Franchisors are often sued for injuries occurring on the premises of their franchisees simply because the injured person and his attorney do not understand the nature of franchising.

Most franchisors prescribe standards for operation by their franchisees that are designed to produce the highest quality product or service in a clean, safe environment. However, franchisees do not always follow these standards, and even when they do, accidents happen. With some personal injury lawyers suggesting that every injured person has someone he can sue for his injuries, it is inevitable that lawsuits will arise and the franchisor will be named in the lawsuit simply because its trademark was on the door. This article will explain how a franchisor can reduce its exposure to liability for these actions.

The Theory for Suing the Franchisor

Franchisors are often sued for injuries occurring on the premises of their franchisees, or caused by a franchisee’s actions simply because the injured person and his attorney do not understand the nature of franchising.

They believe that every McDonald’s or Burger King restaurant is owned by McDonald’s Corporation or Burger King Corporation. That is why a telephone call to the plaintiff’s attorney is always the first step in defending these actions, as the attorney may be willing to drop the franchisor from the lawsuit when they learn the franchisor was not the owner of the business.

However, there are two legal theories by which franchisors can be liable for these actions. One is the concept of “actual control,” where the franchisor controlled the action that led to the injury, or exercised so much control over the overall business that it is treated as owning that business. The other is a theory known as “apparent authority,” meaning the customer thought this was a company-owned location.

Actual Control

The law has always recognized that if you have an employee or agent who acts at your direction, you are liable for their actions. A franchisee is not an employee, but if he is acting at your direction, and that direction causes injury to the customer, then you are liable to that customer, even though it was not your business. For example, if you tell a franchisee to cook food at a certain temperature, and that temperature is too low to kill bacteria, then you will likely be liable for the consequences of your franchisees’ actions when they follow your directions.

The theory of “actual control,” also arises when you control so much of the business activities of your franchisees that you are truly controlling the business. While you need to prescribe standards that relate to the delivery of your service or product, review your operations manual to be certain you are not trying to control other aspects of the business.

A good rule of thumb is that you can prescribe standards for everything the customer sees (with exceptions for pricing), but you should do no more than suggest “best practices” for aspects of the business that a customer does not see. The latter would include hiring practices, compensating and overseeing employees, dealing with suppliers of products and services not central to the system, and similar matters.

Likewise, your standards for producing and delivering your service or product should typically be minimum standards, including specifically addressing policies designed to prevent injuries, but giving franchisees discretion to go beyond your minimum standards or requirements where it is appropriate to do so (particularly in providing a safe environment for employees and customers).

Injured persons will often point to your operations manual, and the requirement of your franchise agreement that franchisees must comply with the operations manual, as evidence of your control of the business. Thus, beyond reviewing your manual and deleting unnecessary controls, you should include in your franchise agreement an acknowledgment by the franchisee that the manual is designed to protect your standards and systems, and your names and marks, and not to control the day-to-day operation of the business. If your manual includes suggested best practices, your agreement should also make clear that the franchisee is only required to comply with mandatory provisions of the manual.

Apparent Authority

Even when you do not control the franchise business, you can be held liable for the actions of your franchisees if the public (or an employee) does not know that you do not own the business. There are, however, a number of ways to protect against such a claim.

In a business such as a restaurant, hotel or retail store, which has a physical location, there should be a prominent sign showing the name of the owner of the business and the fact that they are a franchisee of your brand. For example: “This Amy’s Lemonade stand is owned by Local Franchisee, LLC, an independent franchisee of Amy’s Worldwide, LLC.”

Some franchisors will even present the sign to their franchisees at the conclusion of the initial training, as a plaque recognizing they are ready to open their business. For this sign to be effective, the franchisee must place the sign in a prominent location where every customer will see it, such as on a front door, or by a front desk, ordering station or cash register. If the business has multiple points of entry, or a drive-through window, it would be a good idea to have a second sign.

For service businesses and franchises that are not destination businesses, this notice should be placed on proposals, order forms, and contracts with customers, preferably at the top or just above the customer’s signature. Further, any contract the franchisee signs with its customers should contain the legal name of the franchisee with whom the customer is contracting.

