuance. A requirement of “reasonable” efforts to maintain general or substantial uniformity might adequately serve the franchisees’ interest in brand consistency while allowing for flexibility under the appropriate circumstances, and thus pose less of a danger to the very group of people who are demanding uniformity.

What’s your opinion?

Tortious interference claims are based on state law, and the states vary as to how they define those claims and what they call them. It suffices to say, though, that the courts generally recognize two types of tortious (or “wrongful”) interference: “interference with contract” and “interference with business relations” (a/k/a “interference with business expectancy” or “interference with economic relations”).

A claim of “interference with contract” can exist only where Predator Company has purposely caused the breach, or disrupted performance, of an existing contract between Victim Company and the third party. In order to win on this type of tortious interference claim, Victim Company would have to prove, at the very least, that (i) it had a binding contract with the third party, (ii) Predator Company knew of the contract’s existence, (iii) Predator Company intentionally and successfully convinced the third party to breach the contract or otherwise disrupted the third party’s ability to meet its obligations, and (iv) Victim Company suffered a resulting loss. Under the laws of some states, such a showing would be enough to create liability. In other states, however, Victim Company also would have to prove an important additional fact: “malice” on Predator Company’s part. Malice might, depending on which state’s law applies, be proven by demonstrating Predator Company’s improper motive (such as intent to injure Victim Company) and/or use of improper methods (e.g., through criminal conduct, threats, or making of defamatory comments about Victim Company).

In contrast to “interference with contract,” a claim of “interference with business relations” can be implicated even where no contract existed between Victim Company and the third party. In fact, such interference can occur where (i) Victim Company and the third party had merely expected to enter into a written contract or business relationship prior to Predator Company’s actions; or (ii) there was, prior to Predator Company’s actions, an existing “at will” relationship between Victim Company and the third party (such as where a customer purchases from Victim Company on an “as needed,” transaction-by-transaction basis), and those parties had reason to believe that the relationship would continue. Generally, Victim Company would have to prove Predator Company’s malice in order to prevail on this type of interference claim.

The tortious interference doctrine, like other trade-related laws, is intended not to prevent or constrain competition, but to protect it. If you’re a business owner, then you certainly should fight hard to win customers, clients, and other opportunities – but just be aware that underhanded efforts to pry them from your competitors could ultimately prove counterproductive. If unsure about a planned course of conduct, consult with a business attorney.

Most states, in fact, have wage-and-hour laws on their books, and those statutes impose consequences for an employer’s failure or refusal to pay full employee compensation – whether such compensation takes the form of wages, salary, commissions, or something else – when it’s due. (The federal Fair Labor Standards Act, or “FLSA,” addresses wage-and-hour issues as well. The FLSA, like many state statutes, imposes minimum wage and overtime requirements but does not address the issue raised by the Oscar-Felix dispute.) Although certain jurisdictions might vary in this regard – and an employer should check the law in his/her/its own state – state wage laws tend to state, generally, that (i) all wages, salary payments, and other compensation earned by an employee must be paid on the regular “payday” on which they are due; and (ii) if employment terminates prior to the business’s next regular payday, the final payment to the employee must be made no later than that payday. At a minimum, an employer who violates this payment requirement will be held liable for the amount that should’ve been paid. In addition, if it’s found that the withholding of monies did not arise from a “bona fide dispute” (defined by at least one court to mean that the employer had had a “good faith” belief that those monies weren’t owed), the employer might also be required to pay additional sums. The general tendency among states, in fact, is to allow courts in such circumstances to impose a total payment requirement that – depending on the state – is double or triple the amount of the unpaid compensation, plus the employee’s attorneys’ fees and costs.

Felix’s argument that Oscar wasn’t entitled to payment was a shaky one. Oscar was paid a pure annual salary, consisting of periodic payments made during the course of employment. Unlike commission arrangements or certain wage arrangements, it is not dependent on a particular output or result. Further, Felix could not argue that Oscar had violated some written policy that had entitled the firm to dock his pay. Even if Felix had been able to make such an argument, there is no guarantee that a judge or jury would’ve found it convincing. On the other hand, Felix – who had passively allowed Oscar to work at the office during the “notice” period and apparently withheld payment out of spite – faced the possibility of having to pay a sum much higher than the amount of the original paycheck. (In the end, he was lucky. The judge entered judgment for the amount of the paycheck and no more – though a different judge might have responded differently.)

