Part 3 of a 3-part Series
Texas Supreme Court Clarifies Franchisor Boundaries
- Decision reaffirmed that liability only attaches when franchisors control the harmful act.
- Operational guidance and brand standards alone do not create legal responsibility.
- Franchisors face a strategic choice between requiring compliance or recommending best practices.
- Risk tolerance, legal counsel, and intentional playbook design now shape the path forward.
Supreme Court Outcome: Clearer Franchisor Boundaries
The Texas Supreme Court reversed liability against a franchisor, holding that brand standards and operational guidance alone do not create legal responsibility. The ruling clarified that only control over the specific harmful conduct can trigger liability, leaving franchisors with greater room to operate but requiring intentional risk management in their systems and playbooks.
The Strategic Dilemma
Franchisors must now confront a fundamental question:
Should we require compliance with specific hiring, training, and management practices, or simply offer best practices?
This is not just a franchise law legal question; it’s a business decision rooted in risk tolerance.
- Requiring compliance may reduce risk at the unit-level, improve consistency, and protect customers, increasing the reputation of the brand, but it can also heighten the franchisor’s legal exposure by contributing to the perception of control, even where there is none–as the Hagman decision reminded us. The Texas Supreme Court made clear that providing operational guidance or brand standards does not, by itself create liability. Nevertheless, mandating operational practices may be misinterpreted by claimants, arguing that the franchisor’s brand standards control the franchisee’s conduct.
- Recommending best practices may reduce legal risk, but it can leave room for inconsistent execution, operational gaps, or brand damage.
There is no universal answer. The right approach depends on the franchisor’s:
- Risk profile
- Operational complexity
- Brand maturity
- Legal infrastructure
Understanding Risk to Make Informed Decisions
Franchisors should work closely with legal counsel, whether in-house or fractional, who understands the nuances of franchise law and can help translate legal precedent into operational clarity for their franchise playbook.
The goal isn’t to avoid risk entirely, but to understand it, own it, and manage it strategically.
Key questions franchisors should be asking:
- What level of guidance and standards do we want to provide on how franchisees hire, train, and manage their teams?
- How do we ensure our brand standards are upheld without overstepping legal boundaries?
- Are our manuals and compliance systems aligned with our risk tolerance and business goals?
- Do our internal teams understand the legal implications of the guidance they provide?
- Are we making these decisions intentionally, or by default?
From Legal Clarity to Operational Intentionality
The Massage Heights decision gives franchisors more room to operate, and with it, the opportunity to be intentional.
- If you choose to require compliance, treat it as a strategic commitment. Ensure your operations are structured to support autonomy while aligning with your brand’s risk tolerance and legal posture.
- If you choose to recommend best practices, make sure franchisees understand the “why” behind the guidance, and that your brand can tolerate variability in execution.
Conclusion: The Real Work Begins Now
The courtroom may have delivered clarity, but the real work is in the boardroom and the field. Franchisors must now revisit their franchise playbooks, not just to comply with the law, but to lead with purpose.The most important takeaway? Make the decision consciously, not by default.
In Part 1 of this series—Control vs. Guidance— The Texas Supreme Court reaffirmed that franchisors are only liable if they control the specific conduct causing harm, strengthening franchisee independence while limiting franchisor liability.
In Part 2 of this Endereza blog series, Legal Strategy in Action, I’ll explore how franchisors can navigate this balance in a way that protects both the brand and the business model, while aligning with evolving legal frameworks.
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