Consumer advertising is also a place where you can make clear to consumers that you do not own the business they are patronizing. Phrases such as “each location independently owned and operated,” on all advertising materials (including your website), tells prospective customers that you do not own every location. While it only takes one notice to alert a customer that an independent franchisee owns the business, the more places you can put these notices, the less likely someone will credibly claim they thought you owned the business.

When All Else Fails

Despite your best efforts to select qualified franchisees, establish policies designed to prevent injuries, avoid controlling the business of your franchisees, and educate the public as to the ownership of the business, you may still be named in a lawsuit. There will also be plaintiff’s attorneys who refuse to understand the franchise relationship or demand payment of “ransom” to go away. Your franchise agreement should have a provision requiring your franchisee to indemnify you in these situations.

Because franchisees do not always have the resources to make good on their indemnifications, your franchise agreement should contain provisions requiring your franchisees to obtain insurance and name you as an additional insured. It generally costs nothing for franchisees to name you as an additional insured, and when they do, you will be able to tender the claim to the franchisee’s insurance company, rather than to your own attorneys. Review your insurance provisions with a qualified insurance broker to be certain the insurance requirements are sufficient for your particular business.

Obtain an annual certificate of insurance from your franchisees, confirming they have purchased the required coverage and named you as an additional insured. Doing so is a final safety net in trying to avoid the high cost of litigating these vicarious liability claims, and bearing the ultimate responsibility for the actions of your franchisees.

Source: franchisingworld.com

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Franchise recruitment and development is the critical component of expanding a business using franchising as a growth strategy.

The question we keep hearing is, “How do we recruit better and more qualified candidates?” As franchisors seek eligible, competent, franchisees to increase their businesses, they realize that the strategies for success used in the 20th Century are ineffective in the 21st Century.

The “good old days”

As times change so must franchisors, particularly in their approach to the generation, qualification and granting of franchises to qualified individuals and entities. To be a successful franchisor in the 21st century the practices used to grant franchises in the 20th Century, are ineffective. Franchisors need to redesign their strategies to best meet the needs and expectations of the 21st century candidates. Franchisors need to create an environment where the customer is the focus of everything and everyone in the company. Franchisors must grant franchises only to those qualified individuals and entities who will implement their systems, fully, completely, and consistently, resulting in the acquisition and retention of VERY satisfied, loyal, frequent user Promoter customers who will build their Brand.

the 21th century

To bring your business into the 21st Century, Management 2000 had identified four primary areas of focus: Philosophy, Process, Technology and People

Every Brand needs to have state-of-the art marketing strategies and tactics, using website optimization tools and social networking sites. Brands need to take advantage of proven technologies to interact with the candidates. All processes for handling the candidates, from first contact through signing the franchise agreement or area development agreement should be streamlined.

17 Must for recruitment

To understand a successful franchise recruit system from 30,000-foot overview, we have listed 17 things to help you recruit better-qualified candidates.

1. Follow a process.
2. Stay in control.
3. Framing the process of granting a franchise (not “selling” a franchise) as a “Mutual Decision-Making Process” designed to: “Help you decide if our company is the best opportunity for you, at this time in your life, to help you achieve your personal goals for income, lifestyle, wealth, equity, and debt elimination, and for us to decide if you are the best person/entity to help us achieve our goals.”
4. Existing customers are the “diamonds in your backyard” and are often overlooked as the most ready, willing, and able to become your franchisee.
5. Existing franchisees opening new units as part of their personal business plan.
6. Existing franchisees giving you referrals and recommendations, especially in other markets.
7. Making the candidate the “center of the universe,” and not you, your concept or your franchise. The “mutual decision making process” is not about you, it is about the candidate or entity wanting to decide to become your franchisee.
8. Identifying and eliminating “deal breakers” in the very beginning of the process.
9. Having a web site dedicated to franchising (and make sure there is a reason for them to call you after they look at your web site).
10. The use of technology to help qualify and interact with the prospects, inquiries, qualified individuals and entities, while making a decision about whether or not to grant a franchise.
11. Having a behavioral based profile that has measurable criteria.
12. Ensuring the candidates have the correct understanding of franchising and of the terms: initial fee, royalty, territory, what “granting” means, what is “granted.”
13. Using the power of the principle: “Personal Goals Drive Business Goals.”
14. Using the power of the principle: “Decisions are made on emotion, not intellect.”
15. Using financial disclosure information.
16. Using a Qualification Specialist, either real or virtual.
17. Having very specific “must haves” and “like to have” profile for the candidate.

