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activities. “Common" control means the shar trol" referred to in the definition. It is clear ing of control and it is not limited to sole con from the Act and the legislative history that the trol or complete control by one person or cor Congress did not intend that such a chain orporation. “Common" control therefore exists ganization should escape the effects of the law where the performance of the described activi with respect to any segment of its business ties are controlled by one person or by a number merely by separately incorporating or otherwise of persons, corporations, or other organizational dividing the related activities performed for a units acting together. This is clearly sup

common business purpose. ported by the definition which specifically includes in the "enterprise" all such activities

Section 779.223_CONTROL WHERE whether performed by “one or more corporate


UAL OR SINGLE ORGANIZATION or other organizational units."

Ownership, sufficient to exercise "control,” of Section 779.222--OWNERSHIP AS FACTOR

course, exists where total ownership is vested in As pointed out in section 779.215 “unified op a single person, partnership, corporation, or eration" and "common control" do not refer to other single business organization. Ownership the ownership of the described activities but sufficient to exercise control" exists also where only to their performances. It is clear, however, there is 51 percent ownership of voting stock. that ownership may be an important factor in But “control" may exist with much more limited determining whether the activities are per ownership, and, in certain cases, exists in the formed through “unified operation or common absence of any ownership. The mere ownership control.” Thus common control may exist where of stock in a corporation does not by itself estabthere is common ownership. Where the right to lish the existence of the "control” referred to in control, one of the prerogatives of ownership, the definition. The question whether the ownerexists, there may be sufficient "control" to meet ship in a particular case includes the right to the requirements of the statute. Ownership, or exercise the requisite “control” will necessarily sufficient ownership to exercise control, will be depend upon all the facts in the light of the regarded as sufficient to meet the requirement statutory provisions. of "common control". Where there is such

Section 779.224_COMMON CONTROL IN ownership, it is immaterial that some segments

OTHER CASES of the related activities may operate on a semiautonomous basis, superficially free of actual (a) As stated in section 779.215 "common control, so long as the power to exercise control

control" may exist with or without ownership. exists through such ownership. For example, In such cases, the actual control of the performa parent corporation may operate a chain of re

ance of the related activities is sufficient to estailor service establishments which, for business

tablish the “control” referred to in the definireasons, may be divided into several geographic tion. In some cases an owner may actually units. These units may have certain autonomy relinquish his control to another, or by agreeas to purchasing, marketing, labor relations and

ment or other arrangement, he may so restrict other matters. They may be separately incor

his right to exercise control as to abandon the porated, and each unit may maintain its own

control or to share the control of his business records, including records of its profits or losses. activities with other persons or corporations. All the units together, in such a case, will con

In such a case, the activities may be performed stitute a single enterprise with the parent cor under "common control”. In other cases, the poration. They would constitute a single busi

power to control may be reserved through ness organization under the “common control"

agreement or arrangement between the parties of the parent corporation so long as they are so as to vest the control of the activities of one related activities performed for a common busi business in the hands of another.

(b) Activities are considered to be performed ness purpose. The common ownership in such

under "common control” even if, because of the cases provides the power to exercise the "con

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particular methods of operation, the power to control is only seldom used, as where the business has been in operation for a long time without change in methods of operation and practically no actual direction is necessary; also common control may exist where the control, although rarely visibly exercised, is evidenced by the fact that mere suggestions are adopted readily by the business being controlled.

(c) In the retail industry, particularly, there are many instances where, for business reasons, related activities performed by separate companies are so unified or controlled as to constitute a single enterprise. A common example, specifically named in the definition, is the leased department. This and other examples are discussed in sections 779.225 through 779.235.

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(c) Since the definition specifically includes in the "enterprise", for the purpose of this Act, "departments of an establishment operated through leasing arrangements”, any such department will be considered a part of the enterprise in the absence of special facts and circumstances warranting a different conclusion.

