Uh-oh, Could You Be Legally Liable For Your Franchisees’ Actions?
As a franchisor, one of the most critical aspects of your business model is the ability to maintain control over your brand, products, and services while simultaneously granting franchisees the autonomy to operate their individual units.
However, this delicate balance can sometimes be disrupted by the actions of franchisees, potentially exposing you to legal liabilities. In this blog post, we’ll explore the circumstances under which a franchisor could be held responsible for the actions of their franchisees.
“In the ever-expanding universe of matters that may keep franchisors up at night, concerns about their potential vicarious liability for the actions of franchisees or their employees likely tops the list.”
Franchisors and Vicarious Liability for Actions of Franchisees or Their Employees
Kilpatrick Townsend & Stockton LLP
Here are some relevant cases and considerations regarding franchisor liability for franchisee actions in New Zealand, Australia, the United Kingdom, and the United States:
In the US, there have been numerous cases where franchisors were held vicariously liable or as joint employers due to the level of control exerted over franchisees, such as the McDonald’s hot coffee case (Liebeck v McDonald’s Restaurants) and the Holiday Inns security case. And of course, McDonald’s Corp was brought to the table by the National Labor Relations Board and was only absolved of any joint liability for labor law violations committed by its franchisees after a settlement was reached.
While New Zealand does not have franchise-specific legislation, the general principles of agency law, negligence and breach of duty could expose franchisors to liability for franchisee actions. Factors like operational control, training requirements and marketing practices influence the risk. Franchisors have had to fight for the rights of their franchisees under changes to employment law which appeared to discriminate against franchises. The collaborative activity exemption in New Zealand’s amended Commerce Act may provide some protection for franchisor-franchisee territorial allocations and restraints.
Australia’s Franchising Code of Conduct explicitly requires franchisors and franchisees to act in good faith, potentially increasing franchisor liability. While not a very recent case, WorkCover Authority of New South Wales v McDonald’s Australia in respect of the death of a franchisee employee electrocuted on McDonald’s premises highlights the increased risk of liability when franchisors lease to or supply their franchisees.
While legal principles and theories do exist under which a franchisor in the United Kingdom could potentially be face liability claims for franchisee actions, it is evident that such claims against franchisors face significant hurdles under UK law - as they do under New Zealand and Australian law - compared to the United States legal system.
But while you may not be losing sleep now, it would certainly pay to minimise the risk of “the ever-expanding universe of matters that may keep franchisors up at night” by taking these measures:
- minimise the actual control exercised by a franchisor over a franchisee and its employees
- carefully draft the franchise agreement to retain control over only those matters that are necessary for the successful operation of the business
- provide ample discretion to the franchisee over employee and other local operational matters
- publicly acknowledge that franchisees operate independent businesses and encourage franchisees to make that clear to the public
- consider insurance coverage for such liability and mandating franchisees maintain such coverage for the benefit of the franchisor

Please note that I am a franchise consultant, not a lawyer, and none of the text above is intended or should be construed as legal advice. However, I do work with some excellent specialist franchise lawyers and recommend that you consult with them on franchising legal matters rather than a non-specialist.
I am able to offer you my expertise in all other aspects of franchising and business scaling, including business model innovation, systems development, coaching and mentoring, speaking and franchisee recruitment.

Every week, I produce an email newsletter containing news, insights and information of value to franchisors, licensors and those considering or involved in scaling their businesses. Subscribe here or follow me on Linkedin, X or Facebook so you don't miss anything important!
If you are considering franchising your business or developing your existing franchise or licence system, I invite you to contact me to arrange a Free 30-Minute Initial Consultation.
Share on your Page:
Follow us:




