Are Franchisors Responsible for Their Franchisees’ Actions?

In most cases, when something goes wrong at a franchise, franchisors often get blamed due to confusion. Lawsuits could arise and franchisors could get see a world of trouble due to wrongful acts by a franchisee or employees at a franchise.

Negligence, discrimination, assault–these are some of the things that could get a franchisor owner in trouble, even though they have no knowledge of an incident happening. Even though just over a quarter of franchisors have had any history of litigation, the extent to which a franchisor can be held responsible for the acts of its franchisees is always of vital importance.

To protect against possible lawsuits and the fallout from them, franchisors should take a proactive approach to understanding the line of responsibility they have with franchisees.

Franchise Insurance

A major preliminary step to add peace of mind is to look into franchise insurance, which provides insurance for fast-casual dining locations. RMS Insurance delivers competitive and comprehensive insurance programs to the franchise food sector. Franchisors should be sure to add this layer of protection to combat the legal issues that can arise from franchisee misconduct.

Actual Authority

Actual Authority is when a franchisor is held liable for the actions of its franchisee when the franchisees acting as a franchisor’s agent. If a customer who’s suffered an inconvenience due to an action or mistake by the franchisee, they could in fact establish that the franchisee was acting with authority of the franchisor.

Apparent Authority

This kind of liability could apply when a third party believes a franchisee is authorized to act on the franchisor’s behalf. If it can be established that the third party entered into a transaction with a franchisee, then the franchisor will be held liable for the actions or omissions.

In this case, the franchisor would have to have undertaken some action which misled the third party, such as ac certain business or service representation.

To keep away from the risk of liabilities due to the actions of their franchisees, a franchisor has to have independent-contractor provisions in their franchise agreements. These protect a franchisor from claims by a third party that the franchisee or its employees are in fact part of the franchisor.

However, a franchisor may be too involved in the overall or even day-to-day services of a franchise, this can open things back up to possible litigation. Franchisors must make it known very clearly that they are not directly involved in the specific goings-on inside a franchise. From signs to receipts, letterhead to contracts, a franchisor can take a multitude of steps to avoid liability and ownership over the mistakes of a franchisee and/or its employees.

About RMS Hospitality Group

At RMS Hospitality Group, our expertly crafted policies are written specifically for the hospitality industry. We offer custom tailored solutions to meet any venue’s specific needs. For more information, contact our knowledgeable experts today at (516) 742-8585.

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