::this post ID is 14860::::in categories of ..Automotive....Legal Corner..::

Q&A With Frank Zaid: What special legal considerations apply to automotive service franchises?

Staff and safety
Almost every franchised automotive business needs to have trained employees—in many cases, certified technicians—available to perform the services required. Generally, these people are hired by the franchisee and then trained either (a) by the franchisor or (b) the franchisee who has already attended the franchisor’s training program.

An employee who has been hired to install tires or clean and restore vehicles’ interiors, for example, will not likely require special trade education or certification, but will be trained in the methodology of the franchise system, as well as the use of the specific equipment involved in their duties.

In other cases, a certified auto mechanic will be required to do the work. This is particularly the case with specialized skills like servicing and installing brakes. In many municipalities and provinces, technicians must attend a trade school to obtain a licence.

These technicians, too, will likely be directly employed by the franchisee. In many instances, however, trained auto mechanics own their own tools. As such, the franchisee will need to be certain his/her technicians’ tools are covered by his/her shop insurance in case of damage or theft. Another option is to arrange for independent insurance for the technician.

The operation of many automotive service franchises entails some degree of physical and health risk to their employees. Both franchisees and franchisors need to review all laws relating to health, safety, building codes, fires, waste collection and disposal, ventilation, hazardous products and related conditions, as relate directly to the operation of their particular service centres. Franchisors are strongly advised to offer short- and long-term disability plans to their franchisees for their employees.

In some provinces, special provisions within commercial lease legislation hold both landlord and tenant responsible for contamination prevention.

Consumer claims
As is the case for most other types of franchise systems, insurance requirements are paramount to protect against consumer claims relating to the operation of a franchised automotive service business. Personal injury and negligence claims by customers are unfortunately common for automotive franchises, due to claims of faulty workmanship. The franchisor should retain a knowledgeable insurance broker who understands the complexities of the business—particularly the nature of the franchisor-franchisee-employee relationship—before having to deal with a personal injury lawyer.

There are also specific considerations relating to commercial real estate leases that may apply to the locations where automotive service franchisees operate their businesses. In some provinces, for example, special provisions within commercial lease legislation hold both a landlord and a tenant responsible for environmental compliance and contamination prevention. Since the franchisor may be the landlord or have an option to assume the lease of the premises entered by the franchisee as a tenant, adequate provision for these risks needs to be undertaken by both parties.

Further, as many automotive service centres require expensive specialized equipment—such as lifts, computer diagnostic and analysis machines, hoists, trucks and tools—some franchisors have established equipment lease plans for their franchisees. These may be offered directly by the franchisor or by an affiliate of the franchisor, but they are more likely to come from third-party lenders. Franchisors need to disclose the terms and conditions of any such financing plans, including the documents required, and comply with all lending laws that may govern such transactions. Franchisees, for their part, will need to understand the terms and conditions of the documents and carefully include the costs in their own business plans.

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