For franchisors, protecting the brand is essential. But when does protecting the brand and maintaining brand standards become exercising too much control over the franchisee’s business? A recent New York appellate decision highlights why that distinction matters.
Franchising allows a company to expand its brand without directly owning and operating every location. The franchisee typically establishes and independently operates the business, employs its own personnel and assumes responsibility for day-to-day operations. But when a franchisee’s conduct allegedly causes injury to a third party, plaintiffs may look to the franchisor as the deeper pocket and seek to hold the franchisor vicariously liable for the franchisee’s acts or omissions.
A recent decision from the New York Supreme Court, Appellate Division, Second Department – – Manning v. Budget Rent A Car, 241 A.D.3d 676, 241 N.Y.S.3d 295 (2d Dep’t 2025) – – provides an important reminder for franchisors: while an independent contractor provision is an essential component of a franchise agreement, it may not, by itself, shield a franchisor from being held vicariously liable for a franchisee’s acts or omissions.
The analysis may ultimately depend on what the franchisor actually did.
The Manning Decision
Manning arose from a motor vehicle accident involving a vehicle owned by Tropic Island Trading Company Limited. Tropic had entered into an International Unit Franchise Agreement with Budget Rent A Car.
The plaintiffs sued Budget and others for personal injuries arising from the accident. Budget moved for summary judgment, arguing, among other things, that it could not be held vicariously liable for Tropic’s alleged negligence.
The trial court denied the motion, and the Second Department affirmed.
The Appellate Division reiterated the established New York rule that, absent proof of a principal/agency relationship or proof that a franchisor exercised a sufficiently high degree of control over its franchisee, there generally is no basis for holding a franchisor responsible for the franchisee’s misconduct. The court cited Friedler v. Palyompis, 12 A.D.3d 637 (2d Dep’t 2004), as well as Stern v. Starwood Hotels & Resorts Worldwide, Inc., 149 A.D.3d 496 (1st Dep’t 2017), and Fogel v. Hertz International, 141 A.D.2d 375 (1st Dep’t 1988).
Importantly, however, the court did not hold that Budget was vicariously liable. Instead, it concluded that Budget’s submissions failed to eliminate triable issues of fact concerning whether an agency relationship existed or whether Budget exercised the requisite degree of control over Tropic’s operations.
That distinction is important for franchisors.
The Agreement Is Only Part of the Story
Franchise agreements commonly state that the franchisee is an independent contractor and expressly disclaim any agency relationship. Those provisions are an important part of establishing the parties’ intended relationship and protecting the franchisor from vicarious liability.
But when a vicarious liability claim arises, the analysis may extend beyond the language of the agreement. A plaintiff may argue that the parties’ actual conduct demonstrates a relationship different from the one independent contract relationship described in the agreement.
The practical question becomes: What did the franchisor actually do?
What did it require? What did it monitor? What did it approve? What authority did it retain?
And, most importantly, did the franchisor’s conduct remain within the legitimate bounds of protecting its brand and maintaining brand standards, or did it cross the line into controlling the franchisee’s day-to-day business operations?
Brand Standards vs. Operational Control
This distinction is particularly important because franchisors necessarily exercise some degree of control over their systems. Brand standards are fundamental to franchising.
A franchisor may impose requirements concerning trademarks, customer experience, facilities, equipment, technology, training, quality, safety and legal compliance. These requirements do not, by themselves, transform a franchisee into the franchisor’s agent. The potential problem arises when the franchisor’s involvement moves beyond establishing and enforcing system standards and begins to resemble direct management of the franchisee’s business.
For example, there may be a meaningful distinction between requiring a franchisee to maintain vehicles in accordance with specified safety or brand standards and directing the franchisee’s employees regarding the day-to-day operation or maintenance of those vehicles. Similarly, there is a distinction between inspecting a franchise location for compliance with system standards and directly supervising the franchisee’s employees or managing the franchisee’s daily operations.
Where the line is drawn will depend on the particular facts and circumstances of the franchise relationship.
Accordingly, franchisors should not assume that an independent contractor provision will, by itself, resolve the issue. The contractual language matters, but so does the franchisor’s conduct in practice.
Four Steps Franchisors Should Consider
Manning offers franchisors an opportunity to take a step back and examine not only what their franchise agreements say, but also how their franchise systems operate in practice. A few considerations are particularly important:
1. Review the franchise agreement.
The agreement should clearly define the parties’ respective roles and responsibilities and expressly address the independent contractor relationship. It should appropriately allocate responsibility for employees, operations, compliance, insurance, vehicles, premises and other matters that belong with the franchisee.
2. Compare the contract to reality.
A franchisor should periodically consider whether its actual day-to-day practices are consistent with the relationship established in the franchise agreement. Do field personnel make decisions that should belong to the franchisee? Do communications inadvertently suggest that the franchisor is directing employees or managing operations?
3. Document the purpose of system standards.
Franchisors should be able to explain why particular requirements exist. Whether a standard is designed to protect trademarks, maintain consistency, satisfy regulatory requirements or promote customer safety, documenting its legitimate business purpose can help distinguish brand oversight from operational control.
4. Address liability before litigation.
Vicarious-liability issues should be considered as part of franchise-system management, not only after an accident or lawsuit occurs. Operating manuals, training materials, inspection procedures, field-support practices and franchisee communications should be reviewed periodically with these issues in mind.
The Bigger Franchise Law Lesson
Manning does not suggest that franchisors are automatically responsible for their franchisees’ negligence. Nor does it suggest that ordinary system standards create an agency relationship. Instead, it illustrates a practical lesson: a franchisor’s potential liability may depend not only on what the franchise agreement says, but also on what the franchisor actually does.
The goal is not to eliminate franchisor oversight. Effective franchise systems require meaningful standards, monitoring and brand protection. The key is to structure those controls carefully so the franchisor can protect the system without assuming responsibility for the franchisee’s independent business operations.
Ultimately, Manning v. Budget Rent A Car is a useful reminder that vicarious liability is not simply a litigation issue – – it is also a franchise system design issue. Accordingly, the best time to examine the line between protecting the brand and controlling the business is before that line becomes the central issue in a lawsuit.
************
If you have questions about where to draw the line between protecting your brand and exercising too much control over a franchisee’s business, contact us to see if we can assist you. Call Michelle Murray-Bertrand, Esq. at 212-755-3100 or [email protected].
*Attorney advertising. © 2026 KAUFMANN GILDIN & ROBBINS • ALL RIGHTS RESERVED. Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.