If a claim is based on vicarious liability, is the Stretch Zone franchisee entitled to indemnification?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
(c) Despite Section 8.15(a), you have no obligation to indemnify or hold harmless an Indemnified Party for, and we will reimburse you for, any Losses (including costs of defending any Proceeding under Section 8.15(b)) to the extent they are determined in a final, unappealable ruling issued by a court or arbitrator with competent jurisdiction to have been caused solely and directly by the Indemnified Party's willful misconduct or gross negligence, so long as the claim to which those Losses relate is not asserted on the basis of theories of vicarious liability (including agency, apparent agency, or joint employer) or our failure to compel you to comply with this Agreement, which are claims for which you are not entitled to indemnification pursuant to this Section 8.15(c). However, nothing in this Section 8.15(c) limits your obligation to defend us and the other Indemnified Parties under Section 8.15(b).
Source: Item 8 — Receipts. Any sale made must be in compliance with § 683(8) of the Franchise Sale Act (N.Y. Gen. Bus. L. § 680 et seq.), which describes the time period a Franchise Disclosure Document (offering prospectus) must be provided to a prospective franchisee before a sale may be made. New York law requires a franchisor to provide the Franchise Disclosure Document at the earliest of the first personal meeting or ten (10) business days before the execution of the franchise or other agreement or the payment of any consideration that relates to the franchise relationship. (FDD pages 99–263)
What This Means (2025 FDD)
According to the 2025 Stretch Zone Franchise Disclosure Document, franchisees are not entitled to indemnification if a claim is based on vicarious liability. Specifically, this includes claims based on agency, apparent agency, or joint employer theories. This means that if a claim arises due to the actions of someone associated with the franchisee (like an employee) and the franchisee is held liable, Stretch Zone is not obligated to cover the franchisee's losses or legal costs.
However, Stretch Zone may reimburse the franchisee for losses if those losses are determined by a court or arbitrator to have been caused solely and directly by the Indemnified Party's willful misconduct or gross negligence. This reimbursement is contingent on the claim not being based on vicarious liability.
Despite the limitations on indemnification, the franchisee is still obligated to defend Stretch Zone and other Indemnified Parties, even in cases where the franchisee might not be entitled to reimbursement for losses. This highlights the importance of understanding the specific conditions under which indemnification is provided and the franchisee's ongoing responsibilities to provide a defense.