Being a franchisor is not just about being at the top of the franchise system. Sometimes it also entails franchisor liability, that is, the fact of being held legally responsible for the actions of your franchisees.
Why is Franchisor Liability Even Possible?
You may be a bit confused about why a franchisor would be held liable when franchises are essentially independently owned and operated. The answer to that question is that, more often than not, franchisors exercise so much control over how their franchisees run their franchises that they could be said to be involved in the daily operations of the franchises. Thus, if a franchisee’s employee is implicated in sexual harassment, and if the franchisor can be shown, through his or her actions or documents, to have been involved in decisions involving the daily operation of the franchise, then franchisor liability could come into play.
This may seem unfair. After all, the franchisor may not have played a part in employing the individual who subjected his or her subordinates to sexual harassment. Furthermore, the franchisor may not even have been aware that this problem existed. This makes it apparent that being a franchisor carries its fair share of potential headaches. If you want to avoid being put in this precarious situation, then you need to seriously think about how you plan on structuring your relationships with your franchisees. You may want to protect your trademark and the reputation associated with it by giving your franchisees meticulous details to govern the way they run their franchises. However, the more detailed and prescriptive your guidelines are, the more deeply involved you are in the operation of the individual franchises. This is precisely the sort of thing that will result in franchisor liability.
Also, if you are directly involved in training your franchisees’ employees, you may be setting yourself up to be held liable for any illegal activity carried out on the premises of their franchises. It seems evident that minimizing your liability by taking a step back from deep involvement in your franchisees’ operations is your best option. You could make it clear (in writing) that the franchise guidelines you give them are simply suggestions. You should certainly restructure the language in all your documents to make sure that the individual franchises are not being identified with the franchise company. There should be clear distinctions between them because documents that conflate them could easily result in franchisor liability for franchisee actions.