Franchisor Potentially Liable for Acts of Franchisee

In a recent case, a California Court of Appeal found that a franchisor could be liable for the sexual harassment and assault committed by the franchisee against the franchisee's employee. Although the franchisor prevailed on summary judgment in the trial court, the Court of Appeal reversed that judgment, finding that the franchise agreement gave the franchisor sufficient control over the over the franchisee's operations to create a triable issue as to whether the franchisee was acting as the franchisee's agent. The case stands as a warning to franchisors - and all businesses - to carefully draft their agreements. The temptation to maximize control may come at the cost of being responsible for the other party's conduct. The resulting liability could far exceed the benefit of the contract. Parties are encouraged to seek the advice of competent counsel in drafting and reviewing their agreements to avoid such harsh unintended consequences. See Patterson v. Domino's Pizza LLC, 207 Cal.App.4th 385 (2012).

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