Since Oscar’s compensation was based on salary – as opposed to some other measure – the dispute between Oscar and Felix was perhaps simpler than most. Regardless, even a business owner who considers docking the pay of – or completely withholding payment from – hourly wage employees should take heed. If you believe that one of your employees is “slacking off” and not working for the money, consider terminating his employment sooner rather than later and cutting your losses (although the firing of employees raises its own set of potential issues and must be handled carefully). If, however, you decide to let him continue appearing for work and punching the time clock, withholding his pay could be a bad mistake. Litigation can be disruptive, and you might end up owing more than the paycheck.

“Betty” was a former “X Company” franchisee. After X Company terminated her franchise, Betty was able to continue operating an independent version of the business from the same location without violating her non-compete agreement. The newly non-franchised business struggled with operational issues, however, and a large number of customers filled its “comment” box with written complaints about poor service and other problems. Betty, anxious to do damage control, prepared and sent each and every one of the many complaining customers a variation of a form letter apologizing for the unpleasant experience. Unfortunately, she unwittingly had made a bad situation much worse by writing those letters on leftover stationery that contained X Company’s logo and slogan.

X Company, which already had decided to sue Betty on other grounds, learned of the letters’ existence and responded by asserting a claim against her for trademark / service mark infringement (which we’ll just call “trademark infringement”). In short, the parties’ Franchise Agreement was a typical one in that it expressly authorized her to use the company’s registered trademarks only during the franchise relationship – and required her to fully “de-identify” her business with the franchisor’s brand upon termination. X Company argued that, since the contract forbade Betty’s continued, post-termination usage of its marks, her use of X Company letterhead violated not only the contract itself, but also the Lanham Trade-Mark Act (the “Lanham Act”).

The Lanham Act is a federal statute that forbids, among other things, the unauthorized use, or “infringement,” of another’s validly registered trademarks or service marks. The aims of this prohibition include protection of the general public from deceptive trade practices and protection of businesses from unfair competition. For example, one could credibly argue under the statute that an independent fast-food restaurant that displayed the McDonald’s marks without permission would be victimizing both (i) its customers (who could, quite reasonably, think they were purchasing McDonald’s-approved products from a McDonald’s-approved vendor); and (ii) the McDonald’s Corporation (as an impostor would be unfairly benefitting from the franchisor’s marks and maybe even diverting customers from nearby McDonald’s franchisees).

Betty’s actions, however, had not “injured” anyone in quite that way. Betty had, after all, timely removed all “X Company” signage and marks from public view, and, since her termination, she had not used X Company’s marks in connection with advertising. Moreover, her apology letter had lacked the intended effect, as none of its recipients became return customers. What she did do, though, according to the franchisor, was cause it to lose control over the marks and the products / services associated with them. Courts tend to recognize such loss of control as an inherent injury constituting “irreparable harm” to the mark owner’s good will and reputation, regardless of the circumstances. Betty, in fact, had arguably increased the extent of that injury through her particular use of marks; that is, by using X Company’s letterhead in connection with her apology letters, Betty quite possibly had caused disgruntled former customers to hold X Company responsible for their “bad” experiences with her independent business.

One who violates the Lanham Act faces potentially dire consequences. In addition to issuing an immediate injunction (a type of court order) requiring the infringer to stop the unauthorized use of its marks, a court could require the infringer to pay to the mark’s owner (i) the infringer’s profits obtained during the infringement period, (ii) “damages” to compensate the owner for any additional injury that it might have suffered as a result of the infringement, and (iii) costs incurred by the owner in enforcing its rights under the Lanham Act. Even worse for the infringer, the court has the power to increase the damages amount by up to three (3) times the amount of the owner’s actual loss. Finally, in extraordinary circumstances, the court might also require the infringer to pay the owner’s attorneys’ fees.

