The franchise model of business works due to the many benefits it brings to both franchisor and franchisee. One particular aspect of the franchise model that all parties wish was easier to navigate is the potential for vicarious liability. Vicarious liability can occur in many aspects of business. It is simply alleged liability to a party who did not cause an injury or incident but has a special relationship to the party who is alleged to have caused the injury or incident. But within franchises it can create significant problems.
Where will the vicarious liability claim come from? The claim can come from almost any part of the business operations. Many claims are tied to employment related issues. However, there have been several notable claims that involved injury to customers at a franchise location that eventually make their way to involve both franchisee and franchisor. On site operations, auto and travel, employee decisions. These all can produce allegations of vicarious liability.
At Moody, we work with our clients using a proprietary process that identifies risk and opportunity. Your business processes are designed for efficiency and profitability. By working through business processes with a lens of identifying risk we can help unearth opportunity as well as create solutions to for strong business continuity.
When working with franchisors on the topic of vicarious liability we point out some basic principles for mitigating vicarious liability. These principles revolve around clearly identifying the parties involved as best as possible. By making as bright a line of distinction as possible, both franchisor and franchisee benefit from understanding their area of responsibility.
Basic Principles For Mitigating Vicarious Liability
- Well written FDD and operations manuals disclaiming employer relationship and stating independent contractor relationship.
- Limit control to overall generalized outcomes or performance not to specific day to day operations.
- Create process of signage and notifications showing franchised locations are independently owned and operated.
Even with the best processes and plans, suits can arise. Unfortunately, no one can stop someone from bringing a suit alleging negligence. Because of this, we work with our clients to create a strong backstop of insurance coverage. Policies should be coordinated to work together as best as possible, one policy picking up where another left off. Because suits can arise from various facets of the business it is not enough just to have certain insurance policies. The policies must contain the coverage language and coordination to work together.
Contact us to set up a time to talk that fits your schedule. At Moody, we want to help both franchisor and franchisee navigate the world of potential vicarious liability. We look forward to hearing about your business and the opportunity to help you continue to make it grow.
