FRANCHISOR TORT LIABILITY
Franchise Described: In a franchise contractual arrangement, the franchisor sells the right to use its trademark and comprehensive business plan to the franchisee. The franchisee independently owns, runs, and staffs the retail outlet that sells goods under the franchisor's name.
A "tort" is generally a wrongful act or an infringement of a right
under contract) leading to civil legal liability.
Examples: Negligence, auto accidents, dog bites, product liability, slip and falls, defamation, civil battery, fraud, etc.
Employer Vicarious Liability: “Under the doctrine of respondeat superior, an employer [principal] may be held vicariously liable for torts committed by an employee [agent] within the scope of employment.” (Mary M. v. City of Los Angeles (1991) 54 Cal.3d 202, 208).
The franchisee is vicariously liable for the torts of its employee, but is the franchisor liable also?
"The general rule regarding the substantial or complete right to control the way that results are achieved is sometimes referred to as the “means and manner” test. See Cislaw v. Southland Corp. (1992) 4 Cal.App.4th 1284, 1288.
Wickham v. Southland Corp. (1985) 168 Cal.App.3d 49, 54-55 [franchisor not vicariously liable where franchisee had control over day-to-day store management, e.g., franchisee hired and fired employees, set and paid their wages, and directed their work, etc.].
Courts “consider the ‘totality of circumstances’ that reflect upon the nature of the work relationship of the parties, with emphasis upon the extent to which the defendant controls the plaintiff's performance of employment duties.” (Vernon v. State of California (2004) 116 Cal.App.4th 114, 129).
Right to Terminate Contract Factor: In Cislaw v. Southland Corp. (1992) 4 Cal.App.4th 1284, 1296, the fact that the franchisor could not terminate the contract at will was considered significant in determining that an independent contractor relationship (and not an employment relationship) was in fact created by the parties.
Ostensible Agency / Employment: Civil Code section 2300 provides: "An agency is ostensible when the principal intentionally, or by want of ordinary care [i.e. negligently], causes a third person to believe another to be his agent who is not really employed by him." (See also Civil Code § 2317).
In Kaplan v. Coldwell Banker Residential Affiliates, Inc. (1997) 59 Cal.App.4th 741, 747-748, regarding whether or not a franchisee is an "ostensible agent" of the franchisor: "'Liability of the principal for the acts of an ostensible agent rests on the doctrine of "estoppel," the essential elements of which are representations made by the principal, justifiable [reasonable] reliance by a third party, and a change of position from such reliance resulting in injury.'"