Jentz-11e Appendix I: Sample Answers for End-of-Chapter Questions with Sample Answer

Chapter 35: Sole Proprietorships and Franchises

35–2. Question with Sample Answer

National Foods, Inc., sells franchises to its fastfood restaurants, known as Chicky-D’s. Under the franchise agreement, franchisees agree to hire and train employees strictly according to Chicky-D’s standards. Chicky-D’s regional supervisors are required to approve all job candidates before they are hired and all general policies affecting those employees. Chicky-D’s reserves the right to terminate a franchise for violating the franchisor’s rules. In practice, however, Chicky-D’s regional supervisors routinely approve new employees and individual franchisees’ policies. After several incidents of racist comments and conduct by Tim,a recently hired assistant manager at a Chicky-D’s, Sharon, a counterperson at the restaurant, resigns. Sharon files a suit in a federal district court against National. National files a motion for summary judgment, arguing that it is not liable for harassment by franchise employees. Will the court grant National’s motion? Why or why not?

Sample Answer:

The court would likely conclude that National Foods was responsible for the acts of harassment by the manager at the franchised restaurant, on the ground that the employees were the agents of National Foods. An agency relationship can be implied from the circumstances and conduct of the parties.The important question is the degree of control that a franchisor has over its franchisees. Whether it exercises that control is beside the point. Here, National Foods retained considerable control over the new hires and the franchisee’s policies, as well as the right to terminate the franchise for violations. That its supervisors routinely approved the policies would not undercut National Foods’ liability.