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When Managers Go "Rogue": Franchise & Employment Law Implications

Franchise Litigation Attorney Matt Soroky Employment Defense Lawyer Tal Yeyni


by Matthew J. Soroky & Tal Burnovski Yeyni

What should an employer do when an employee violates Company policies or when the employee’s actions reflect poorly on the Company? Most employers use disciplinary actions – anything between verbal warnings  on up to termination.  

But what if a Company has a manager who behaved in serious misconduct? Take for example Tesla CEO Elon Musk, who, as part of a Twitter feud used a disparaging remark against a British volunteer that participated in a Thai rescue mission. While Tesla’s board apparently overlooked the incident, Tesla investors implored the CEO to apologize, take a “Twitter sabbatical” and focus on production.

In today’s #MeToo and social media protests, many companies stopped shielding “rogue” managers and require strict policy compliance from all.   

Managerial Behavior Company Policy

Intel’s CEO recently resigned after an ongoing investigation confirmed he had a consensual relationship with an Intel employee which violated Intel’s non-fraternization policy. And Papa John’s founder John Schnatter stepped down as CEO following controversial remarks on the NFL, and later as chairman of the board after he reportedly used a racial slur during a conference call. Eventually Schnatter was barred from entering company headquarters. 

As the Papa John’s saga goes from bad to worse, the lesson to be learned is that an entire brand can suffer from the company figurehead’s poor judgment. Predictably Papa John’s revenue stream from sales-based royalties has dwindled, but declining sales have especially left their franchisees in a lurch. Removing Schnatter’s likeness from the Papa John’s logo trickles down to each business owner, who signed franchise agreements promising to adopt the franchisor’s new trademark on its signage, pizza boxes and other branded products at their own expense. 

As the Jack in the Box E. coli outbreak 25 years ago taught us, it can take many years, substantial resources and some clever marketing for a franchise system to recover from bad press. But when it results from a “rogue” executive’s actions, much less a franchisor’s immediately recognizable figurehead, the task is that much more daunting.

Holding managers accountable not only enhances public confidence in a Company, but also demonstrates to employees and franchisees that policies are enforced and compliance monitored. All are equal before company laws.  

Matthew J. Soroky and Tal Burnovski Yeyni are litigation attorneys in our Franchise & Distribution and Employment Practice Groups.


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