Franchising and Liability

• Franchising


  An "in between" business relationship, somewhere between total ownership of retailer by its supplier and total independence of the retailer
• Franchising


  1. Retail outlets are independently owned

  2. Subject to elaborate long-term contractual restrictions

  3. Owner has the right to use the franchise trademark
• Franchisee


  Pays a royalty to the franchisor, often based on revenue
• Degree of control that the franchisor has over its franchised outlets


  Likely to determine tort liability
• Types of Retailer relationships

  • Retailer owned by supplier
  • Retailer franchised
  • Retailer independently owned
• Retailer owned by supplier


  • Total control over retailer
  • Maximum tort liability for supplier
  • Master-servant relationship
• Retailer franchised


  • Some control over retailer
  • Some tort liability for franchisor, depending on degree of control
• Retailer independently owned


  • Supplier has no control over retailer
  • Supplier has no tort liability for acts of retailer