Are you Assuming Unnecessary Risks Associated with Franchisee Email Accounts?

Franchising World March 2013

By Amy Cheng  

Email as a method of communication is no longer optional, it is a necessity. Franchisees must be required to have, or be assigned, business email accounts to operate their businesses. To maintain brand consistency, it is in the franchisor’s interest that franchisees use email addresses that contain the franchisor’s domain name. To that end, franchisors typically assign email addresses to their franchisees and require their franchisees to use these email addresses in connection with the operation of the franchise. What are the ramifications of assigning franchisees email addresses that belong to the franchisor? Do franchisees have privacy rights with respect to these email accounts? Do franchisors have an obligation to monitor email activity or analyze the content of outgoing email? In the event of litigation, do franchisors have an obligation to produce emails sent from or to these accounts? Knowing the answers to these questions may enable franchisors to avoid significant liabilities.

Privacy While it is becoming widely accepted that employees have little or no expectation of privacy in their work email accounts, it is unclear whether franchisees do. Franchisors are not employers of franchisees and operations manuals are often silent regarding assigned business email accounts. Consequently, if franchisors search the assigned email accounts, franchisees may have claims under the Stored Communication Act or SCA, which creates a cause of action for unauthorized access to emails that are similar to a claim for trespassing on property or for common law invasion of privacy. The SCA has an exception that exempts searches performed by “providers” of the email account. However, there is a split on whether a franchisor falls under that exemption if its business email accounts are hosted by a third party, such as Go Daddy. Some courts interpret the exemption narrowly so that it applies only to the entity that stores the emails and administers the email system (which in most cases will be a third party). Violations of the SCA, if proven, can result in the franchisor being liable for statutory damages and attorneys’ fees. Claims under the SCA and for common law invasion of privacy both require an unauthorized search. A best practice, therefore, is to secure authorization to access and search email accounts by including language in operations manuals or other written policies that discloses to franchisees that they have no expectation of privacy in the assigned email accounts and authorizes the franchisor to access and search the email accounts and their contents. Avoiding Vicarious Liability To avoid potential vicarious liability for acts of the franchisee, whose email account it might access and search, it is important that the franchisor also disclaim any obligation to monitor email activity of the franchisee or its employees. Such disclaimer should make clear that if the franchisor does access the franchisee’s email account, it is for the franchisor’s sole benefit and not for the benefit of the franchisee, and certainly not for the purpose of assisting the franchisee with its operations.   Franchisors should also put third parties on notice that franchisees operate independent businesses and that the use of an email address with the franchisor’s name does not change the franchisee’s independent operator status. Franchisors regularly require that franchisees display a sign at the franchise location stating that the franchise location is an independently operated business. Franchisors also typically require their franchisees to include a disclosure in their business cards that they are independently operated businesses. Oddly enough, this requirement does not seem to carry over to emails. Given that email may be the predominant method of communication between franchisees and their customers, vendors and others, franchisors should also require franchisees to include a similar disclosure in emails. Without such disclosure, a third party may not understand that a franchise location is independently operated and not a part of a chain owned by the same owner. The unintentional result is that the franchisee appears to be an agent of the franchisor. In addition to requiring disclosures in emails, a franchisor may also want to consider creating a separate domain name for the purpose of issuing email addresses to franchisees. For example, if the primary domain name for the company is brandx.com, another domain name may be brandxfranchisees.com and email addresses for franchisees would use the brandxfranchisee.com domain name protocol. This may further support a franchisor defending its position that a third party should have known that the email was being sent by a franchisee.

Litigation If a franchisor becomes a party to any litigation or arbitration proceeding, it may have the obligation to preserve and produce emails that are within its possession, custody or control. Do franchisors have “custody” of franchisees’ emails? In connection with a franchisee lawsuit, does the franchisor have an obligation to produce emails of area directors responsible for the franchisee’s store? A franchisor may argue that it does not have “custody” because it would need to use its administrative privileges to override the franchisee’s access and obtain possession of the emails. However, this does not mean that the franchisor does not have “custody” of the emails. In fact, those very administrative privileges may be deemed to constitute possession, custody or control. Further, there is no real advantage for the franchisor not to produce these emails. If the franchisor does not produce them, the franchisee could always subpoena the area director for the emails. If there is any email that may be damaging to the franchisor’s case, it is always better for the franchisor to know about it first. Such information may dictate the franchisor’s litigation strategy, or in some unfortunate cases, a settlement strategy.  Before issuing email addresses to franchisees, a franchisor should consider these issues and address them in the operations manual or other form of written policy. The policy should set forth clear guidelines as to the franchisee’s and the franchisor’s respective rights as to not only the email address, but all content generated by use of such emails. Failure to do so may not only preclude the franchisor from accessing a franchisee’s email account, but also place the franchisor in jeopardy where it is required to produce emails in litigation. Since these issues can readily be addressed, there is no reason to assume the risks associated with the failure to do so.