Agency and the Franchise Model
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The franchise is a common business organization. From fast food to hotels, the franchise structure is pervasive throughout our economy. The following cases help us think about the nature of the franchise/franchisee relationship. Is it an agency relationship? Or, is it something else?
Often times issues arise when the Franchisee commits a tort. Then litigants attempt to assign liability to to the Franchisor by way of agency theories. The plaintiffs argue that the Franchisee is nothing more than an agent of the Franchisor, the principal.
Over the years, courts have developed an approach to dealing with these questions that on the one hand generate principal-agent liability when the instrumentality of the tort is subject to the control of the Franchisor and no liability when the the instrumentality of the tort is under the control of the Franchisee on the other.
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1 Show/Hide More Allen v. CHOICE HOTELS INTERNATIONAL Original Creator: Brian JM Quinn Current Version: Brian JM QuinnNotes:
<p>What theory of agency does the court rely on in order to reach its conclusion here?</p> <p>Would it matter to the outcome of this case if the the plaintiff had argued that the plaintiff made a reservation at the hotel via the Choice Hotels International website? Why or why not?</p> -
2 Show/Hide More Wendy Hong Wu v. Dunkin'Donuts Inc. Original Creator: Brian JM Quinn Current Version: Brian JM QuinnIn this case, an employee of a Dunkin Donuts franchise sues Dunkin Donuts after she is attacked while at work. As in other cases of this type, the plaintiff seeks to ask the court to look through the stated relationship between the franchisee and the franchisor and hold that it is in fact an agency relationship and thus assign liability to the franchisor.
Note how the court limits the extent of the possible liability for franchisors.
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