Mucho Tacos, Inc, sells franchises. Mucho Tacos imposes on its franchisees standards of operation and personnel training methods. What is the potential pitfall to Mucho Tacos if it exercises too much control over its franchisees?

Answer 1

A provision in a franchise agreement permitting the franchisor to establish and enforce certain quality standards is valid and unquestionable. A franchisor has a legitimate interest in maintaining the quality of its products or services to protect its name and reputation.
But too much control over the operations of its franchisees risks potential liability. For example, under the doctrine of respondeat superior, the exercise of too much control may result in the franchisor's liability for the torts of a franchisee's employees. That is, if the franchisor has a right to control the franchisee's operations and exercises this right to a significant degree, and an employee under this control acts in a tortious or criminal manner that results in an injury to another, the franchisor may be held vicariously liable.

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