Canada: Ontario Court Confirms Limited Applicability Of Vicarious Liability In Franchising

The recent decision of Jogia v. RE/MAX Ontario¹ confirms that it will only be in exceptional circumstances that a franchisor will be found to be vicariously liable for the actions of its franchisees. 

Background

In RE/MAX Ontario, the plaintiff claimed that the franchisor was vicariously liable for the wrongful conduct of the franchisee and its representatives, including breach of contract, breach of fiduciary duty, and negligence.² The alleged wrongful conduct stemmed from the actions of the franchisee in providing real estate services to the plaintiff.³

The plaintiff argued that the franchisor exercised substantial control over the day-to-day operations of the franchisee and that the franchisor established business standards for franchisees but failed to take reasonable steps to enforce them.⁴

Decision

The defendant franchisor brought a motion for summary judgment dismissing the claim against them. The motion was granted. This was despite the fact that the litigation would continue against the franchisee, making this an important recent example of an Ontario Court granting partial summary judgment despite the tide of appellate case law that cautions against it.

On the merits of the vicarious liability issue, the Court rejected the plaintiff's argument that an agency relationship existed between the franchisor and franchisee. The decision clearly distinguished the classic employer/employee application of vicarious liability from the contractual relationship that exists between a franchisor and franchisee.⁵

The Court looked to the terms of the franchise agreement to support its finding that there was no evidence of an agency relationship. Though the language of the agreement was not determinative, it was a relevant factor in assessing the nature of the relationship between the franchisor and franchisee.⁶ The Court interpreted the terms of the agreement as limiting the franchisor's role in operational matters to protecting the system/brand.⁷ There was no evidence of interference with the franchisee's day-to-day business operations.⁸

However, the Court commented that there may be circumstances where a franchisor might be held vicariously liable for the acts or omissions of its franchisee.⁹ This portion of the Court's analysis suggests that these circumstances would be exceptional and rare.

Importance to Franchise Systems

Jogia v. RE/MAX Ontario is an important confirmation of one of the bedrock features of the franchise business model.  In the absence of exceptional circumstances, franchisors will not be liable for the acts or omissions of its franchisees.

Footnotes

[1] 2020 ONSC 733.

[2] RE/MAX Ontario, at para. 25, 27.

[3] RE/MAX Ontario, at para. 23.

[4] RE/MAX Ontario, at paras. 28-29.

[5] RE/MAX Ontario, at para. 38.

[6] RE/MAX Ontario, at para. 41.

[7] RE/MAX Ontario, at para. 49.

[8] RE/MAX Ontario, at para. 49.

[9] RE/MAX Ontario, at paras. 44.

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