Are franchisors liable to franchisees for the negligent or otherwise improper conduct of suppliers recommended by the franchisor?
Depending on the language and requirements in the franchise agreement, franchisors may be liable for the conduct of suppliers in certain cases. It depends on whether the franchisor has required that its franchisees purchase from that specific supplier, and whether the product or service is significant to the operations of the franchise in some quantifiable way. If the answer to these two questions is yes, there’s a greater chance that inadequate or defective business conduct of the supplier could form a basis for liability against the franchisor. The theory behind such a case rests on the franchisor’s prolific claims that it is uniquely qualified to develop and enforce vendor standards required for the successful operation of its franchisees. Given these claims, the franchisor’s failure to identify and prevent the unreasonable conduct of vendors would fly in the face of the franchisees’ reasonable expectations in this regard. Such a case is even stronger if the franchisor accepts rebat
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