Three Signs a Franchisor needs to consult a Franchise Lawyer

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Franchisee discontent can also morph into litigation. Franchisees can sue franchisors for a variety of reasons, such as non-disclosed operating costs and for opening too many franchises in a geographic area

Three signs a franchisor needs to consult a franchise lawyer

 By Harold Kestenbaum

Franchisor liability is often based on agency relationships, and vicarious liability is a form of liability without fault. This means that a person injured at a franchise location can file an action against the franchisor as well as the franchisee. For example, A Wisconsin Arby’s franchisee hired a work release inmate who walked off the job and shot his ex-girlfriend and her fiancé at a Wal-Mart. The women lived, but her fiancé was killed. The franchisor and franchisee were sued for negligence in hiring and supervising its employed work release inmate. Ultimately, the court decided that Arby’s had little control over the hiring of the employee and could not be held vicariously liable. Being sued under the principle of vicarious liability due to franchisees’ wrongful acts is just one example of when a franchisor would need to consult with a franchise attorney for an effective defense. A recent joint employer decision from the National Labor Relations Board (NLRB) will have an impact on vicarious liability. If the decision goes into effect, franchisors will have a responsibility and a standard for hiring and human resources decisions.

Franchisee discontent can also morph into litigation. Franchisees can sue franchisors for a variety of reasons, such as non-disclosed operating costs and for opening too many franchises in a geographic area. In a 2007 Muffin Break case, the franchisor set up a franchise to operate its muffin shop in a shopping center and gave the franchisee financial performance projections. The projections failed to come true, and the franchisor was sued by the franchisee. The franchisor was ordered to pay more than $300,000 plus interest on a loan. 

About the author: Harold Kestenbaum is a member of the Franchise Growth Solutions "outsourced consultants" https://franchisegrowthsolutions.com/meet-the-team/               

HAROLD L. KESTENBAUM is a lawyer who has specialized in franchise law and other matters relating to franchising since 1977. From May 1982 until September 1986, Harold served as franchise and general counsel to Sbarro, Inc., the national franchisor of more than 1,000 family-style Italian restaurants and, was a director from March 1985 to December 2006. From September 1983 to October 1989, he served as president and chairman of the board of FranchiseIt Corporation, the first publicly traded company specializing in providing business franchise marketing and consulting services and equity financing to emerging franchise companies, which he co-founded. Harold has authored the first book dedicated to the entrepreneur who wants to franchise his/her business, called So You Want To Franchise Your Business. It is a step-by-step guide to what a businessperson needs to know and do to properly roll out a franchise program. Harold’s book is available at major book stores and on Amazon.com or you can click here for more info on his book So You Want to Franchise Your Business.  Contact Harold at:  info@frangrow.com