Below is the abstract for “Franchisors in a Jam: Vicarious Liability and Spreading the Blame,” available for download on SSRN.
Franchising serves as one of the most popular forms of owning and operating a business. As the franchise model has grown, so too have issues in vicarious liability. Over the years, multiple methods of allocating the blame to franchisors have developed, such as through statutory construction or the emergence of vicarious liability in the common law. With legal classification and the level of control of the utmost importance, franchisors tread lightly in establishing oversight procedures that do not cross over into control of day-to-day operations.
Traditional tests for vicarious liability assess the level of control a franchisor may exercise over a franchisee and whether the entity benefitted from the actions that caused the harm. Other approaches have potentially expanded vicarious liability beyond the agency context. While franchisors try to disclaim their liability, efforts have emerged to hold trademark owners liable for the unfettered use of their marks by a franchisee or licensee. It is a trend tending to favor the injured customer who, after all, seldom knows the difference between franchisor and franchisee. Further, as online presence and sales both increase, so too does the risk of social media and website-based contractual or tort obligations and of deep linking liability within franchise networks.
Consumer surveys about the meaning of licensed trademarks, especially in franchising, and a review of 250 franchisor websites – both undertaken for this article – reveal practical and systemic problems as well as a way forward. Part of the way is through private action, individually or in groups, as consumers must advocate for themselves while also calling for greater oversight from the states or the FTC. Improved supervision of franchisors, such as monitoring their websites and trademarks, can protect consumers and incentivize franchisor behavior. Also, progress can be systemic. With a clearer legal landscape as to vicarious liability, society generally and franchisors particularly can ensure that franchisees meet acceptable business practices and that potential or actual customers of the franchisee are protected from legally flawed and factually dubious interpretations of agency-based responsibility.