An International Model for Vicarious Liability in Franchising

By Emerson, Robert W. | Vanderbilt Journal of Transnational Law, March 2017 | Go to article overview

An International Model for Vicarious Liability in Franchising


Emerson, Robert W., Vanderbilt Journal of Transnational Law


Abstract

Vicarious liability in the franchising context is a fundamental issue, both in the United States and foreign jurisdictions. With no all-encompassing, clear precedent in the United States, other nations' approaches may provide lessons for American lawmakers and the U.S. franchising community. Together, the division between jurisdictions and the absence of uniform standards for imposing vicarious liability on franchisors demonstrate the need for more comprehensible and predictable case law. This need can be met through an examination of European regulations, model laws, and guidelines, as well as the laws in a number of nations worldwide, which indicate a pathway to better franchise agreements and possible governmental mandates (e.g., prominent, required notices about a franchise's business ownership). Franchisors would have in hand the means to determine their risks and plan their behavior, even accounting for the more effective approaches to franchisor vicarious liability that are sometimes found elsewhere in the global franchising community.

Table of Contents

  I. INTRODUCTION
 II. THE CURRENT STATE OF VICARIOUS LIABILITY IN THE UNITED STATES
III. INTERNATIONAL APPROACHES TO VICARIOUS LIABILITY
       A. Contributions to Franchise Law:
          Multinational Approaches
          1. Rome I Regulations and Conflict
             of Laws
          2. UNIDROIT's Contribution to
             International Franchise Law
             and Vicarious Liability Concepts
       B. Model Nations
          1. The European Union
          2. France
          3. Italy
          4. Germany
          5. China
          6. Australia and New Zealand
 IV. CONCLUSION

I. INTRODUCTION

Franchising is one of the most popular methods for running and expanding a business. In the United States, there are approximately 760,000 operating franchised units, (1) accounting for one-third of all retail sales, (2) over 8.2 million directly employed persons, (3) another 10 million indirectly related jobs, (4) and over $2 trillion in annual retail sales. (5) Furthermore, the American concept of franchising is expanding rapidly throughout the world, accounting for an ever-growing share of international commerce. (6) Collectively, these businesses have accrued hundreds of billions of dollars in annual sales. (7) This trend towards franchising means that the need for regulations in the franchise sphere is more important than ever. In response, more and more governments have decided to police those who choose to franchise with franchise-specific legislation; such legislation has already been integrated into over thirty nations' legal regimes. (8) This worldwide rise in domestic regulation will no doubt continue.

Overall, worldwide franchising, even more so than franchising in the United States, has experienced a high rate of growth in recent years. (9) As an example, Germany, a country where the first McDonald's opened in 1971, (10) saw a 50.79 percent increase in franchisors, an 83.87 percent increase in franchisees, and a 40.62 percent growth in franchises from 1998 to 2008. (11) Similarly, China, a country that only recently opened its doors to the global market, has enjoyed steady growth in franchising, reaching over 1 million franchise shops by 2011. (12)

As franchises have increased in international popularity, crucial legal issues have emerged concerning basic jurisdictional matters, such as conflicts of law, fundamental contract interpretation disputes--or even exclusion of clauses in the franchise agreement--and the franchisor's potential vicarious liability for its franchisee's tortious actions. The contract and tort issues arise, in part, from a tenet of franchise ownership and management: franchisees are not completely free to run the business as they see fit. Besides government regulation of businesses generally, the franchisee is subject to the rules imposed by the franchisor in the parties' agreement or in ancillary documents (e. …

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