Customer Claims Against Franchisees: The Franchisor’s Liability

When turning an established business into a franchise, owners usually prepare service standards but do not always consider the implications of customer claims. Yet operating through a separate legal entity does not fully shield the franchisor from claims by the franchisee’s customers. A resilient franchise network needs an agreed process from the outset: who receives claims, who investigates the circumstances and who pays to settle valid claims.

When the franchisor is liable for a franchisee

In Russia, commercial concession arrangements—the legal framework used for franchising—are governed by Chapter 54 of the Russian Civil Code. Article 1034 is particularly important for customer claims: the rights holder bears subsidiary liability for claims against the user concerning inadequate quality of goods, work or services sold, performed or supplied under a commercial concession agreement.

Subsidiary liability is a secondary form of liability. Under the general rule in Article 399 of the Russian Civil Code, the claimant must first make a demand against the principal debtor, meaning the franchisee. If the franchisee refuses to meet the demand or fails to respond within a reasonable time, the claimant may pursue the rights holder. This does not mean that every complaint automatically obliges the franchisor to pay: the substance of the claim and the circumstances of the breach must be assessed.

For claims against a franchisee acting as a manufacturer of the rights holder’s products, Article 1034 provides for joint and several liability. In this case, the claimant may seek satisfaction from both parties together or from either one separately. This is a significant distinction for manufacturing-based franchises and should be considered when designing the franchise model.

If the customer buys goods or services for personal use, Russian Law No. 2300-1 ‘On Consumer Protection’ also applies. An agreement between the partners stating that ‘the outlet is responsible for everything’ does not, in itself, remove liability imposed by law.

Identify who sells what to the customer

Start by mapping customer transactions in your own business. For each sales model, identify the seller or service provider, the payment recipient, the product manufacturer and the documents used. Review orders through a shared website, deliveries, advance payments and sales through intermediaries separately.

It is important not to confuse the brand with the party to the transaction. Consistent branding across the network is no substitute for the required information about the actual seller or service provider. Check that the details on the till receipt, in the customer contract, on the ordering interface and at the outlet are consistent.

Create a working table:

• Transaction: exactly what the customer buys and where the order is placed.
• Parties involved: who sells, manufactures, delivers and takes payment.
• Evidence: where the order, receipt, acceptance record, correspondence and product information are stored.
• Claims routing: who receives the claim and who prepares the response.

This map helps expose risky gaps. For example, central customer support may promise a refund without access to the franchisee’s order records or authority to release its funds. It is easier to fix this process before the first franchisees join.

Establish a consistent claims-handling process

Customers should not have to understand the network’s internal roles to have their concerns accepted. Provide a clear complaints channel and a process for passing each claim to the responsible party. A shared customer support team must still make clear who the seller or service provider is.

Record the date received, outlet, order number, nature of the defect, remedy requested and supporting documents in the case record. Separately note the statutory deadline for meeting the specific demand. There is no single deadline for all claims: it depends on the nature of the purchase and the remedy sought.

A practical process might look like this:

1. A staff member receives the claim and preserves its original wording.
2. The person responsible checks the seller’s identity, the substance of the claim and the documents needed.
3. The franchisee provides the facts and proposes a solution.
4. A lawyer becomes involved where there is a risk of harm to health, a recurring defect or a claim made directly against the rights holder.
5. The response to the customer and evidence that the agreed action has been completed are saved in the case record.

Set an internal deadline for notifying the franchisor that is shorter than the deadline for responding to the customer. Arrange personal data transfers in accordance with Federal Law No. 152-FZ ‘On Personal Data’: establish the legal basis, the information needed and staff access rights.

Agree costs and cooperation in the contract

The contract’s purpose is not to rewrite customers’ rights, but to allocate responsibilities between the partners. Set out procedures for notifying each other of customer claims and legal proceedings, providing documents, helping to establish the facts and agreeing a response.

Make separate provision for the internal allocation of costs and possible reimbursement of amounts paid. The grounds should reflect the cause of the breach: the franchisee’s actions, an error in mandatory instructions, a defect in supplied goods or a combination of factors. Whether a particular sum can be recovered depends on the law, the contract and the evidence—not simply on a clause stating that ‘the partner bears all costs’.

Distinguish between the obligation to meet a lawful demand and a voluntary goodwill gesture. A gift or additional discount must not replace a refund required by law. Specify who may authorise such a gesture and who pays for it.

Test the process before bringing in franchisees

Run through several scenarios at a company-owned outlet: a substandard service, a defective product and a claim made directly to the brand owner. Test not how politely the team responds, but whether it can find the documents, identify the deadline and carry out the decision.

After the exercise, address specific gaps: missing access to orders, unclear customer support authority or lost refund confirmations. Use anonymised findings from real claims to improve products and instructions, not just to assess franchisees.

Practical takeaway: before selling a franchise, prepare a customer transaction map, a claims-handling process and contractual rules for cooperation. An internal agreement cannot remove liability to customers, but advance planning can make it manageable.