Franchisors receive the benefits of their business franchised expansions without incurring additional liability for their franchisee’s actions, however, claims of vicarious liability may be filed.
Under a contractual agreement, franchisors are protected against liability for damages caused by the actions of their franchisees. Most franchise agreements state that the relationship between the franchisor and franchisee is one of an independent contractor, not an agency relationship where the franchisor acts as an employer. This type of contractual agreement permits franchisors to expand their business without incurring additional liability for their franchisee’s actions.
In a franchise operation, the franchisee buys the right to use the franchisor’s business information which includes the business reputation, company trademarks, trade secrets, copyrights, marketing materials, and sales information. Although franchisees must abide by company rules and regulations, they do not report to the franchise owner and have the ability to run day-to-day operations as they see fit, as long as basic company rules are not violated. To gain new clients and promote profits, most franchisees manage their operations based on the wants and needs of clients, geographic location factors, and community relationships. Franchisees have certain freedoms that allow them to personalize their operation without violating franchise contractual agreements.
What Is an Agency Relationship?
An agency relationship is not automatically created by a franchise agreement. Most franchise contracts state that the franchise agreement is in fact not an agency relationship to prevent franchisor liability and premises liability cases. The degree of control retained by the franchisor over the operation of the business will dictate franchisor liability for the actions of the franchisee. For instance, if the franchisor has a strict set of policies day-to-day operations of the franchise, this high degree of control may constitute an agency relationship which can make the franchisor liable for damages caused by franchisee actions. By retaining too much control over a franchise, the business owner and/or property owner may face personal injury lawsuits based on premises liability laws. If a franchisee patron is injured in a slip and fall accident, he/she can file an injury claim with a slip and fall attorney for damages.
Certain actions that may show evidence of an agency relationship include:
- Strict rules of operations
- Strict regulations for building maintenance
- Regular inspections of a franchise facility and operation by the franchisor
- Standardized training methods for employees
- Fixed prices set by the franchisor
- Shared profits rather than royalty payments
Any actions that deprive a franchisee of independent operations may prove an agency relationship. If a franchisor cancels a franchise contractual agreement because a franchisee violates company rules, the court will likely conclude that an agency relationship existed. Some courts have stricter requirements when establishing an agency relationship. In some cases, the above factors may be simply considered as general business advice.
What Is Vicarious Liability?
Vicarious liability is a legal claim that imposes liability on one party for the fault of another party. In the franchising world, vicarious liability claims can be filed against the franchisor for the negligent actions of the franchisee. When accidents and injuries occur, the injury victim may choose to sue both the franchisee and the franchisor for damages. A vicarious liability claim can hold the franchisor liable, especially when an existing agency relationship is established. If the franchisor is found liable for injuries, the injury victim may collect more money for his/her damages and medical treatments.
Vicarious liability claims are commonly used in slip and fall accidents when a franchisee patron suffers injuries on the business premises. In Nevada, Henderson slip and fall lawyers often handle premises liability cases involving vicarious liability claims. If a claimant sues the franchisee and the franchisor for damages, a slip and fall attorney may be able to prove the existence or apparent existence of an agency relationship between the franchisor and the franchisee. Even in cases where an agency relationship does not exist, damages may be awarded under certain conditions.
In certain cases, a franchisor may be found liable for the actions of the franchisee’s employees, if the franchisee is an agent of the franchisor. However, the employee’s actions must be within the scope of his/her regular employment duties. Although the employer or franchisee is deemed liable under the Doctrine of Respondeat Superior for the employee’s conduct, the employee may also be found liable when patrons suffer injuries.
Any person entering into a franchise contractual agreement must perform due diligence to protect against liabilities and premises liability lawsuits. Purchasing a franchise operation can provide a business opportunity with long-term employment and lucrative profits, but it can also create additional liability risks for accidents and injuries.