Franchising: Shared Services – Cause of Liability, or Not

A  jury in the case of ALASKA RENT-A-CAR, INC. v. AVIS BUDGET GROUP, INC. awarded an Avis franchisee $16 million in lost profits following the acquisition of the Budget Rent-A-Car by the Avis franchisor. At the heart of the case is a 1995 settlement agreement. Per the settlement agreement the Avis franchisor promised “the sales, marketing and reservation activities, operations and personnel of and for the Avis System will not be utilized to market, provide, and/or make available car rental services.” But in 2002, when Avis acquired Budget Rent-A-Car, Avis merged the marketing sales team of Avis and Budget into one team.
From an efficiency prospective the merger of the marketing teams makes sense. Sharing office space, equipment, management, personnel can save money- be more efficient. So, what is the issue? The concern is that under the shared services model, the franchisor’s personnel could potentially steer customers from one brand to another. Okay, that’s the concern, but can it lead to liability or actionable claims by franchisees?
In the case of ALASKA RENT-A-CAR, INC. v. AVIS BUDGET GROUP, INC. the liability stemmed from a contractual obligation, a contractual promise. In the absence of a contractual obligation, is there potential liability? Perhaps. Even if there is not a contractual provision that prohibits franchisors from sharing operations across brands, the franchisor could be exposed to possible liability. There would have to be evidence: Evidence that the shared services resulted in the diversion of business from one brand to another.
The liability could be based in a common law claim for ‘tortuous interference with contractual relationships.’ That is a mouthful. Trying saying that 10 times! Trying to prove a claim for tortuous interference with contractual relationships can be equally as challenging. Aside from the viability of such a claim, there are best practices that a franchisor can employ when utilizing a shared services model. Here are 3:
1. Formalize the shared service operations with a formal contractual relationship.
2. Develop policies and procedures to create separation between brands.
3. Create a plan for taking and investigating franchisee complaints.
Listen to the video blog regarding sister brands.

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