Minimizing Vicarious Liability of Franchisors for Acts of Their Franchisees

Since 1984, one-third of all retail sales have been made by franchised businesses.1 As franchising's importance in the United States economy is being recognized by plaintiffs' lawyers, courts have been increasingly willing to extend li? ability to franchisors for acts committed by their franchi? sees. However, vicarious liability of franchisors is not a per se rule in franchise law as yet. Franchisors can reduce the risk of being held liable for franchisees' acts by careful draft? ing (and redrafting, if necessary) of their franchise agree? ments, offering circulars, and operating manuals. This article discusses the theories that courts use to im? pose upon franchisors liability for damages caused by their franchisees' acts. The article also discusses the conflict be? tween the most important of these theories (i.e., actual agency) and the federal Lanham Act, which appears at first to require franchisors to take action that will result in vi? carious liability. The article concludes with recommended drafting methods and other techniques for franchisors to reduce vicarious liability exposure.