Franchise Lawyer Blog

Franchisor Vicarious Liability

A recent news item reported that the Burger King franchisor entered into a multi-million dollar settlement for a personal injury suit. Why was the Burger King franchisor ultimately liable for an accident that took place on the premises of one of its franchisees? The legal principles affecting that question should be of great concern to any franchisor.

The basis for this claim and others like it rest in a variety of legal concepts founded on the notion of vicarious liability; that is, liability imposed upon a party because of the actions of another. The claims are usually based on the doctrine of respondeat superior, which provides that the franchisor, as master, is liable for the acts of its servants and agents, in this case the franchisee. Other cases present the argument as one of “ostensible agency,” the franchisee effectively acts as agent on behalf of the franchisor and so any liability created by the franchisee becomes the franchisor’s.

The key element to determine is the degree of control; whether the franchisor had the right to control the conduct of the franchisee that caused the injury. Ironically, retaining control over the business environment is typically viewed as being of vital importance to a franchisor’s business success. In this context, control becomes a double-edged sword.

It has been recommended that this exposure can be reduced by including disclaimers and waivers of control within the franchise agreement. Too often, the issue of franchisor liability for franchisee actions are covered in standardized clauses covering liability and indemnification that are inserted into franchise agreements without much thought. However, a carefully written agreement will seek to retain control in certain vital areas (financial reporting, for instance), while disclaiming or waiving any degree of control over certain day to day operations of a franchisee that might give rise to liability.

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