(d) Whether, in a particular case, the relationship is such as to constitute the lessee's operation to be a separate establishment rather than a “leased department” as described in the definition, will depend upon all the facts including the agreements and arrangements between the parties as well as the manner in which the operations are conducted. If, for example, the facts show that the lessee occupies a physically separate entrance, and operates under a separate name, with his own separate employees and records, and in other respects conducts his business independently of the lessor's, the relationship of the parties may be only that of landlord and tenant. In such a case, the lessee's operations will not be regarded as a “leased department" and will not be included in the same enterprise with the lessor. Section 779.226_EXCEPTION FOR AN


While certain franchise and other arrangements may operate to bring the one to whom the franchise is granted into a large enterprise (see section 779.232), section 3(r) contains a specific exception for certain arrangements entered into by a retail or service establishment which is under independent ownership. The specific exception in section 3(r) reads as follows:

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(a) As stated in section 3(r), the enterprise includes “departments of an establishment operated through leasing arrangements." This statutory provision is based on the fact that ordinarily the activities of such leased departments are related to the activities of the establishment in which they are located, and they are performed for a common business purpose either through “unified operation" or “common control.”

(b) In the ordinary case, the establishment may control many of the operations of the leased department and unify its operation with its own. Thus, they may operate under a common trade name; the establishment may determine, or have the power to determine, the leased department's space location, the type of merchandise it will sell, its pricing policy, its hours of operation and some or all of its hiring, firing and other personnel policies; advertising, adjustment and credit operations, may be unified, and insurance, taxes, and other matters may be included as a part of the total operations of the establishment. Some or all of these and other functions, which are the normal prerogatives of an independent businessman, may be controlled or unified with the store's other activities in such a way as to constitute a single enterprise under the Act.

Provided, That, within the meaning of this subsection, a retail or service establishment which is under independent ownership shall not be deemed to be so operated or controlled as to be other than a separate and distinct enterprise by reason of any arrangement, which includes, but is not necessarily limited to, an agreement, (1) that it will sell, or sell only, certain goods specified by a particular manufacturer, distributor, or advertiser, (2) that it will join with other such establishments in the same industry for the purpose of collective purchasing, or (3) that it will have the exclusive right to sell the goods or use the brand name

of a manufacturer, distributor, or advertiser within chasing arrangement must be "in the same ina specified area, or by reason of the fact that it occupies premises leased to it by a person who also

dustry.” This has reference to such arrangeleases premises to other retail or service establish

ments by a group of grocery stores, or by some ments.

other trade group in the retail industry. Section 779.227_CONDITIONS WHICH

(d) Any arrangement whereby the establishMUST BE MET FOR EXCEPTION

ment's premises are leased from a person who

also leases premises to other retail or service This exception, in accordance with its specific establishments. In connection with this rental terms, will apply only if the following condi arrangement, the Senate Report cites as an tions are met:

example the retail establishment which rents (a) The establishment must be a "retail or its premises from a shopping center operator service establishment” as this term is defined (S. Rept. 145, 87th Cong., 1st Sess., p. 41). It in section 13(a) (2) of the Act (see discussion is clear that this exception was not intended to of this term in sections 779.312 and 779.313); apply to the usual leased department in an and

establishment, which is specifically included (b) The retail or service establishment must within the larger enterprise under the definition not be an "enterprise” which is large enough to of section 3 (r). (See discussion under section come within the scope of section 3(s) of the Act; 779.225.) and (c) The retail or service establishment must

Section 779.229_-OTHER be under independent ownership.


With respect to those arrangements specifiSection 779.228_TYPES OF ARRANGEMENTS CONTEMPLATED BY EXCEP

cally described in the proviso contained in the TION

definition, an independently owned retail or

service establishment will not be considered to If the retail or service establishment meets

be other than a separate and distinct enterprise, the requirements in paragraphs (a) through

if other arrangements the establishment makes (c) of section 799.227, it may enter into the fol

do not have the effect of bringing the establishlowing arrangements without becoming a part of the larger enterprise, that is, without losing

ment within a larger enterprise. Whether or its status as a "separate and distinct enter not other arrangements have such an effect will prise":

necessarily depend upon all the facts. The (a) Any arrangement, whether by agreement, Senate Report makes the following observations franchise or otherwise, that it will sell, or sell with respect to this: only certain goods specified by a particular Thus the mere fact that a group of independently manufacturer, distributor, or advertiser.

