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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 Franchisee & Franchisor’s Point of View

Many of the characteristics of the perfect franchisee are shared by both a franchisee and a franchisor, but there are also some slight differences. A franchisor is more concerned with how an individual franchisee will fit into their business as a whole, and not necessarily how the single franchise will operate on a day to day basis (although that’s still important to them). Meanwhile the franchisee cares almost exclusively about the success of that individual.

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Advertising and Promotion Watch: McDonald's Monopoly is Back

This month sees the return of a venerated promotional campaign, McDonald’s Monopoly. The promotion first began in 1987, and in the last decade has become an almost yearly tradition. Each year, certain McDonald’s products come with Monopoly game tokens, each with either a space from the Monopoly board or an instant win prize for items such as a small fries. Larger prizes are won by collecting all of a group of Monopoly properties, usually three, but sometimes two (Illinois Avenue, Indiana Avenue and Kentucky Avenue, for example). Each group of properties have one whose piece is much rarer than the others; for most of the groups, it’s the last alphabetically (Kentucky Avenue for the red properties, Ventnor Avenue for the yellow), but for the dark blue, it’s Boardwalk, as it is the last and most expensive property on the board. More recently, McDonalds developed an online counterpart to its in-store Monopoly game in which customers can roll virtual dice, or more recently pick one of three chance cards for various prizes.