A recent Texas Supreme Court decision fully overturned a jury’s finding that a franchisor was liable for the criminal actions of a franchisee’s employee. This decision underscores the importance of a franchisor having clearly written franchise agreements. It also reinforces the importance of a franchisor setting and enforcing brand standards but keeping certain separation from its franchisees and franchisee employees.
General Overview
In Massage Heights Franchising, LLC v. Hagman, a customer was sexually assaulted by a massage therapist employed by an independently owned and operated location of the “Massage Heights” brand. The customer subsequently sued the therapist, his employer/the franchisee of the location and the franchisor, among others.
A jury found each defendant liable of negligence and also found a negligent undertaking on the part of the franchisor. The jury awarded the customer $1.5 million in actual damages and $1.8 million in exemplary damages, with 15% responsibility attributed to the franchisor. In aggregate, this amounted to the franchisor being liable to the customer for $495,000 in damages.
The court of appeals subsequently overturned the exemplary damages award on account of a Texas state law that bars the imposition of such damages from another’s criminal conduct. The jury’s verdict was otherwise left undisturbed.
Analysis
Of primary concern to the Texas Supreme Court was whether the franchisor owed a duty of reasonable care to the customer of its franchisee. Based on the circumstances presented in this case, the Texas Supreme Court found in the negative.
Under Texas law, a company generally does not have a duty to ensure that its independent contractor performs work in a safe manner. Nevertheless, when a company sufficiently controls the work (and does not merely have a general right of control), it may be found responsible for injuries that stem from its failure to properly oversee performance.
A finding of “sufficient control” may be based on either: (1) express, unambiguous contractual terms on the matter or (2) an actual exercise of authority. Neither form of “sufficient control” was present here. The Texas Supreme Court focused on whether the franchisor had specific control “over the injury-causing conduct,” i.e., the hiring of the massage therapist in the first place, and found that the franchisor did not have the requisite control.
From the contractual perspective, the franchise agreement specified that the franchisee was the “sole operator” of the location and was “solely responsible for all employment decisions” irrespective of any advice or guidance provided by the franchisor. The franchise contract also specified that it was the franchisee, and not the franchisor, that was responsible for the safety of customers. Accordingly, the franchisor did not have the contractual right to control the hiring of the massage therapist.
Similarly, and in line with the duties and obligations set forth in the franchise agreement, the franchisor did not exercise actual authority over the hiring of the massage therapist. The fact that the franchisor previously issued “safety guidelines,”[1] and that the operations manual set forth a process of training therapists, did not constitute the exercise of actual control. There was also no evidence that the risk of sexual assault unreasonably increased on account of the “safety guidelines” issued by the franchisor. Liability could therefore not exist on this basis either.
Takeaways
Franchisors doing business in Texas and elsewhere should have clear language in their franchise agreements that delineates duties and responsibilities, including, without limitation, those pertaining to employment matters. Murky language could be used by a court to hold a franchisor liable for things that should be squarely in a franchisee’s purview.
Franchisors should also adhere to setting and enforcing brand standards. Action that goes beyond such conduct may be used by a court to support a finding of specific control and, by extension, liability.
[1] The guidelines mandated, among other things: (1) a background check on all potential therapists, (2) a particular method of draping, (3) the manner of training therapists and (4) the way that therapists should interact with customers.
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