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Identify the perfect franchise for you! Take our short quiz Take our free franchise quiz!

Franchisor-Franchisee Independence and Joint Liability, Redux

source: Binomialphoto

As recently reported by BlueMauMau.org, the franchisor of the Tilted Kilt restaurant franchise system has recently been sued by several employees of its Chicago-based franchisee. The complaint arises out of alleged sexual harassment perpetrated by the franchisee himself.

Last year I wrote about franchisors being exposed to liability based on the conduct of their franchisees, but the issue is so important for all parties involved that several points bear repeating.

In the Tilted Kilt case, the franchisor allegedly published an “employee handbook” for franchisees to distribute to their staff, and exerted significant control over the operation of the franchised outlet in question. If true, these are two factors that typically weigh in favor of finding the franchisor to be a “joint employer” with its franchisee, thereby potentially subjecting it to liability for the alleged harassment.

Franchisors are supposed to provide support to their franchisees, and at its core, a franchise system is about building a cohesive, structured and predictable network of franchised outlets.

Even so, franchisors need to maintain an adequate degree of separation between themselves and their franchisees. Franchises are supposed to be “independently owned and operated,” and this is legally significant. Failure to maintain sufficient distinctions between the franchisor and the franchisee may result in the litigation situation presented in the Tilted Kilt case.

When preparing operations manuals, employment forms, and other documentation that you want your franchisees to use, do so in a way that requires franchisees to identify and maintain these distinctions. There are several effective ways to maintain uniformity and standards while also creating separation between franchisor and franchisee.

However, when a franchisor fails to impose adequate barriers between itself and the businesses carried on by its franchisees, customers, employees, and even the franchisees themselves may be able to make a colorable claim against the franchisor. If the franchisor doesn’t have documentation to back up its claim of independence (or worse, if there is documentation to the contrary), then it might just be faced with multi-party litigation.

The Ideal Franchisee - The Franchisee Point of View

Possessing an entrepreneurial mindset is a plus but one should also have the employee mindset as well. This lies in the fact that even though the franchisee must have the steely determination and drive to launch a business, they must be willing to be restrained and follow the directions of the franchisor. The level of control for a franchisee is noticeably less than of that of being an owner of your own independent business. However the level of risk presented to a franchisee is less than that of an independent business owner. Therefore this type of business is preferable for those looking for less risk. If we were to prepare a checklist of the traits, which were to be present within the ideal franchisee, it would appear something as:

The KFC Ad You Can See from Space

Yes, according to a report on space-visible ads by NPR's Mito Habe-Evans, the Kentucky Fried Chicken gang has paid the ultimate tribute to their late leader, with a tile portrait of Colonel Sanders, out in the middle of a dry expanse of dirt in Nevada, that's visible from beyond our atmosphere.

5 Traps for the Unwary Prospective Franchisee

When evaluating a potential franchise opportunity, prospective franchisees need to take care to put the hype and their emotions in check, and carefully consider all factors relevant to their buying decision. After all, the franchise will be a 5- to 10-year relationship (at minimum, under most franchise agreements), so it is well worth the investment to put in some research and analysis before taking the leap.