Davenports Harbour Lawyers give franchise advice about franchisor liability
The nature of franchising, where a franchisee operates as an independent business owner, lulls many franchisors into thinking they will not be held liable for the actions of their franchisees.
However in some cases overseas courts have found that as the franchisor exercises ‘control’ over a franchisee, they can be held responsible for their acts.
The following are examples where a franchisor was held responsible for their franchisees actions;
- A franchisee caused an accident while delivering a pizza and a person rushed to assist. While giving first aid to the victim the person was hit by another car. The franchisor had informed the franchisee through the operating manual that delivery time was to take under 30 minutes. The court found that the franchisor had control over how the franchisee delivered the pizza and was responsible for the franchisee’s actions in causing the accident which resulted in the person being hit.
- A person killed an employee while attempting to move all the staff into the refrigerator in a franchised restaurant. A representative of the victim brought an action against the franchisor for emotional distress. The representative’s solicitor argued that the franchisor recognised the potential threat prior to the event as they had prepared a manual for store security operations. The representative also argued that the franchisor had planned to address the security threat and ensure procedures were being complied with. The court held that the franchisor was vicariously liable for the victim’s injuries as they failed to complete the security check to ensure that the manual's procedures had been implemented.
- Ensuring every franchisee has the required cover with the franchisor as an additional insured and request evidence of this,
- Include a clause in the franchise agreement where the franchisor can arrange insurance for the franchisee and recover the cost if the franchisee fails to organise insurance for themselves,
- Include a wide indemnity clause in the franchise agreement where the franchisee promises to pay the franchisor for any loss suffered as a result of the franchise or its employee's acts or omissions,
- Establishing and enforcing clear quality standards. It should be made clear that a procedure is a suggestion and not mandatory. Detailed processes should only be required where completely necessary, and
- Ensuring that in every document there is a statement that the franchisee is an independent operator and not an agent of the franchisor. This should also be recorded on a sign at the franchisee's premises.