Concerns Over Franchisors’ Use of Surveillance Video

Franchisors have utilized technology for many years to build and maintain their brands. Franchisors have used point-of-sale technology to track their customers’ buying trends, banking technology to streamline their franchisees’ payment of royalties, and social media to maximize their marketing efforts.  Most, if not all, of these uses have proven to be successful and have benefitted everyone in the franchise system, including the franchisor, franchisees and their customers.  However, a recent trend of using video surveillance is causing some to ask whether franchisors are going too far.

Specifically, franchisors in recent years have started requesting that surveillance cameras be installed in their franchisees’ places of business so they can monitor the actions of employees and customers.  While there are certain potential benefits that can be derived from this use of surveillance, there are also many concerns that should be considered and addressed before any surveillance plan is implemented.

Basis for Surveillance Requests

Franchisors are making these requests for surveillance pursuant to provisions commonly found in franchise agreements that require the franchisees to conduct their business in accordance with the then-current standards set forth by the franchisor.  These standards are usually found in the operations manual that can modified as often as the franchisor deems necessary.  These provisions allow for franchisors to continually improve their brand and the operations of their franchisees while maintaining the necessary continuity between locations.

These provisions are, or should be, concerning to franchisees because they are requiring compliance with standards that are unknown to the franchisee at the time the franchise agreement is executed.  Franchisees commonly oppose new requirements to the extent they constitute material changes and/or are costly to implement.  However, these provisions are generally enforceable to the extent the franchisor can demonstrate a reasonable basis for the new standard and the change furthers a legitimate business interest and/or is designed to improve the franchise system.

Risks of Requiring Surveillance

Franchisors should be concerned if they are using the surveillance to oversee their franchisees’ employees because this oversight can be used as evidence to support a claim by the employees that the franchisor is a joint-employer.  Specifically, when employees sue franchisees for violations of Title VII, the Fair Labor Standards Act, or other labor laws, many employees are now including claims against the franchisor claiming it is a joint-employer.  The current standard of determining whether a franchisor is a joint-employer, as set forth in the National Labor Relations Board’s 2015 Browning-Ferris Industries decision, is whether the franchisor possesses the actual or potential authority to exercise control over the franchisee’s employees, regardless of whether the control is in fact ever exercised.  To the extent Franchisors are overseeing the franchisee’s employees with the surveillance cameras, the employees would have a strong argument that the franchisor possesses control over the employees. (If there was no control, then why would the franchisor be observing their actions?)

Franchisors should also be concerned with their customers’ reactions if they discover they are being watched while shopping in the franchisees’ places of business.  While customers do not have any legal expectation of privacy while they are shopping in a public business, they might be personally offended by the surveillance and decide to take their business elsewhere.  Today, more than ever, privacy is a critical issue for consumers.  Just ask Facebook and other online retailers who tracked their members’ and/or customers’ online habits for years without their knowledge.  Once these actions were disclosed and became public knowledge, Facebook and these online retailers experienced severe backlash from their members and/or customers.

Recommendations

Franchisors should carefully consider the risks and benefits associated with implementing a surveillance plan.  To the extent franchisors believe the benefits outweigh the risks, they should try and limit any potential exposure by disclosing their use of the cameras to employees and customers and include disclaimers in employee agreements and franchise agreements stating that they are not using the surveillance to direct, guide or control employees.  LegalStandard.com strongly suggests that any surveillance plan be reviewed by an attorney with experience in franchise and employment law.  Our attorneys can review and advise clients regarding a surveillance plan for as little as $295.00.