Before you start the franchise recruitment process, you must identify your ideal candidate, and the qualifications he/she must have and tailor your franchise recruitment process to that end.

Take the time to analyze your processes and determine how they can be used to discover qualified candidates.

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Training Guarantees Success but not everybody is up-to-date.

With the widespread use of technology in the twenty first century, franchise recruitment has changed drastically. Potential franchisees research possible franchise opportunities on the internet. How do you grant franchises to excellent candidates? For franchisors, the whole way of choosing qualified candidates has also changed. Choosing the right candidate the first time, will reduce turnover and allow you to build a strong customer-centric team to share your vision of success.

How are your franchisor/ franchisee relationships?

Are your Field Consultants viewed inspectors who only visit the franchisee to check for compliance violations?  Or are they seen as true business consultants involved in a strategic partnership with the Franchisor and the Franchisee with common business goals?  The goal of Field Consultants is to help the franchisee understand how the franchise relationship will help them succeed. Field Consultants will learn how to change franchisees behaviors, and their own, to increase the franchisees success.

Training Guarantees Success

For many franchise systems the big question is how do we increase unit revenue and profits? Understanding what the customer values is one of those keys. Before we can understand what the customer wants, we need to know who our customers are and where our customers are. How do we keep existing very satisfied, promoter customers and recruit new customers? These are just some of the keys to increasing profit and growth on a unit level.

As with anything worthwhile, practice makes perfect. You need to train yourself and team members consistently, to take advantage of the latest advances in technology, and implement innovative changes to grow your business.

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“A franchise is a type of business that is the same everywhere you go.”

“McDonald’s is a franchise. So are KFC and Burger King.”

Those answers are all correct. But, there’s more to franchising than just uniformity.

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What is Franchising? It’s the same old question.

Franchising has been around for centuries and has been used in numerous industries. The main problem people in the franchise community face, is the misconceptions others create about the business strategy. Many think that when you are a franchisee that you are “buying a franchise.”

To be perfectly clear you are investing your assets in a system to use the brand name, operating system and ongoing support. Ultimately every franchisee in the system is licensed to use the brand name and operating system in the way and format specified by the franchisor. In other words they accept the right and the obligation to fully, completely, and consistently implement the Intellectual Property [IP] of the franchisor exactly the ways the franchisor prescribes the IP is to be implemented. And they agree to implement any changes to the IP immediately upon notification of the changes.

Franchising is one of three business strategies a company may use in capturing market share.

1. Franchising is a business strategy for getting and keeping customers.
2. It is a marketing system for creating an image in the minds of current and future customers about how the company’s products and services can help them.
3.  It is a method for distributing products and services that satisfy customer needs.
4. It is a strategy for building a Brand
5. It is a strategy allowing a franchisor to simultaneously enter, penetrate, develop and dominate multiple markets simultaneously.

Basically franchising is an alliance strategically planned out among groups of people who have specific relationships and responsibilities with a common goal to have the majority of a market share. Meaning to get and keep more customers than the competitors.
The difference between opening your own business or becoming a franchisee of a brand is, when opening your own business you are independent and when you operate a franchised location you are interdependent.

Franchising is a network of interdependent business relationships that allows a number of people to share:

– A brand identification
– A successful method of doing business
– A proven marketing and distribution system

The business relationship is a joint commitment by all franchisees and the franchisor to get and keep customers.

Legally you are bound to get and keep them using the proscribed marketing and operating systems of the franchisor. To be successful in franchising you must understand the business and legal ramifications of your relationship with the franchisor and all the franchisees. Your focus must be on working with other franchisees and franchisor’s team members to market the brand, and fully use the operating system to get and keep customers.

Other franchisees and company operated units are not your competition. The opposite is true. They and you share the task of establishing the brand as the dominant brand in all markets entered and reinforcing the customers’ familiarity with and trust in the brand. So in this respect you are working as a team with others in the system. Other franchisees share with you the responsibility for quality, consistency, convenience, and other factors that define your franchise and insure repeat business for everyone. Increasing the value of the brand name is a shared responsibility of the franchisor and franchisees.

| By Andrew Erskine

Source: mgmt2000.com

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