It is a fundamental principle of franchising that the franchisor and franchisee are separate and (usually) independent legal and economic entities. In the event that the franchisee is liable towards its employees or customers, that liability does not pass up to the franchisor.
However, some cases in Spain, involving cosmetic and dental health franchises, have tested this principle. The High Court of Appeal of Malaga held that the franchisor of a cosmetic surgery clinic (Clínica Renacimiento) was liable for the actions of its franchisee (and their employees).
The case was about a patient who had undergone two liposuction surgeries, which did not go according to plan. The patient filed a civil claim against the franchisee, the franchisor and the insurance company.
At first instance, the judge ruled partially for the plaintiff and confirmed the liability of the franchisee and the insurance company but dismissed the claim against the franchisor. The plaintiff appealed the ruling and High Court of Malaga declared that the franchisor was liable for the actions of the franchisee's surgeon. According to the judgement, the franchisor was liable because it:
a) provided the medical techniques;
b) could inspect the quality of the service;
c) whilst the Franchisee chose to employ the surgeon, their employment had to be approved byt he franchisor; and
d) the surgeon had attended training provided by the franchisor.
The judgment was upheld by the Supreme Court, which declared “the doctor did not act in terms of full autonomy and independence but in subordination or dependence of the Franchisor who imposed his policy rules and quality of the products and services”.
The second case was heard at the High Court in Las Palmas. The matter related to a dental care franchise and once again, the franchisor was held liable due to the level of control exerted over the dentist, who was employed by the franchisee.
Finally, High Court of Valencia also held that a franchisor was liable for the negligence of a franchisee because the consumer thought he was entering into an agreement with the Franchisor. It was a term of the relationship between the franchisor and the franchisee that the franchisee could not terminate a consumer contract without the express consent of the franchisor. In this case, the Court held that the franchisor was using the franchisee company as means to avoid any responsibility to the consumer.
To date, these cases have been limited to the cosmetic surgery and dental health sectors, but they serve as a warning to any franchisor that it should be wary of the extent to which it exerts control over its franchisees. The temptation to micro-manage franchisees is understandable, given that the franchisor has a vested interest in maintaining the integrity of the brand and reputation of the system, however there is a line and once crossed, a franchisor might find itself liable for the acts of it franchisees and their employees. .
This is a live issue in other jurisdictions such as the US, Canada and Australia, where the principle of joint employer liability has been litigated, so franchisors should carry out a thorough check of their agreements and practices to ensure that the right balance is being struck.
For more information on this topic, please contact Cristina Ruiz de Alda or Jordi Ruiz de Villa.