Hot Legal Issues in this Economy for Material Handling & Industrial Equipment Businesses

1. Hot Legal Issues in this Economy for Material Handling & Industrial Equipment Businesses Jeremy Silberman David Cassidy Mo Bauer Gary Marks Charles Bruder The material provided herein is for informational purposes only and is not intended as legal advice or counsel.

2. Protecting Your Dealership Under State Franchise and Dealer Protection Laws Jeremy Silberman

3. THE ECONOMY: EFFECT ON THE INDUSTRY OUTLOOK FOR RECOVERY

4. “January-to-March, inflation-adjusted material handling orders were 56 percent below order activity one year ago.The material handling equipment business took a sharp dive at year end 2008 and the contraction continued in the first quarter of this year. The sharp decline in industrial activity caused factory utilization rates to drop precipitously, which in turn lessened the need for general purpose material handling equipment.” The Manufacturers Alliance/MAPI May 2009 Economic Report:

5. The Manufacturers Alliance/MAPI May 2009 Economic Report:

6. United States Forklift SalesClass 4 & 5 (Internal Combustion) Source: Industrial Truck Association; 2006 – 2008 Shipments; 2009 Estimated Orders.

7. Northern New Jersey Forklift Orders Class 1 – 5 2009 estimate based on annualizing Jan - May 2009 Orders.

8. Projected Timing for Recovery of New Equipment Sales Material Handling Equipment lags: • Federal Reserve Board’s Industrial Production Index by 9 – 12 months • Consumer Confidence Index by 12 months • Housing Starts by 21 months Source: MHIA March 2009 Material Handling Equipment Manufacturing History and Forecast Report.

9. THE NEW JERSEY FRANCHISE PRACTICES ACT

10. New Jersey Franchise Practices Act –Protection Against Termination • “It shall be a violation of this act for a franchisor to terminate, cancel, or fail to renew a franchise without good cause.” • “For purposes of this act, good cause . . . shall be limited to failure by the franchisee to substantially comply with those requirements imposed upon him by the franchise.” N.J.S.A. 56:10-5

11. New Jersey Franchise Practices Act –Indirect Termination “It shall be a violation of this act for any franchisor directly or indirectly … to terminate, cancel, or fail to renew a franchise …” N.J.S.A. 56:10-5

12. New Jersey Franchise Practices Act –Proper Notice of Termination “It shall be a violation of this act for any franchisor directly or indirectly … to terminate, cancel, or fail to renew a franchise without having first given written notice setting forth all the reasons for such termination, cancellation, or intent not to renew at least 60 days in advance of such termination …” N.J.S.A. 56:10-5

13. New Jersey Franchise Practices Act – Injunction Against Termination “Any franchisee may bring an action against its franchisor for violation of this act in the Superior Court . . . to recover damages sustained by reason of any violation of this act and, where appropriate, shall be entitled to injunctive relief… Such Franchisee, if successful, shall also be entitled to the costs of the action including but not limited to attorneys fees.” N.J.S.A. 56:10-10

14. New Jersey Franchise Practices Act – Standards of Performance “It shall be a violation of this Act for any franchisor, directly or indirectly to … impose any unreasonable standards of performance.” N.J.S.A. 56:10-7(e)

15. New Jersey Franchise Practices Act – Other Protections It is a violation of the Act for a manufacturer to: • Prohibit dealer associations and the right of dealers to organize; • Require or prohibit a change in management unless the manufacturer has good cause, stated in writing, to require or prohibit the change; • Restrict the sale or transfer of any equity in the business to the spouse, child, heirs, employees or managers of the business, so long as it is not a sale of control of the franchise. N.J.S.A. 56:10-7

16. New Jersey Franchise Practices Act – Sale or Transfer of Franchise • Dealer must give written notice of the buyer’s name, address, statement of financial qualification, and business experience. • Manufacturer has 60 days to approve the sale or advise of unacceptability on the basis of the buyer’s (a) character, (b) financial ability, or (c) business experience. • If no reply in 60 days – approval is deemed granted. N.J.S.A. 56:10-6

17. New Jersey Franchise Practices Act Must meet six requirements to be protected by the Act What can you change in your business to ensure that you meet the six elements? How would you prove in court that your business meets the six elements?

18. New Jersey Franchise Practices Act –Qualifying for Protection of the Act • Written arrangement It does not matter whether the agreement actually uses the word “Franchise.” It may be a Sales Agreement, or Dealer Agreement, or any other kind of agreement. It is still a “franchise agreement” if the business meets the six elements of the Franchise Act.

19. New Jersey Franchise Practices Act –Qualifying for Protection of the Act 2. Place of business in New Jersey where the franchisee displays for sale and sells the franchisor’s goods or services. But … “Place of business shall not mean an office, a warehouse, a place of storage, a residence or a vehicle.” You need some sales activity at your facility – not just storage of goods and back office operations. What can you do to ensure some retail sales at your place of business? (e.g. a showroom or a parts counter).

20. New Jersey Franchise Practices Act –Qualifying for Protection of the Act 3. Gross sales of products or services between manufacturer and dealer exceed $35,000 in prior 12 months. • More than 20% of gross sales are derived (or intended to be derived) from the franchise. Document your revenue stream by product brand • Equipment sales: new and used • Parts sales • Service work: warranty and non-warranty

21. New Jersey Franchise Practices Act –Qualifying for Protection of the Act • License to use the trade name, trade mark, service mark. Not necessarily a formal trademark license, but must show the public that there is a relationship between the dealer and the manufacturer. Does the manufacturer give you guidelines on how their trademark must appear? Document your use of the “license.” Do you use the trademark in your advertisements? Yellow page ads? Uniforms? Letterhead?

