In the Matter of the Estate of Stephanie Anderson v. Denny’s Inc., et al. (U.S. District Court, D. New Mexico, November, 2013), an employee was killed during a robbery at the restaurant. The court denied Denny’s motion for summary judgment and held that the issue of whether Denny’s, as the franchisor, was vicariously liable for the franchisee’s failure to provide a safe working environment would be submitted to the jury to determine. The court’s reasoning was there were many factors that could potentially demonstrate that Denny’s had control over the franchisee’s operations. These included (i) a royalty requirement based on sales; (ii) reporting requirements; (iii) requirement to adhere to System standards and attend training, (iv) required approval for site development, construction and remodeling; (v) Denny’s had the right to enter premises to protect its Proprietary Marks; (vi) the right by Denny’s to perform periodic inspections of the restaurant; (vii) requirement to use certain food vendors; (viii) the right terminate to the franchise agreement if franchisee does not comply with System standards; (ix) the right of Denny’s to purchase the business at fair market value upon the termination of the Franchise Agreement; (x) operating hours requirement; and (xi) employees had to adhere to Franchisor’s requirements regarding appearance.
Based on these above factors, the district court concluded that it could not decide, as a matter of law, that the franchisor did not have control over the franchisee’s operations. What is startling about this opinion is that the court relied on factors which are commonly found in many franchise agreements. This analytical framework, if adopted by other courts, would essentially make it impossible for franchisors to have vicariously liability claims dismissed on summary judgment. In this case, if the jury does find that Denny’s is vicariously liable for the franchisee’s failure to maintain a safe working environment, it would send shockwaves throughout the franchise industry, and would have franchisors re-evaluating their franchise agreements.