Franchisors protecting their brand need to walk a fine line. Too little control and the branding message becomes blurred. Too much control and the franchisor can be held vicariously liable for acts and omissions of the franchisee. Franchisors need to control their trademarks, but should they be responsible for every aspect of the franchisee’s operation?
No bright-line rule seems to exist across jurisdictions, or even within a single jurisdiction. The main factor seems to be the franchisor’s control over operations, but even this test varies with the nature of the claim. Ultimately, the courts look at the facts and circumstances to determine whether the franchisor was in a position to prevent the harm and whether it is appropriate to impose liability on the franchisor.
In a recent slip-and-fall case decided in the Eastern District of Pennsylvania applying Maryland law, Temple v. McDonald’s Corp., McDonald’s Corp., the franchisor, was sued for a slip-and-fall injury that occurred on the premises operated by its franchisee in Maryland. McDonald’s moved to change venue, arguing that its Maryland franchisee in possession was the proper defendant, but the court was unconcerned with the proper venue for a party not before the court and denied the motion to dismiss for improper venue.
The court accepted the allegations of the complaint in a “light most favorable to [the] plaintiffs,” Linda and Paul Temple, according to the opinion. The Maryland McDonald’s restaurant was operated by a franchisee, but the real estate was owned by McDonald’s Corp. “While entering the restaurant, Linda Temple slipped on a patch of ice on the wheelchair ramp and surrounding walkway,” Judge Harvey Bartle III wrote. She fell and sustained serious injuries. The liability theory was McDonald’s failed to ensure the premises were free from snow, water and ice, failed to warn and failed to inspect the premises at regular intervals to discover and correct the hazardous ice condition.
The court found that the general rule in Maryland was that a landlord is not liable for injuries caused by defects or dangerous conditions where it has parted with control of the leased premises. Turning to the vicarious liability analysis, the court stated “whether defendant as a franchisor and landlord owed a duty of care to plaintiffs turns on the extent of defendant’s control over where the accident occurred.” The plaintiffs argued that the McDonald’s lease and license agreement demonstrated that McDonald’s Corp. controlled the premises. The use was limited to a McDonald’s restaurant only, according to the opinion. All products, equipment and fixtures in the premises required McDonald’s approval before installation. The franchisee was contractually required to have its managers attend Hamburger University, pay percentage rent and be subject to audit, thus establishing control over the franchisee.
But the court also found that the lease and license agreement required the franchisee to maintain the premises in safe conditions and that the franchisee would maintain day-to-day control over the operations of the restaurant. The court noted that McDonald’s Corp. maintained significant control over the food, decor, trade dress and equipment to protect its “valuable good will and wide family acceptance” of McDonald’s trademarks. The court held that the interest in protecting the uniformity of the brand does not mean that it undertakes to supervise such daily operations as removal of snow or ice from the premises and the salting. Based on the lease and licensing agreement, the court found as a matter of law that McDonald’s did not exercise control over the specific cause of the injury—the presence of ice or snow around the restaurant—and did not owe a duty of care to the plaintiffs.
Franchisors attempting to predict whether to assert more or less control for the benefit of their brand and the safety of their employees will find the exercise frustrating. For example, a fast-food franchisor was found vicariously liable for injuries sustained by the franchisee’s employees in a robbery. The court in that case found that the robber had entered through the back door and the employee manual and training had educated the employees how to minimize such risks. The franchisor, having undertaken to involve itself in the security of the premises, was held vicariously liable even for the criminal acts of a third party. Similarly, a pizza franchisor was held vicariously liable for the delivery driver’s accident because the franchisor imposed a 30-minute delivery policy on its franchisees. A tax preparation franchisor failed to have a sexual harassment claim against it dismissed when its franchisee allegedly abused an employee. Liability was based both on federal civil rights violations and common law agency as the franchisor asserted control over employment issues of its franchisees in its manuals.
Vicarious liability claims can be avoided or minimized by taking precautionary measures. All franchise agreements should be screened for language that asserts unnecessary control over the day-to-day operations of the franchisee’s business. The franchise agreement must contain language that asserts independent operation by the franchisee and responsibility for safety and control of the employees and the premises. The franchise agreement should contain appropriate indemnity language and a requirement to cooperate with the defense of any vicarious liability claims is necessary, with proper insurance requirements in favor of the franchisor. The operations manuals and training protocols distributed by the franchisor should be scrutinized by lawyers to identify any language that could be used to claim the franchisor intended to control the franchisee’s operations.
Vicarious liability claims cannot be avoided entirely. Compelling facts and conduct may result in claims where the law has not yet considered a unique fact pattern and rationale. But the risk and exposure can be minimized by legal review of the franchise agreement, the lease, the operations manuals and the educational materials.