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What are the consequences of negligence in franchising?

On Behalf of | Dec 12, 2023 | Firm News |

As a franchisee, you have a big responsibility to uphold the standards and reputation of the franchise network. But what happens if you do not meet your responsibilities and your actions or inactions cause harm to the franchise’s reputation or result in financial losses? The franchisor may hold you liable for negligence.

What is negligence in franchising?

Negligence in franchising means failing to do what you are supposed to do as a franchisee. This can include things such as:

  • Not following the franchise’s policies and procedures
  • Not maintaining proper quality control
  • Ignoring customer complaints
  • Not keeping accurate financial records

Note that it is possible to commit negligence unknowingly. If the franchisee can demonstrate that the action is unintentional and not the result of willful or reckless behavior, the franchisor may be more willing to work with the franchisee to resolve the issue. However, they are still likely to hold the franchisee accountable for any losses resulting from the negligence.

What are the consequences of negligence?

If the franchisee’s negligence causes harm to the franchise’s reputation, the franchisor may take legal action to protect the brand. This could include:

  • Terminating the franchise agreement
  • Seeking damages for any losses incurred
  • Launching a marketing campaign to restore customer trust

If what happened results in financial losses for the network, the franchisor may also seek financial compensation. This could include seeking damages for lost revenue, as well as any additional costs incurred by the franchisor to address the negligence.

When is the franchisor liable for a franchisee’s negligence?

In general, a franchisor may not be directly liable for the negligence of a franchisee. Since a franchisee is an independent contractor, they are supposed to be responsible for their own actions and decisions. However, there may be certain circumstances where the franchisor could be held liable for the actions of the franchisee.

If the franchisor has a duty of care towards the franchisee (like in a master-franchise agreement), then the franchisor might be liable for any negligence or breach of that duty. Additionally, if the franchisor has a hands-on approach to the day-to-day operations of the franchisee (like in a hybrid franchise model), then the franchisor might be more likely to be held accountable for the actions of the franchisee.

There are specific situations though that can greatly impact the liability of the franchisor. This is why it is always best to consult a legal professional for specific advice.

In any case, it is important for both the franchisor and the franchisee to maintain a safe and responsible business practice, and to respect the terms of the franchise agreement.

Negligence in franchising can have serious consequences for both the franchisee and the franchise network. By taking your responsibilities seriously and upholding the standards of the franchise network, you can avoid negligence claims and protect the franchise’s reputation.