owned and operated stores join together to combine

their purchasing activities or to run combined adver(b) Any such arrangement that it will have

tising will not for these reasons mean that their activithe exclusive right to sell the goods or use the

ties are performed through unified operation or combrand name of a manufacturer, distributor, or

mon control and they will not for these reasons be advertiser within a specified area.

considered a part of the same "enterprise". This is (c) Any such arrangement by which it will also the case in food retailing because of the great

extent to which local independent food store operators join with other similar retail or service estab

have joined together in many phases of their business. lishments in the same industry for the purpose

While maintaining their stores as independently owned of collective purchasing. Where an agreement

units, they have affiliated together not just for the purfor "collective purchasing" is involved, further

chasing of merchandise, but also for providing numerrequirements are imposed, namely, that all of ous other services such as (1) central warehousing; the other establishments joining in the agree (2) advertising; (3) sales promotions; (4) managerial

advice; (5) store engineering; (6) accounting sysment must be retail or service establishments

tems; (7) site location; and (8) hospitalization and under independent ownership, and that all of

life insurance protection. (S. Rept. 145, 87th Cong., the establishments joining in the collective pur 1st Sess., p. 42.)

The report continues with the following observations:

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Whether such arrangements bring the establishment within the franc) lessor's, or grantor's "enterprise" is a question to be determined on all the facts. The facts may show that the arrangements reserve the necessary right of control in the grantor or unify the operations among the separate "franchised" establishments so as to create an economic unity of related activities for a common business purpose. In that case, the "franchised" establishment will be considered a part of the same "enterprise". For example, whether a franchise, lease, or other contractual arrangement between a distributor and a retail dealer has the effect of bringing the dealer's establishments within the enterprise of the distributor will depend upon the terms of the agreements and the related facts concerning the relationship between the parties.

There may be a number of different types of arrangements established in such cases. The key in each case may be found in the answer to the question, “Who receives the profits, suffers the losses, sets the wages and working conditions of employees, or otherwise manages the business in those respects which are the common attributes of an independent businessman operating a business for profit?"

For instance, a bona fide independent automobile dealer will not be considered a part of the enterprise of the automobile manufacturer or of the distributor. Likewise, the same result will also obtain with respect to the independent components of a shopping center.

In all of these cases if it is found on the basis of all the facts and circumstances that the arrangements are so restrictive as to products, prices, profits, or management as to deny the "franchised" establishment the essential prerogatives of the ordinary independent businessman, the establishment, the dealer, or concessionaire will be considered an integral part of the related activities of the enterprise which grants the franchise, right, or concession. (S. Rept. 145, 87th Cong., 1st Sess., p. 42). Thus, there may be a number of different types of arrangements established in such cases, and the determination as to whether the arrangements create a larger "enterprise" will necessarily depend on all the facts. Some arrangements which do not create a larger enterprise and some which do are discussed in sections 779.230-779.235.

ate Report shows that Congress recognized that some franchise, lease, or other arrangements have the effect of creating a larger enterprise and whether they do or not depends on the facts. The facts may show that the arrangements are so restrictive as to deprive the individual establishment of those prerogatives which are the essential attributes of an independent business. An establishment through such arrangements may transfer sufficient "control” so that it becomes in effect a unit in a unified chain operation. In such cases the result of the arrangement will be to create a larger enterprise composed of the various segments, including the establishment which relinquishes its control.

(b) The term "franchise” is not susceptible of precise definition. The extent to which a businessman relinquishes the control of his business or the extent to which a franchise results in the performance of the activities through unified operation or common control depends upon the terms of the contract and the other relationships between the parties. Ultimately the determination of the precise scope of such arrangements which result in creating larger enterprises rests with the courts. Section 779.231-FRANCHISE ARRANGE


(a) While it is clear that in every franchise a businessman surrenders some rights, it equally is clear that every franchise does not create a larger enterprise. In the ordinary case a franchise may involve no more than an agreement to sell the particular product of the one granting the franchise. It may also prohibit the sale of a competing product. Such arrangements, standing alone, do not deprive the individual businessman of his "control" so as to bring him into a larger enterprise with the one granting the franchise.

