Academic journal article Washington and Lee Law Review

Limiting the Vicarious Liability of Franchisors for the Torts of Their Franchisees

Academic journal article Washington and Lee Law Review

Limiting the Vicarious Liability of Franchisors for the Torts of Their Franchisees

Article excerpt

I. Introduction

While you were looking over the title page of this Article, trying to decide if you wanted to read it, a new franchise opened somewhere. A new one appears in the United States every eight minutes.1 Have you ever wondered whether or when a franchisor like McDonald's can be held liable for the injuries caused by one of its franchised restaurants even if it did nothing wrong? That is what this Article is about. And, while you read this, another one has just opened.

Gary Schwartz, the late and esteemed torts scholar, lamented the fact that "the vicarious liability doctrine-despite its fundamental status-is often hidden or obscured."2 This statement has been the reality with respect to the question of the potential vicarious liability of franchisors for the torts caused by their franchisees.3 Given the central role of franchising in the United States and the world economies, this omission is especially unfortunate. Fifteen years ago, with the franchising phenomenon mushrooming, one commentator observed, "the remarkable growth of this industry has far surpassed efforts by the courts and legislatures to develop a cohesive body of franchise law." The lack of clarity, predictability, or analytical integrity continues,5 as does the onrush of litigation seeking to impose vicarious liability on franchisors.6 With the amorphousness of the rules and the fact-specific nature of the issue, coupled with at least the perception of the franchisor as a "deep pocket,"7 it should come as no surprise that franchisors are routinely joined as defendants in tort claims for injuries arising out of the operations of franchisees.8

A brief introduction to franchising here may be useful. Franchising is not a type of industry, but rather is "a method of marketing goods and services."9 Fundamentally, "[t]he franchise system depends on an effective monopoly, in which a franchisee will pay to participate."10 The franchisor is "the person or company that grants the franchisee the right to do business under [the franchisor's] trademark or trade name."11 The franchisee is "the person or company that gets the right from the franchisor to do business under the franchisor's trademark or trade name. "12 Professor Paul H. Rubin describes the nature of the franchise relationship:

A franchise agreement is a contract between two (legal) firms, the franchisor and the franchisee. The franchisor. . . has developed some product or service for sale; the franchisee is a firm that is set up to market this product or service in a particular location. The franchisee pays a certain sum of money for the right to market this product.

[T]he franchisor may provide . . . assistance . . . [that] include[s] site selection; training programs, either on the job or institutional; . . .standard operating manuals; . . . ongoing advice; and . . . [guidance on] physical layout of the plant and advertising.

The main item purchased [by the franchisee] is the trademark of the franchise.13

According to the International Franchise Association, there are 1500 franchise companies operating in the United States through more than 320,000 retail units.14 It is estimated that franchising operations account for more than 40% of all retail sales in the United States, "that franchising employs more than 8 million people,. . . and [that] approximately one out of every 12 retail business establishments is a franchised business."15

Some authorities trace the roots of franchising back to the Middle Ages. In order for a sovereign to collect taxes from peasants and others, "he or she would grant to a high Church official the right to collect the tax . . . [and for] this right the high Church official would pay the sovereign a lump sum and other special favors-and thus the first franchise-like business arrangement was born."16 Commercial franchising in the United States probably began with the Singer Sewing Machine Company in the 1850s and following the Civil War. …

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