Vicarious Liability in General
Nearly every franchisor has suffered threats of litigation based upon the actions of its franchisees. These threats are not necessarily limited to claims stemming from the franchisees' delivery of services (from mold remediation to serving tasty food which does not result in gastro-intestinal distress), but may extend to those arising from the franchisees' employment decisions.
Generally, the franchisor defends on the basis that it does not direct the day-to-day actions of its franchisees, and the franchise relationship by definition is an independent contractor relationship, rather than an agent-servant relationship.
A recent case out of Washington recognizes this principle, but with a current technological and statutory gloss.
Robo Calling by Franchisee using Franchisor Mandated POS
In this case, a sizable Domino's Pizza franchisee (Four Our Families, Inc.) hired a telemarketing firm (Call-Em-All LLC) to help increase sales, and that firm engaged in "robo-calling" to offer pizza delivery specials.
A class action lawsuit was filed claiming violations of the federal Telephone Consumer Protection Act (47 U.S.C. Section 227 et seq.) and a Washington statute (Revised Code of Washington Section 80.36.400, "WADAD," governing "automatic dialing and announcing devices"). The putative class action plaintiffs claimed that they had received unsolicited auto-calls offering pizza deals from Domino's, and those calls were made without their prior consent.
The plaintiffs claimed that the franchisor was liable for the franchisee's actions under the general contract provision granting the franchisor the right to control advertising and marketing decisions. The franchisor denied that it was involved in the robo-call efforts.
In support of their claim against the franchisor, the plaintiffs pointed out that the telemarketing firm had advertised its services at a Domino's national convention, and also had used the PULSE telephone system (which Domino's Pizza requires the franchisees to use, and which is capable of producing lists for "ADAD" calling).
Ruling By Court - No Franchisor Liability for Mandating POS
The federal district court granted the franchisor's summary judgment motion and denied class certification. The court recognized that the franchisor did not conduct a robo-calling campaign itself, participate in the franchisee's campaign, or direct that franchisees conduct such a campaign.
The court stated that the "mere fact that Domino's requires franchisees to participate in marketing campaigns does not somehow mean that any franchisee's illegal use of an [automatic dialing and announcing device] is imputed to the franchisor."
This is just one more example of an effort by the plaintiffs' bar to hold franchisors accountable for the actions of franchisees.
Franchisors should take heed, and zealously defend the independent contractor relationship and the realities of the relationship.
In addition, franchisors would be well advised to inquire into the availability of insurance for these and similar claims.
The court's order may be reviewed by clicking here.
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A missisng salient fact would be that the franchise agreement requires the franchisee to use only approved adverts. If there were evidence that the franchisee submitted a consent request to robocall people to the franchisor and received specific permission to do so, the court might have found that there was indeed potential franchisor exposure. Might the question be, "Does the franchisor need to know how a promotion is going to work and its fit in the legal framework of the market for its intended use before giving aproval?" Does the franchisor police law compliance for adverts that it does itself?
This is a good response, Richard. We should ask the lawyers involved to see what they can say about the issue.
I wonder if the franchise agreement contained a standard provision requiring that the franchisee comply with all applicable laws.