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Franchisor Liabilities & Franchisees

An ever-growing concern among franchisors is whether they can be held liable for the wrongful conduct of their franchisees. Most recently, the Ontario Courts concluded that where the franchisor’s involvement in the franchisee’s operations is limited to the right to intervene in matters relating to the protection of the brand, there is no reason to hold the franchisor accountable for the acts or omissions of the franchisee. In fact, failing exceptional circumstances, a franchisor will generally not be found to be liable for the conduct of its franchisees.

In coming to this conclusion, the Court considered the following factors:

  1. The language of the Franchise Agreement and in particular whether the relationship is categorized as an independent contractor or agent-principal relationship;
  2. Whether the franchisee had the authority to enter into agreements on behalf of the franchisor;
  3. The level of operational control exerted by the franchisor over the daily activities of the franchisee and whether the franchisee, in fact, ran an independent business for its own profit; and,
  4. Whether the franchisor and franchisee shared a workforce.

Neither of the aforementioned considerations is determinative in and of themselves. The Court will look at the actual role of the franchisor to decide whether it ought to bear responsibility.

Ultimately, the Court has not sealed the door on the issue and remarked that there may be circumstances where a franchisor ought to be held vicariously liable for the acts or omissions of its franchisees; however, the circumstances on which this will be the case are exceptional and rare. Where the franchisor is uncertain as to whether they fall into the rare and exceptional category, it would be advisable to seek the advice of legal counsel.

This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.

If you have questions, please reach out

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