Is it possible for a franchisor to be held liable for racial discrimination against a franchisee’s shareholders? In a case out of the 4th Circuit, the Court said NO. The case was Beasley v. Arcapita, Inc. Beasley, an African-American franchisee shareholder, alleged the franchisor committed racial discrimination by not allowing the franchise business to the sell pork. Under the court’s rationale, the franchise shareholders did not sign the franchise agreement personally and therefore the shareholder could not claim discrimination under the franchise agreement.
The court was not persuaded by the fact the shareholder signed a personal guaranty. The signing of a guaranty by the shareholder still did not render the shareholder a party to the franchise agreement. Without being a party to the franchise agreement, the shareholder could not sustain a claim against the franchisor for discrimination.
Racial discrimination cases are not unique in the franchise industry. The 4th Circuit has legal precedent for its decision. The U.S. Supreme Court in 2006 came to the same conclusion in Domino’s Pizza, Inc. v. McDonald. While the courts in both the 2006 and present day case denied franchisor liability, discrimination remains a hot bottom topic and should be held with utmost care. The courts have, with greater frequency, treated corporations and other business entities as individuals under the law.
In addition, looking at the case inversely, franchise agreements are not infrequently entered into by individuals and not business entities. In the case of an individual franchisee, couldn’t a discrimination case clearly be made against the franchisor? Further, some franchisor’s standard franchise agreements call for both the franchise business entity and the individual franchisee shareholder to sign the franchise agreement itself instead of the franchisee shareholders signing a separate personal guaranty. Again, wouldn’t an individual franchise shareholder signing of the franchise agreement itself open the door for franchisor discrimination claims?
Lesson from the court: Corporations are not people and thereby are not always afforded the same protections as individuals.