The Franchise Memorandum

In another form of vicarious liability case, a court in Idaho granted summary judgment in favor of a franchisor and its corporate parent, after an employee of a franchised Taco Bell restaurant was accused of giving automatic discounts to white military customers but not to military members of color. McKinnon v. Yum! Brands, Inc., 2017 WL 3659166 (D. Utah Aug. 24, 2017). The plaintiffs, members of the Army National Guard, alleged that they went to the franchised restaurant with a group of other military members that included four Caucasians. Only after the group members had purchased their food did they notice the cashier had given a 50% “Police Officer” discount to the four Caucasians but none to plaintiffs. The Caucasians had not asked for the discount.

The franchisee argued that the discounts were given by mistake because the restaurant’s policy was not to give the “Police Officer” discount to military members and not to give it unless requested by the customer. The court refused to weigh witness credibility and found sufficient evidence for claims against the franchisee to survive. However, regarding the vicarious liability and apparent authority claims against the franchisor, the court applied the specific instrumentality test, deferred to the franchise agreement, and observed a lack of evidence showing control by the franchisor over the application of discounts or the training or discipline of the franchisee’s employees. While the plaintiffs argued that the franchisor’s branding and marketing established an expectation of agency, the court found no representation by the franchisor upon which the plaintiffs could have relied in forming a belief that the franchisor would prevent discriminatory practices. Going further, the court found that “‘a person of ordinary prudence, conversant with the business usages and the nature of’ chain businesses is not justified in believing a franchisor has control over any substantial aspect of the day-to-day operations of any particular franchise.”