Franchising & Distribution Law Blog

On September 16, 2014, the Franchise and Business Opportunity Project Group of the North American Securities Administrators Association (“NASAA”) adopted a Multi-Unit Commentary (“Commentary”) that affects the disclosure of multi-unit franchise development, including traditional area development, subfranchising and area representative arrangements. This guidance must be adopted by franchisors within 120 after the fiscal year end of a franchisor with an effective Franchise Disclosure Document (“FDD”), or within 180 days for a new franchisor. Compliance with the Commentary may dramatically alter a multi-unit franchisor’s cost of compliance due to the way in which NASAA addresses one type of multi-unit development arrangement: the area representative.

In a closely watched case with far-reaching implications, the California Supreme Court determined that Domino’s Pizza, the franchisor, should not be held liable for the alleged sexual harassment by an employee of one of its franchisees. The lengthy, well-reasoned decision gave great weight to the contemporary realities of the franchise business model and the unique nature of franchising. Noting how franchising has become such an important and thriving part of our economy, the Court followed the modern, enlightened view and rejected the reasoning of the old line of cases that found a franchisor vicariously liable for acts of its franchisees based on the degree of control they exercised over their franchisees.