(b) The portion of the Senate Report quoted in the section 779.229, cites a “bona fide independent automobile dealer” as an example of such a franchise arrangement. (It is recognized that employees of a retail or service establishment primarily engaged in selling automobiles or trucks are specifically exempt from the

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Section 779.230_FRANCHISE AND

OTHER ARRANGEMENTS (a) There are many different and complex arrangements by which businesses may join to perform their activities for a common purpose. The quotation in section 779.229 from the Sen

pay provisions under section 13(a) (19) of the the common control of the one granting the Act. The automobile dealer is used here only franchise and all would be included in the same as an example of the type of franchise arrange larger enterprise. ment which, within the intent of the Congress, (b) An illustration of such an arrangement does not result in creating a larger enterprise.) is the case of Gulf Refining Company v. Fox, The methods of operation of the independent D.C., W. Va., 11 F. Supp. 425. In this case automobile dealer are widely known. While Gulf granted the dealer a nonexclusive, revohe operates under a franchise to sell a particu cable and nonassignable license to sell Gulf's lar make of automobile and also may be re products. While the license was granted for quired to stock certain parts and to maintain a fixed period, Gulf reserved the right to revoke specified service facilities, it is clear that he it on 24-hours notice; and if revoked, no liabilretains the control of the management of his ity for damages would have attached to Gulf business in those respects which characterize by reason of the termination. Certain equipan independent businessman. He determines ment, including tanks, pumps and fixtures were the prices for which he sells his merchandise. loaned to the dealer by Gulf. While the dealer Even if prices are suggested by the manufac was permitted to sell other merchandise, he was turer, it is well known that the dealer exer restricted to the extent that he could not purvey cises wide discretion in this respect, free of con products of any competitor of Gulf. The dealer trol by the manufacturer or distributor. Also agreed to purchase Gulf's products at Gulf's the automobile dealer retains control with re posted service station prices on the day of despect to the management of his business, the livery less $0.0212 a gallon for gasoline and determination of his employment practices, the a discount for oils and greases of 40%. The operation of his various departments, and his dealer sold to its customers at the prices posted business policies. The type of business in which by Gulf. If a dealer did not conform to the he is engaged leaves him wide latitude for the posted prices, Gulf attempted to bring him exercise of his judgment and for decisions with into line by negotiation; if compliance could respect to important aspects of his business not be effected, Gulf, of course, was free to upon which its success or failure depends. On terminate the license. Ordinarily the premises the basis of these considerations, it is evident were owned or leased by the dealer, but Gulf why the independent automobile dealer was had the option of purchasing the premises at cited as an example of the type of franchise any time prior to the expiration of the license. which does not create a larger enterprise en

Gulf's salesmen and truck drivers were trained compassing the dealer, the manufacturer or to observe the operations of the dealers and the distributor. Similar facts will lead to the were authorized to suggest to a dealer changes same conclusion in other such arrangements. in practices to conform with those which Gulf

considered proper. This case arose under the Section 779.232-FRANCHISE OR OTHER

West Virginia tax law which was applicable to ARRANGEMENTS WHICH CREATE A

chain store organizations. Gulf urged that in LARGER ENTERPRISE

this case the dealer was not part of a chain store (a) In other instances, franchise arrange system because he purchased his own products; ments do result in bringing a dealer's business became the owner of them; resold them with into a larger enterprise with the one granting other merchandise in the ordinary course of the franchise. Where the franchise arrange business; extended credit if he saw fit, and susment results in vesting control over the opera tained the losses from such extensions of credit; tions of the dealer's business in the one granting received the gains or sustained the losses from

price fluctuations of stock on hand; employed the franchise, the result is to place the dealer in a larger enterprise with the one granting and discharged his own employees and main

tained his own books and records without interthe franchise. Where there are multiple units to which such franchises have been granted, the ference from Gulf, and, in general, conducted

the business of his station as he saw fit. The several dealers are considered to be subject to

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