As demonstrated by Betty’s unfortunate mistake, it is not difficult for a former franchisee to run afoul of the Lanham Act and get into serious trouble. If you’re a terminated or “expiring” franchisee, follow the franchisor’s de-identification requirements to the letter. In the event that the post-termination instructions are insufficient, immediately do at least the following when your franchise relationship expires: (i) remove or cover all of the franchisor’s signs and all other items containing the franchisor’s name; (ii) ensure that you and your employees cease using the franchisor’s name and slogans when answering the telephone, sending emails and engaging in social media; and (iii) stop using the franchisor’s stationery. These steps might be inconvenient, but they’ll be worth your time and energy.

Perhaps it’s my legal training and uptight nature, but it actually amazes me how many small business owners fail to document crucial decisions, communications, and agreements. As admirable as handshake deals might sound in principle, reliance on an oral “understanding” or promise – without even an informal exchange of confirming e-mails – can be dangerous. One type of danger, of course, is reflected by the “AT&T” scenario: a dishonest party might purposely avoid “putting it in writing” because he hopes to change his story later. Another risk, though, is that two parties who are acting in good faith simply misunderstand one another or have differing memories as to what was stated at a particular time. Putting pen to paper (or fingers to keyboard) at the time of the transaction or discussion can help reveal and resolve possible misunderstandings before they turn into disputes. Similarly, a writing can serve as a peacekeeping frame of reference in the future – when the passage of time will have clouded the parties’ memories.

It is likewise advisable to use written correspondence and / or other types of documentation during the course of a business or employment relationship. In addition to providing the parties with clarity and hopefully preventing misunderstandings, skillfully prepared writings can be used to “win” a conflict. Let’s say for instance, that a customer has falsely accused your business of consumer fraud. Would you feel comfortable going to court and simply hoping that the judge or jury believes your oral version of the “he said, she said” narrative over the customer’s? Or would you prefer to present an e-mail trail that clearly demonstrates that you provided her with clear and accurate information before she committed to purchasing from you? There’s an obvious answer to this hypothetical, yet entrepreneurs often leave themselves in the former situation. (As an aside, if another party writes you a letter or e-mail falsely accusing you of wrongdoing, it’s usually best to send a response denying the allegation. If the matter goes to court, your failure to respond might be considered an “implied admission” as to its truth.)

There are, however, some caveats. First, different situations might call for different tactics, and I’m not purporting to give you a magic formula for success or to provide you with legal advice. Second, be aware that you probably do not want to use a “documenting” e-mail to tell the other person that he’s a no-good #%@#$#. As viscerally satisfying as that might feel in a particular circumstance, the correspondence could reflect poorly upon you if and when a judge or juror sees it – and you must have that “third person” in mind when you do your writing. Finally, the same “garbage in, garbage out” rule that applies to computing also applies to documenting. Just as intelligent documentation can be helpful, misinformed documentation can be useless or even counterproductive. Before creating a “permanent” record of the truth as you see it, you must be sure that you know what you’re talking about and what you’re trying to achieve. If in doubt, contact a professional.

One matter from several years ago comes to mind. The firm that I was with at the time represented two women who claimed “hostile environment” sexual harassment. According to our clients, several male colleagues – including a mid-level supervisor – repeatedly made vulgar remarks and gestures to them, requested sex, and groped them. During the case, we learned that (i) one of the regional managers in charge of supervising these gents sometimes took them to strip clubs during work hours; (ii) the company’s off-site human resource department had failed to follow its own “official” procedures for handling internal complaints of harassment; and (iii) responsibility for conducting the sham “investigation” of my clients’ complaints had been delegated to the very same mid-level supervisor who had allegedly participated in the harassment. While we genuinely empathized with our clients, we were practically ecstatic that the employer – which was headquartered in a different state and apparently took a hands-off approach to this branch – had made so many unforced errors. Those errors greatly increased our odds of litigation success and therefore helped lead to a satisfactory settlement.

If you’re an employer, you must make yourself aware of anti-discrimination laws forbidding workplace harassment based on sex, race, ethnicity, or any other “protected” characteristic. There are two types of sexual harassment: per se harassment (which is not the subject of this post), and “hostile environment” harassment.

To maintain a claim of “hostile environment” sexual harassment against her employer under Title VII of the Civil Rights Act of 1964, an employee must allege that (i) because of her sex, she encountered unwelcome workplace behavior that was “sufficiently severe or pervasive” to alter her employment conditions and create an abusive atmosphere; and (ii) the offending behavior should be attributed to the employer (even if no one in management participated). There is no bright line for determining what conduct is “sufficiently severe or pervasive” for “hostile environment” purposes – though it’s safe to assume that the fact pattern described above more than satisfies this test.

