Franchise 101: Duty of Care; and Dog Days of Operations

Franchisor 101: Duty of Care

The Texas Supreme Court reversed a lower court’s decision against a franchisor based on a theory of negligence after a customer was assaulted by an employee of the franchisee. The court concluded that the franchisor did not owe a duty of care to the customer.

The Franchisor, Massage Heights Franchising, entered into a franchise agreement with MH Alden Bridge for a massage franchise. The franchise agreement provided that the franchisee was an independent contractor with sole responsibility for all employment decisions subject to two conditions: all massage therapists had to (1) be licensed by the state and (2) undergo an oral interview, a practical interview and a background check by a third-party provider. The franchisee hired Rubio as a massage therapist after he obtained his massage therapy license and passed his interviews and a background check.

The plaintiff was a regular customer of the franchisee. On the day of the assault, she requested Rubio as her massage therapist, unaware that another customer had complained to the franchisee that Rubio had assaulted her during a massage. Rubio assaulted the plaintiff during her massage. The plaintiff complained to the franchisee about the assault and a report of the assault was put into Rubio’s file. The plaintiff sued the franchisor, the franchisee, Rubio and the individual owners of the franchisee, alleging claims of assault and negligence.

The jury (i) found all defendants negligent, (ii) found a negligent undertaking by the franchisor, (iii) attributed 15 percent responsibility to the franchisor, and (iv) awarded exemplary damages. An appellate court upheld the lower court’s decision regarding the franchisor’s duty of care.

On appeal, the Texas Supreme Court analyzed whether the franchisor exercised control over its franchisee. A duty of care for another party’s work is owed if there is a contractual right to control the means, methods, or details of that work.

In this case, the franchise agreement expressly designated the franchisee as an “independent contractor” and the “sole operator” of its massage business. The franchise agreement made the franchisee solely responsible for all employment decisions, including hiring, firing, training, supervising, disciplining, record keeping, and personnel policies. This responsibility remained with the franchisee even if it received advice from the franchisor on these matters. As such, the court determined that the franchisor did not have a contractual right to control the franchisee’s hiring of the massage therapist.

The court also analyzed whether the franchisor exercised any actual control over Rubio’s hiring. Although the franchisor provided certain safety guidelines such as requiring the franchisees to conduct background checks, the court found that the franchisor did not have actual control over hiring. The court held that the lower courts erred in concluding that the franchisor owed the plaintiff a duty of care concerning Rubio’s hiring because there was no evidence of the right of control or actual control over the franchisee’s hiring decisions.

To avoid potential liability for the hiring practices of franchisees, franchisors should consult with counsel to ensure the franchise agreement does not impute the right to control franchisees’ hiring practices. Additionally, franchisors should consult with counsel to ensure their conduct does not amount to having actual control over franchisees’ hiring practices.

Massage Heights Franchising, LLC v. Hagman, 68 Tex. Sup. Ct. J. 755 (Tex. May 2, 2025)

Franchisee 101: Dog Days of Operations

A federal court in Missouri granted a franchisor’s motion for a preliminary injunction against its former franchisee, enjoining the former franchisee from operating a competing business from the former franchised location.

Three Dog Bakery, LLC is the franchisor of Three Dog Bakery stores that sell fresh baked goods for pets. The franchisor entered into a franchise agreement with the franchisee for the operation of a Three Dog Bakery in Arkansas. The franchise agreement provided that the franchisee was prohibited from operating a competing business within 50 miles of the franchise or any other franchised bakery for a period of two years from the termination of the franchise agreement.

The franchisee stopped buying products from the franchisor and began withholding royalty and marketing fee payments. The franchisor learned that the franchisee ceased operating the Three Dog Bakery franchise and was operating a competing business from the same location, serving the same customers. The franchisor’s trademarked logo still appeared above the storefront and on its door and the franchisee was using the franchisor’s proprietary information, including recipes and designs.

The franchisor filed a motion for preliminary injunction to stop the franchisee from violating the franchise agreement’s noncompete provision and using the franchisor’s confidential information, marks, equipment, and processes.

The court determined that a preliminary injunction was appropriate. The court weighed four factors: (i) the threat of irreparable harm; (ii) whether the balance of harms favored issuing a preliminary injunction; (iii) a likelihood of the franchisor’s success on the merits; and (iv) the public interest. The court found the second and fourth factors carried little weight in its analysis and, instead, focused on the first and third factors.

The court found that the franchisor would suffer irreparable harm in the form of lost customers and goodwill if the franchisee continued operating a competing business out of the same location as the franchise. The court also noted that there was evidence that the franchisee used the franchisor’s confidential information, including its signage, licensed marks, recipes, and product designs, which posed a threat of irreparable harm.

The court further found that the franchisor was likely to succeed on the merits of its breach of contract and misappropriation of trade secret claims, noting there was ample evidence suggesting the franchisee violated one or more provisions of the franchise agreement. The evidence presented showed that the franchisee stopped paying the required royalty and marketing fees, used the franchisor’s confidential information, and operated a competing business in violation of the franchise agreement. As such, the court concluded that the franchisor has at least a fair chance of prevailing on some of its claims.

Franchisees should be cautious and consult franchise counsel prior to operating a competing business from a former franchised location to evaluate any post-termination and noncompete provisions to ensure they are in compliance.

Three Dog Bakery, LLC v. Crit, Inc., No. 4:25-cv-00217-DGK (W.D. Mo. June 4, 2025)