The franchise relationship between franchisor and franchisee is becoming
fraught with problems leading to increased litigation in recent years. Two legal
theories that have come to the forefront in the franchise litigation arena
are joint employer and vicarious liability.
Following the global financial crisis many lawyers in multiple jurisdictions
have reported seeing increased levels of litigation. In some instances this is
often being instigated by franchisors to eliminate under-performing franchisees.
Previously, lack of enforcement against under achievers was due to concerns
about the economy, whereas now economic conditions have improved in many
industries and litigation can be afforded.
Another reason given by some is that long-term relationships between the more
mature franchisors and franchisees are changing or dissolving as franchisor
management and franchisee generations change, resulting in litigation.
Some lawyers have noted an increase in arbitration, and, in some instances
mediation, since some courts are much more in favor of alternative dispute
resolution. Where possible, courts are forcing individuals to try these methods
In Canada there seems to be a consensus that litigation levels have increased,
particularly in relation to class actions, which is a fairly new development in
this jurisdiction. Although there have not been an abundant number of class
actions held yet, there is definitely an increase on the horizon. As one
practitioner explained, "The franchising industry certainly lends itself to
class actions given that franchisees can come together with common grievances
against the franchisor."
Disclosure is another issue that has resulted in increased activity in the
courts, with reports of active franchisee lawyers "hunting for" potential cases.
Five of Canada’s provinces have now adopted the Franchise Act, which includes
rules of franchise disclosue documents, with Manitoba the most recent in October
2012. According to one franchisor lawyer, "Franchisee lawyers know they can get
an easy win if there was no disclosure. If they find these cases, which they are
actively seeking, the question is not if but how much they will get."
Similarly in the UK there are reports of increasing litigation brought by
franchisees and, in tandem, a growing franchisee bar that exclusively represents
them. This is part of a larger trend noted by lawyers in such diverse
jurisdictions as California, Germany and South Africa, franchisees are becoming
stronger. This seems to be a result of, first, increased awareness by
franchisees that they have rights and can get legal help, and second, that there
is much better representation and organization of franchisees than ever before,
with the internet playing an important role.
About the author:
The Kosnar Group litigation support team has provided attorneys and their
clients with franchise expert witness and litigation support services for years,
with some of our professionals having over 35 years of franchise experience. Our
opinions are valued by attorneys, clients, and triers of fact because we are
professionals who work exclusively in the franchise industry. We communicate and
present our positions in a fashion that attorneys, clients, judges, and juries
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