Some federal courts have held that the employer is liable for “hostile environment” harassment if it either failed to provide a reasonable avenue for complaint or knew about the harassment and failed to address it. See, e.g., Reed v. A.W. Lawrence & Co., Inc., 95 F3d 1170, 1180 (2nd Cir. 1996), cited in Harris v. L & L Wings, Inc., 132 F.2d 978, 983 (4th Cir. 1997). Assuming that she can prove the existence of a hostile environment and the employer’s liability, the employee can obtain additional “punitive” damages if she can prove aggravating circumstances such as the employer’s indifference to sexual harassment allegations and particularly egregious conduct.

Although the factual scenario from my old firm’s matter was extreme – and although the business involved might be much larger than your own – there are some lessons to take from that case. First, show your seriousness about sexual harassment before it occurs. At a minimum, provide your employees with a written policy that clearly establishes the boundaries of permissible behavior, your intent to punish violations, and a fair and practicable complaint procedure for victims. Also be sure to personally avoid any behavior or comments that could be interpreted as a lack of sensitivity. (Keep dirty jokes to yourself and don’t take employees to strip clubs.) Such an approach hopefully will succeed in preventing harassment in your workplace. If your business one day gets sued for harassment despite your best efforts, however, evidence of those efforts could only help your case. In contrast, the lack of a clear policy and the appearance of an “anything goes” attitude could only hurt – from both a liability perspective and a damages perspective.

Second, remain familiar with your company’s anti-harassment rules and actually apply them if and when appropriate. You should not only refuse to tolerate transgressions in your presence, but also respond to any internal allegations or suggestions of harassment by conducting – and documenting – a thorough investigation. If your investigation reveals that harassment did in fact occur, be sure to remedy the situation in a manner consistent with your written policy (and again, be sure to document your efforts in writing). You must act to contain whatever damage has occurred.

A sexual harassment complaint can be scary for a business owner. You should do everything in your power to meet your legal obligations and protect yourself. The good news is that those goals are not mutually exclusive.

The franchisee might, in fact, be correct, and the relationship might turn out well. On the other hand, my experience as a franchise litigator is that nightmare scenarios do sometimes occur. Indeed, the franchisor might not be nearly as friendly and solicitous once it’s succeeded in selling the franchise – and it might be that the “happy” franchisees to whom the franchisor steered the client were not representative of the system’s franchisees as a whole. (As an aside, a potential franchisee should not rely on the franchisor’s hand-picked references. It’s a far better practice to contact non-”recommended” current and former franchisees from the list set forth in Item 20 of the FDD.)

Let’s assume, though, that the franchisor truly is “as advertised.” In fact, the director of franchising is not only highly competent, but also a wonderful human being. When not reading to schoolchildren or helping old ladies cross the street, he’s listening to franchisee concerns and finding creative ways to alleviate them. Can a potential franchisee simply ignore oppressive contract language – which, the franchisor’s representatives tell her, the “legal department” had insisted on – and trust that the franchise director will continue be a benevolent despot?

Depending on the actual contents of the franchise agreement (as well as other factors), a case might be made for accepting the deal. In fact, most franchisors hold disproportionate power over their franchisees, and a franchise purchase usually involves a leap of faith for even the most informed purchasers. On the other hand, the more oppressive aspects of the agreement – assuming that they cannot be negotiated away – should not be disregarded by a prudent entrepreneur. Not only could the franchisor exercise its power differently when faced with new circumstances, but it also could subject its franchisees to a new set of decision-makers.

The first type of “decision-maker” change should be obvious. Most companies face personnel turnover, and franchisors are no different. It’s quite possible that the franchisor’s saintly franchise director will move on at some point during the franchisee’s multi-year term and be replaced by someone less charitable. The second – and perhaps more dangerous – type of change involves a sale or other assignment of the entire system to a new franchisor. While most franchise agreements put restrictions on the franchisee’s ability to make assignments, the franchisor’s freedom to assign is usually unlimited.

Given that someone whom the franchisee has never met might one day be exercising the power granted in the franchise agreement, shouldn’t the agreement’s language be taken seriously?