Franchisor-Franchisee Independence and Joint Liability, Redux
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 Moving Target: System Standards and the Franchisor's “Sole Discretion” to change Franchisee Obligations
Let’s make a deal: For the next 10 years, we’ll let you use our “Widgets-R-Us” name andtrademark and allow you to sell “Widgets-R-Us”-brand widgets. Our company, WRU, will even provide you with pre-opening assistance, and to the extent that the company deems appropriate, advise you on marketing and operations.
Getting into Baby Boomers Wallets
Savvy businesses have been marketing to the Boomer generation for years. But interest is accelerating now that Boomers are approaching their 60s. In this day and age, no business can afford to ignore the economic realities of this phenomenon, with one in three adults currently at least the age of 50. The target audience for these marketing schemes should be adults aged 54 to 64. They have the deepest pockets, with an estimated average net worth of $210,000 -- higher than any other age group.