From time to time, claims come across my desk seeking damages against a franchisor for the acts or omissions of a franchisee. Usually, those claims are framed as claims of direct liability. Less frequently, claims are framed as claims of vicarious liability.
Many plaintiffs (and their lawyers) don’t draw a distinction between the franchisor (the trademark owner) and the franchisee (the independent contractor licensed to use the franchisor’s trademarks), so they sue the franchisor instead of the franchisee or sue both the franchisor and the franchisee.
In response to these claims, my usual course of action is to write to the lawyer for the plaintiff and explain the nature of the franchisor-franchisee relationship, namely, that the franchisee operates the franchised business independently under a license granted by the franchisor; that the franchisee is responsible for the day-to-day operations of the franchised business, including the training and supervision of its employees; that the franchisor did not cause or contribute to the loss alleged to have been suffered by the plaintiff and that the franchisor was not responsible for any damages suffered by the plaintiff. I usually quote that section of the franchise agreement that describes the franchisee as an independent contractor and make reference to the decision of the Court of Appeal for Ontario in Percival v. Mayes.
In Percival v. Mayes, a homeowner sued a contractor for damages arising from repairs made to the home of the homeowner. The action against the franchisor, Toronto Homeservice and Maintenance Limited (doing business as Homeservice Club of Canada), was dismissed on the basis that the franchisor had no contract or any agreement of any kind with the plaintiff. The relationship between Homeservice Clubs of Canada and the contractor who actually performed the work was one of franchisor and franchisee, as established by the parties’ franchise agreement.
In dismissing the appeal, Howland C.J.O., wrote:
The trial judge ordered that the action be dismissed against the defendant Toronto Homeservice and Maintenance Limited (The National Club). In our opinion she was correct in her conclusion. It is not necessary to deal with the correctness of her reasons for reaching that conclusion. On a preliminary point, the trial judge should not have concluded that the plaintiffs were entitled to the guarantee of the National Club. The plaintiffs were members of the Homeservice Club of Hamilton-Burlington and had all their dealings with that Club. That Club was more than simply a division of the National Club.
It was expressly provided in the Franchise Agreement between the National Club and the Hamilton-Burlington Club that the relationship was not a joint venture, partnership or any other form of relationship which would make the National Club in any way responsible for the debts, torts or contracts of the Hamilton-Burlington Club.
Considering the evidence as a whole, it was a palpable and overriding error for the trial judge to conclude that the plaintiffs were entitled to the guarantee of the National Club. There was no reasonable basis for such a conclusion.
I then invite the plaintiff’s lawyer to discontinue the action as against the franchisor or to seek leave of the court to substitute the franchisee for the franchisor as a defendant to the action. I conclude my letter with something like this:
If our client is required to deliver a defence to the action, then it will do so and seek a dismissal of the action on a summary basis, with costs.
This approach is successful most of the time. The plaintiff’s lawyer is not interested in making a claim against the wrong party. He or she is interested in determining the identity of the proper defendant, i.e. the franchisee, so that a claim can be made against it. After all, franchisees have insurance coverage for insured losses. So, considerable costs and the risk of potential liability can be avoided by simply writing this type of letter to the plaintiff’s lawyer.
The British Columbia Supreme Court recently granted a motion for summary judgment dismissing a claim in one of these types of cases. In Chow v. Subway Franchise Restaurants of Canada Ltd., a claim was made against Subway Franchise Restaurants of Canada Ltd., Subway Franchise Systems of Canada, Ltd. and others for “personal injury damages caused by a defective sandwich.” The plaintiff found blood on the bun and wrapping paper of a sandwich she purchased at a Subway location in Victoria, B.C. In support of its motion, the Subway companies named as defendants filed evidence that all employees of the restaurant, including management, were employed directly by the franchisee corporation and that all of the employees received training from management regarding operational procedures, including food preparation, inspection and work safety procedures. The franchisor also filed evidence explaining the “structure” of the franchise relationship and that neither of the Subway companies named as defendants had direct control of the day-to-day operations of the restaurant.
The motions court judge dismissed the claim against the Subway companies. The plaintiff filed no evidence in support of its claim. The evidence proffered by the franchisor parties was not contradicted by the plaintiff. The pleadings were found to be “woefully inadequate” and did “not assert a claim properly brought against the defendants.” The defendant “Subway” was a trademark and not a legal person and the defendant “Subway Restaurant” was also not a legal person. Neither were “amendable to suit” according to the motions court judge.
The motions court judge concluded that the plaintiff did not sue the direct tortfeasor, the worker in the restaurant, or the employer of that worker and there was no claim made that tied the franchisor in any relationship to either the direct tortfeasor or their employer.
Whenever you receive this type of claim, consider picking up the phone and calling the plaintiff’s lawyer to explain the franchisor-franchisee relationship and follow that call up with the type of letter described above. In addressing the claim this way, you will save your client management time and money.
About the author
Jeffrey Hoffman is a partner of Dale & Lessmann LLP in Toronto and co-chair of the firm’s franchise practice group.
  OJ No 137 (HCJ), appeal dismissed,  OJ No 1569 (CA), leave to appeal to the Supreme Court of Canada dismissed,  SCCA No 264.