Expanding Franchisor Liability Under the TCPA

Posted on Blog, Franchise Law News, News About ZESB November 11, 2016

Franchisors and franchisees often work closely together to develop and/or implement various business strategies and marketing/advertising campaigns for the benefit of the franchise system. Some of these strategies and campaigns can be controlled largely by the franchisor, who seeks to ensure brand uniformity. That being said, because the franchisor is the one that will often have more control over the brand marketing, issues can arise regarding who is liable when the marketing campaign or advertising strategy violates a law, such as the Telephone Consumer Protection Act, commonly referred to as the “TCPA.”

The TCPA was enacted in 1991 for the purpose of protecting consumers from unsolicited telemarketing calls and faxes—and most recently text messages. 47 U.S.C. § 227. The TCPA regulates and restricts the manner in which businesses may advertise their products and services to consumers by phone as well as by text message and fax. Specifically, the TCPA prohibits the use of an “automated telephone dialing system” or an “artificial or pre-recorded voice” to make calls to cellphones without obtaining the recipient’s prior consent. This rule applies to both telemarketing and non-telemarketing calls, including debt collection and informational calls.

Following a change in FCC regulations in October 2013, the TCPA now also requires prior written consent for most automated telemarketing communications, particularly those made to cellphones. See Dish Network Order, 28 F.C.C.R. 6574 (2013). Because the franchisor-franchisee relationship can exist with varying degrees of control, it is important for both the franchisor and franchisee to be aware of potential TCPA violations that may result from the franchise system’s marketing campaigns.

In recent cases, courts have begun to interpret the Dish Network Order and explain what this change in FCC regulations means on a practical level. For example, earlier this year the Sixth Circuit rendered a decision clarifying who is responsible when an advertisement violates the TCPA. Siding & Insulation Co. v. Alco Vending, Inc., 2016 WL 2620507 (6th Cir. May 9, 2016). In this case, the defendant hired an ad agency to send advertisements to consumers and these advertisements ended up violating the TCPA. The defendant argued that, although it did retain an ad agency to send faxes to businesses, it could not be liable under the TCPA because it only retained the ad agency to transmit the faxes to consenting businesses and had never authorized transmission of faxes to non-consenting businesses, including the plaintiff’s.

In making its ruling, the Sixth Circuit held that the proper standard for evaluating the defendant’s conduct was based on the FCC’s regulations that impose liability on the entity “on whose behalf” a fax is sent. In choosing that standard, the Court analyzed and declined to apply two other standards that were presented by the parties: (i) a strict liability standard, and (ii) a vicarious liability standard.

Under this decision, a direct agency relationship, where the franchisor exercises control over, or has the right to control, a particular marketing campaign, may render the franchisor vicariously liable for any resulting TCPA violations of the franchisee.  However, if there is no such control, a plaintiff must overcome the high hurdles of demonstrating both a manifestation of authority in the franchisee by the franchisor, reasonable reliance on such manifestation, an underlying agency relationship between the franchisor and franchisee, and the franchisor’s profit from the telemarketer’s conduct.

The attorneys at Zarco, Einhorn, Salkowski & Brito are experienced in TCPA violations. If you have been charged with a violation or believe that your current or prospective marketing plan may result in violation, please contact the attorneys of Zarco, Einhorn, Salkowski & Brito for a consultation.

Michael Braunstein
Law Clerk

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