Business Law

Business Law Annual Review 2017

Despite Successes in Fending Off Claims Based on Actual Authority, Franchisors Still Face Difficulties in Defending Claims Based on Ostensible Authority

Charles G. Miller

Charles G. Miller is a trial attorney, mediator, and arbitrator with Bartko, Zankel, Bunzel & Miller in San Francisco, California. He is a Certified Specialist in Franchise and Distribution Law and has served on the State Bar Business Section’s Franchise Law Committee on several occasions.

The recent settlement last year of a class action against McDonald’s Corp. for $3.75 million based on claims that McDonald’s Corp. was liable for Labor Code violations of its franchisee brings home the dilemma that many franchise companies are facing. See, http://www.reuters.com/article/us-mcdonalds-settle-ment-idUSKBN12V1NJ, an October 31, 2016 Reuters article describing the settlement in Ochoa v. McDonald’s Corp. The settlement is the culmination of a disturbing trend in franchise vicarious liability cases that has emerged in the past several years, where the courts have blindly accepted ostensible authority arguments to defeat what should have been summary judgment motions in the franchisor’s favor on the issue of ostensible authority. This article briefly discusses the legal landscape and offers possible drafting solutions to the business lawyer.

The Legal Landscape

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