Category Archives: termination

When Can the New York Franchise Sales Act Be Used to Dispute a Termination?

In 1981, a New York insurance company, William J. Hofmann Agency (“Hofmann”), entered into an Agency Agreement (“Agreement”) with an insurance underwriter, Kemper. Both parties hoped the arrangement would prove mutually profitable, but those expectations were dashed when one party prospered and the other faced bleak profits. Hofmann enjoyed substantial growth in its volume of business while Kemper experienced high loss ratios.  This imbalance led to a rift between the business partners and Kemper sought to exercise his termination rights under the Agreement in order to sever the unprofitable relationship.

To preserve its revenue stream, Hofmann tried to mend the relationship woes.    But when those efforts failed, Hofmann claimed fraud under the New York Franchise Sales Act (the “Franchise Sales Act”) in order to dispute the alleged illegal termination, New York Franchise Sales Act, N.Y. Gen. Bus. Law § 680 et seq. (McKinney).

The Franchise Sales Act was enacted to combat abuses accompanying the growth of the franchising industry. See A.J. Temple Marble & Tile, Inc. v. Union Carbide Marble Care, Inc., 663 N.E.2d 890, 892 (1996). The Act requires that franchises comply with comprehensive disclosure and registration requirements. Id. In addition, it spells out an expansive antifraud provision as well as civil remedies specific to franchisors. Id.

However, before a business entity may recover under the Act, the business must be an actual franchise. Id. Also, any such claim must be brought within a three-year statute of limitations, which begins to run on the date the parties enter into the franchise agreement.  See N.Y. Gen. Bus. Law § 691(4) (McKinney); see also Zaro Licensing, Inc. v. Cinmar, Inc., 779 F. Supp. 276, 287 (S.D.N.Y. 1991).

In the lawsuit involving these parties, Keeney v. Kemper National Insurance Co., the insurance company contended that because it made premium payments to Kemper, a franchise relationship had resulted. Keeney v. Kemper National Insurance Co., 960 F. Supp. 617 (E.D.N.Y. 1997). . However, the court dismissed the cause of action on the grounds that the Agreement was a “‘garden variety’ commercial contract,” not a franchise agreement under the Act as a matter of law.  Id.

The lesson here is that if a business entity seeks relief under the New York Franchise Sales Act, that entity must first ensure it is an actual franchise.


© 2011 Nissenbaum Law Group, LLC

May an employer be sued for denying an employee leave under the Family Medical Leave Act?

The United States Court of Appeals for the Third Circuit recently affirmed in part and reversed in part the decision of the United States District Court for the Middle District of Pennsylvania.  Erdman v. Nationwide Ins. Co., No. 07-3796, 582 F.3d 500 (3d Cir. 2009). The issue the Court of Appeals addressed was whether an employer may be sued for denying an employee leave under the Family Medical Leave Act.

Brenda Erdman worked full-time for Nationwide Insurance from 1980 until 1998 when she requested part-time employment so she could care for her daughter Amber, whom was born with Down’s Syndrome.  Nationwide granted Erdman’s request and also permitted her to switch to a four-day work week a few years later.  Prior to 2002, Nationwide permitted Erdman to work extra hours and count that time towards “comp time”, rather than be paid for it.  In early 2003, Erdman was informed by her new supervisor that she was no longer permitted to accrue “comp time” and that her part-time position would be eliminated.  Erdman was given the option to return to work full-time and she did so.  Prior to returning to a full-time position, Erdman asked whether Nationwide was going to honor her previously approved vacation request for the entire month of August, which Erdman normally used to prepare Amber to return to school in the fall.  Erdman was told that it was unlikely her vacation would be approved, so she decided to request the time as leave under the Family Medical Leave Act (“FMLA”).

Shortly after Erdman returned to full-time employment in April 2003, she submitted paperwork requesting FMLA leave from July 7th to August 29th.  Initially, Human Resources told Erdman there were no problems with her FMLA leave.  Unfortunately, Nationwide terminated Erdman thereafter, on May 9, 2003, citing behavioral problems that allegedly culminated in a telephone call in which Erdman used profanity.  Specifically, Erdman said, “this is a personal call and should not be reviewed for quality purposes, a–holes.”  Erdman sued Nationwide in the United States District Court for the Middle District of Pennsylvania claiming she was unlawfully terminated under the Americans with Disabilities Act (“ADA”) for requesting leave pursuant to the FMLA.

The District Court dismissed Erdman’s case at Nationwide’s request on the grounds that Erdman had not accumulated sufficient hours to qualify as an eligible employee under the FMLA and on the grounds that Nationwide did not terminate her based upon “unfounded stereotypes and assumptions against employees who associate with disabled people.”  Id. at 6.  Instead, the District Court held that Nationwide’s termination of Erdman was motivated by Erdman’s prior modifications to her work schedule.  Erdman appealed the District Court’s decision to the United States Court of Appeals for the Third Circuit.

The Court of Appeals initially determined that Erdman accumulated sufficient worked hours in the prior year to be eligible for FMLA leave.  Nationwide countered that Erdman could not recover under a retaliation theory since she never actually took FMLA leave.  The Court reasoned it would be absurd to permit an employer to escape liability for punishing an employee for taking FMLA leave simply because the employer fired the employee before the leave began.  Per the Court, the question was whether Nationwide’s actions amounted to interference with Erdman’s FMLA rights or retaliation for asserting them.

To succeed on an interference claim, Erdman had to show that she was 1) entitled to and 2) denied some benefit under the FMLA.

To establish a retaliation claim, Erdman had to show: 1) she was protected by the FMLA; 2) she suffered an adverse employment action; and 3) the adverse action was causally related to her exercise of FMLA rights.

The Court held that Erdman established all three factors of a retaliation claim.  It also held that Erdman did not have to actually begin FMLA leave to be protected by the law.  As a result, the Court held generally that terminating an employee for a valid FMLA request may constitute interference with the employee’s FMLA rights as well as retaliation against the employee.

In applying that reasoning to the facts, the Court determined that Erdman relied upon the ADA’s “association provision,” which prohibits “denying equal jobs or benefits to a qualified individual because of the known disability of an individual with whom the qualified individual is known to have a relationship or association.”  42 U.S.C. §12112(b)(4).  The Court reviewed the evidence to determine if it was sufficient to establish that Nationwide terminated Erdman because of Amber’s disability.  To establish that, Erdman was required to show that she would not have been terminated had she requested time off for a different reason.  In other words, Erdman had to show that Nationwide terminated her due to Amber’s disability and not due to Erdman’s stated intention to take leave.  The Court held that there was no evidence that Nationwide terminated Erdman because of Amber’s disability.  Therefore, the Court affirmed the District Court’s dismissal of Erdman’s ADA claim.

Download Erdman v. Nationwide Ins. Co., No. 07-3796, 582 F.3d 500 (3d Cir. 2009)


© 2011 Nissenbaum Law Group, LLC