22. New Jersey Franchise Practices Act –Qualifying for Protection of the Act • “A community of Interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise. You must demonstrate substantial “Franchise specific investments” - - - What equipment, software, training, advertisements, signs and logos, etc. have you bought over the life of the business specifically related to selling and servicing this brand?

23. Be Prepared • Document, Document, Document… all of your proofs of each requirement now and on an ongoing basis as a regular business practice. • Save all proofs of use of the trade mark, “franchise specific investments,” and revenue from selling and servicing the product, training customers, etc. • Save all documents from all your interactions with the manufacturer; letters, emails, agreements, dealer meeting notes and presentations, etc. For at least as long as the relationship exists.

24. Pennsylvania • No specific franchise protection statute • However, Pennsylvania courts have recognized some level of protection against termination without good cause.

25. Pennsylvania Pennsylvania Supreme Court Decision: Atlantic Richfield Company v. Razumic, 480 Pa. 366 (1978) Definition of a franchise: “In its simplest terms, a franchise is a license from the owner of a trademark or trade name permitting another to sell a product or service under the name or mark. More broadly stated, the franchise has evolved into an elaborate agreement by which the franchisee undertakes to conduct a business or sell a product or service in accordance with methods and procedures prescribed by the franchisor, and the franchisor undertakes to assist the franchisee through advertising, promotion and other advisory services.”

26. Pennsylvania “In exchange, an Arco dealer such as Razumic [the dealer] can justifiably expect that his time, effort, and other investments promoting the goodwill of Arco will not be destroyed as a result of Arco's arbitrary decision to terminate their franchise relationship. Consistent with these reasonable expectations, and Arco's obligation to deal with its franchisees in good faith and in a commercially reasonable manner, Arco cannot arbitrarily sever its franchise relationship with Razumic. A contrary conclusion would allow Arco to reap the benefits of its franchisees' efforts in promoting the goodwill of its name without regard for the franchisees' interests.” Atlantic Richfield Company v. Razumic, 480 Pa. 366 (1978)

27. Employee Free Choice Act: Where It Stands and What It Means to Employers David Cassidy

29. What Is The EFCA? An Act to “amend the National Labor Relations Act to establish an efficient system to enable employees to form, join, or assist labor organizations, to provide for mandatory injunctions for unfair labor practices during organizing efforts, and for other purposes.”

30. EFCA in a Nutshell • Gives workers the choice of whether to form a union through majority sign-up or through the National Labor Relations Board election process • Guarantees a first union contract through mediation and arbitration • Strengthens penalties for violations against workers who are trying to organize or negotiate a first contract http://edlabor.house.gov/employee-free-choice-act efca/

31. Certifying A Union

32. Certifying A Union Today Petition Hearing Campaign Election Objections Democracy!!!

33. Campaign PeriodCurrent System • Authorization cards from 30% = petition for election • Employer provides union with roster of eligible employees • Election date = no less than 10 days from the day the roster was released • 2007 median period - 39 days from the date the petition was filed (NJ: 42 Days)

34. Voluntary Recognition/Card Check • Employer can agree to voluntarily recognize a union via a card check • 51% permits the union to be voluntarily recognized by the employer • Employer may reject voluntary card check and force secret ballot

35. Campaign Rules - Employers • Don’t make negative predictions about the effect of the union on business • Don’t question or surveil employees regarding their voting choices or leanings • Don’t offer incentives for voting against unions • Not only includes wages and benefits but any other type of working condition • Don’t hold campaign meetings within 24 hours of balloting • Don’t Discipline, Discharge, Discriminate or Retaliate

36. Different Rules for the Unions • Unions may… • Promise higher wages/benefits/changes without accountability • Contact employees at their homes and repeatedly inquire about their vote using union members or co-employees

37. Secret Ballot Elections • Conducted by NLRB • Represented at the election by an observer • Union must receive a majority of the votes cast • Majority of voters – Union certified as exclusive bargaining representative for the unit • No Majority – Certified as no union • Either way, no election in that unit for at least one year from the date of election results

38. Secret Ballot S A M P L E

39. The EFCA WAY!

40. Involuntary Card Check = Union

41. Authorization Cards

42. Privacy?

43. The Union is in… Now What??

44. Negotiating With The Union

45. Out with the old…In with new… Current labor negotiations under the NLRA Proposed changes under the EFCA

46. Under Current Law Each negotiation is decided by the parties on a case-by-case basis There is no requirement to reach a final resolution Both sides have leverage Employer – Last, best contract offer and lock outs Union – Strike, picket and handbill Under the EFCA Resolution WILL be reached If an agreement can’t be reached, parties are sent to mediation If mediation doesn’t work, parties are sent to mandatory arbitration Arbitration First contract and binding for two years The Negotiation Process

47. Binding Interest Arbitration • Arbitration decision would be binding for two years, unless parties agree otherwise • Rules to be issued on how it will work

48. ULP Remedies – Ouch! What they are, and the price to pay under current law and EFCA

49. Employer Unfair Labor Practices • Interfere/restrain/coerce employees in exercising their rights to engage in concerted activity or union activity • Dominate or interfere with formation or administration of union • Discriminate against employees based on union actions • Includes filing charges or taking part in a proceeding for the NLRB • Refusal to bargain with the lawful representative

50. Current Penalties Remedial back pay and reinstatement Possible Injunctions Posting Requirements New Elections Bargaining Orders Extreme cases only Priority granted to allegations of ULP by the Union EFCA Penalties In addition to previous remedies… Treble Back Pay Mandatory Injunctions Civil Damages $20K per violation No change in remedies against Unions Provisions grant priority to allegations made by unions and employees against employers Penalties for Employers