FRANCHISOR 101:  VICARIOUS LIABILITY:  THE HOTEL CLERK, THE DOG, THE BUMPTIOUS GUEST, AND THE COUSIN

The relationship between franchisors and franchisees is a close one, but that doesn't put franchisors on the hook for everything their franchisees do.
 
So, at any rate, says the California Court of Appeal in the case of the hotel clerk, the bumptious guest, the dog, and the cousin, which is broadly applicable in other states with laws on the books similar to the California Unruh Civil Rights Act.
 
The case began as the clerk helped a customer at the service desk of a franchised Hilton Hotel in the Golden State. Suddenly, a big, unleashed dog came through the door and began roaming about the lobby rudely sniffing guests. Two men followed, one of them wearing only swimming trunks and smelling strongly of alcohol.
 
The man in swimming trunks barged up to the service desk, elbowing others aside and demanding accommodations. The dog, he insisted, was a service dog, and the second man, his cousin, was disabled.
 
The clerk, however, saw nothing on the animal to indicate that it was a service dog - no service harness, for instance - and asked the man to leash it. The man refused, and when the clerk declined to accommodate the man and his entourage, he grew irate and muttered obscenities. He left, taking the dog and the cousin with him, but the man's lawyer soon slapped the hotel, a franchise operation, with a lawsuit alleging negligence and violations of the Unruh Civil Rights Act.
 
The lawsuit named the franchisor, too, of course, on grounds that the relationship between the franchisor and the franchisee constituted an "agency" relationship making the franchisor vicariously responsible for injuries suffered by hotel guests like the man in swimming trunks.
 
No deal, according to the California Court of Appeal. The man in swimming trunks presented no evidence showing that he had chosen to walk into the hotel in question knowing that it was a franchise operation, the court said, much less that the franchisor controlled the actions of the franchisee in hiring, training, and supervising the clerk.
 
There was, in short, no agency relationship between the franchisor and franchisee, the court ruled, and no vicarious liability. The man in swimming trunks had no case - good news for franchisors everywhere.

FRANCHISEE 101:  WHAT TO DO WHEN THE ECONOMY IMPROVES

Franchisees struggle during hard times just like other business owners, and some fail. Those who survive, however, are often in excellent position to grow once better times return.
 
Why? Because they have been tested, and they often find that their franchisors, having been tested themselves, need help getting back into growth mode - and who better to provide that help than a franchisee with really good survival skills?
 
If you're among those resilient franchisees who will survive the current downturn, here's the key to getting yourself into position to prosper once things improve: Start thinking now about becoming an area developer or a master developer.
 
Area developers hold the right to open not just one but a number of franchise outlets in a specific exclusive territory, usually within a specific period of time. Area developers populate the territory with self-owned units. Master Developers "seed" their exclusive  territory with outlets of their own and then work with their franchisor to recruit, train, and support other franchisees in opening up additional outlets in the same area.
 
It costs money to become an area and master developer, of course; franchisors don't give exclusive development rights away for free. And there are risks. As an area or master developer, you may lose your exclusive rights in your territory if you fail to meet strict deadlines in getting new outlets up and running, whether under your own ownership or that of new franchisees.

Last but not least, it takes careful analysis to decide whether to develop a new territory altogether with your own outlets or "seed" it and then help your franchisor bring in new franchisees. It takes work to negotiate a deal with your franchisor, too, of course, generally on the amount and sharing of initial and continuing fees and the development period for getting the outlets open for business, so don't try to go it alone. An experienced franchise attorney is often the key to getting these deals done.
 
Becoming an area or master developer isn't a cakewalk, in other words; you double down the bet you make as a franchisee, and you work ten times as hard. But it's the next best thing to becoming a franchisor yourself. Indeed, given the obvious opportunities for leveraging time and money, it's the way up for franchisees who prove themselves in hard times.