Who Is Legally Responsible for a Franchise’s actions in Michigan?

The opportunity to run a franchise can be an ideal option when you want to own a business but have concerns about the risks involved. Instead of requiring you to start a business from scratch, a franchise connects you — the franchisee — with a larger company, or franchisor. Both franchisor and franchisee are partners in each other’s success.


In the typical franchise agreement, the franchisor agrees to allow the franchisee to use the franchisor’s intellectual property to operate a small business in a designated territory. In turn, the franchisee sells the franchisor’s product or service under the franchisor’s name and brand in that territory. This generates revenue not only for the franchisee but also for the franchisor.


Take a closer look at what this arrangement means for legal responsibility in Michigan.


Legal Responsibility for a Franchise

Just because the franchisor and franchisee have a stake in the franchise’s success overall does not mean they share legal responsibilities. Here is how legal responsibility for a franchise works in Michigan for common scenarios.


IP Infringement

Because the franchisor owns the franchise’s intellectual property rights, the franchisor usually addresses any IP-related issue. This includes taking action against intellectual property infringement and responding to allegations that the franchise has engaged in IP infringement.


For example, if a competing business opens up near the franchise and uses a logo similar to the franchise’s, the franchisor’s intellectual property has been infringed. The franchisee does not own any of the franchisor’s intellectual property and simply has the legal right to use it. In this case, the franchisor would sue the competing business.


Compliance With Tax Laws, Employment Laws, and Building Codes

Because the franchisee oversees the day-to-day running of the franchise, the franchisee is responsible for complying with state employment laws, including tax and withholding laws. For example, If a franchisee fails to pay an employee the state’s minimum wage, then the employee has the ability to sue the franchisee.


However, the employee would not be able to sue the franchisor. The franchisor would bear legal responsibility only in unique cases where the franchisor exercises control or direction over these aspects of the franchise’s operations.


Personal Injuries or Business Claims

It can be confusing to know who to sue in a personal injury accident at a franchise or after a franchise employee commits a negligent act. The franchisee is responsible for their employees, but the franchisor may have some liability as well.


In this situation, legal responsibility depends on how much control the franchisor exercises over the franchise’s operations.


For example, suppose that the franchisor demands that the franchise produce a burger using a specific device operated in a specific manner. If the franchise’s employees are following these instructions and someone gets injured, then the franchisor could be liable for those injuries, rather than the franchisee.


For business claims, it depends which party acted to create, or breach, the business transaction at issue.  Since the franchisee usually is the party that runs the business operations, it is typically the franchisee who is responsible. Only in cases where there is a relationship with the franchisor that the franchisor would be responsible.


Consulting a Franchise Law Attorney Is Key

Whenever a business causes injury or damages to an employee, customer or vendor, determining who is liable for those injuries or claims can be complicated in Michigan. This is especially true in situations involving a franchise, where multiple entities have varying levels of responsibility and interest in the business.


An experienced Michigan franchise law attorney can evaluate your situation and accurately determine who the proper party to sue is.


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