the kosnar
group
Franchise Litigation Continues to
Grow
By
Carl J. Kosnar
August 2018
The
franchise relationship between franchisor and franchisee is becoming fraught
with problems leading to increased litigation in recent years. Two legal
theories that have come to the forefront in the franchise litigation arena are “joint employer” and “vicarious liability.”
Following
the global financial crisis many lawyers in multiple jurisdictions have
reported seeing increased levels of litigation. In some instances this is often
being instigated by franchisors to eliminate under-performing franchisees.
Previously, lack of enforcement against under achievers was due to concerns
about the economy, whereas now economic conditions have improved in many
industries and litigation can be afforded.
Another
reason given by some is that long-term relationships between the more mature
franchisors and franchisees are changing or dissolving as franchisor management
and franchisee generations change, resulting in litigation.
Some
lawyers have noted an increase in arbitration, and, in some instances
mediation, since some courts are much more in favor of alternative dispute
resolution. Where possible, courts are forcing individuals to try these methods
first.
In
Canada there seems to be a consensus that litigation levels have increased,
particularly in relation to class actions, which is a fairly new development in
this jurisdiction. Although there have not been an abundant number of class
actions held yet, there is definitely an increase on the horizon. As one
practitioner explained, “The franchising industry certainly lends itself to
class actions given that franchisees can come together with common grievances
against the franchisor.”
Disclosure
is another issue that has resulted in increased activity in the courts, with
reports of active franchisee lawyers “hunting for” potential cases. Five of
Canada’s provinces have now adopted the Franchise Act, which includes rules of
franchise disclosure documents, with Manitoba the most recent in October 2012.
According to one franchisor lawyer, “Franchisee lawyers know they can get an
easy win if there was no disclosure. If they find these cases, which they are
actively seeking, the question is not if but how much they will get.”
Similarly
in the UK there are reports of increasing litigation brought by franchisees
and, in tandem, a growing franchisee bar that exclusively represents them. This
is part of a larger trend noted by lawyers in such diverse jurisdictions as
California, Germany and South Africa, franchisees are becoming stronger. This
seems to be a result of, first, increased awareness by franchisees that they
have rights and can get legal help, and second, that there is much better
representation and organization of franchisees than ever before, with the
internet playing an important role.
About the author:
The Kosnar Group
litigation support team has provided attorneys and their clients with franchise
expert witness and litigation support services for years, with some of our
professionals having over 35 years of franchise experience. Our opinions are
valued by attorneys, clients, and triers of fact because we are professionals
who work exclusively in the franchise industry. We communicate and present our
positions in a fashion that attorneys, clients, judges, and juries can
understand.
CARL J. KOSNAR
MANAGING PARTNER
THE KOSNAR GROUP
PHONE: (619) 994-2258
FAX: (760) 632-0772
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