Moral hazard, path dependency, and failing franchisors: mitigating franchisee risk through participation
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Date
2019-04-01
Authors
Gant, Jennifer L. L.
Buchan, Jenny
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Sage Publications
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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.
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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
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© The Author(s) 2019. Published by Sage in Association with The Australian National University. Reprinted by permission of SAGE Publications.