Moral hazard, path dependency, and failing franchisors: mitigating franchisee risk through participation

Gant, Jennifer L. L.; Buchan, Jenny

Moral hazard, path dependency, and failing franchisors: mitigating franchisee risk through participation

Files

9857.pdf(311.15 KB)

Accepted version

Date

2019-04-01

Authors

Gant, Jennifer L. L.

Buchan, Jenny

Publisher

Sage Publications

Published Version

10.1177/0067205X19831841

Abstract

Employment relations are well understood. Business format franchising is a newer and rapidly evolving business expansion formula, also providing employment. This article compares the fates of employees and franchisees in their employer/franchisor insolvency. Whereas employees enjoy protection, franchisees continue to operate in conditions that have been described as Feudal. We identify the inherence of moral hazard, path dependency and optimism bias as reasons for the failure of policies and corporations laws, globally, to adapt to the franchise relationship. This failure comes into sharp focus during a franchisor’s insolvency. We demonstrate that the models of participation available to employees in the United States, Australia and the United Kingdom could be used to inform a re-balancing of the franchisees’ relationship with administrators and liquidators during the insolvency of their franchisor, providing franchisees with rights and restoring their dignity.

Keywords

Franchising , Franchise , Agency theory , Insolvency

Citation

Gant, J. L. L. and Buchan, J. 'Moral Hazard, Path Dependency and Failing Franchisors: Mitigating Franchisee Risk Through Participation', (2019) Federal Law Review, In Press, doi: 10.1177/0067205X19831841