Employees personally liable for misleading conduct
Previously, there was a general misconception that only directors could be personally liable for wrongful conduct. The case now confirms that employees, officers and directors are at risk. For example, an employee who is involved in the franchise sales process often gives information to prospective franchisees. If that information is false or misleading they will, after a recent High Court case, face the prospect of personal liability for loss suffered as a result of their actions. The High Court specifically stated that it was irrelevant in its decision that the individuals were not the proprietors of the business. Likewise, there is no requirement that the person knows that the information is misleading or deceptive. All that is relevant is whether they engaged in misleading or deceptive conduct in the course of trade or commerce.
The decision highlights that franchisors must, at a minimum, maintain directors and officers insurance. Franchisors should also consult their insurance brokers to see if insurance can extend to their employees. Normally, directors and officers’ policies do not extend beyond directors and senior management. On the flip side, employees will be anxious to ensure that their employer agrees to indemnify them against Trade Practices Act or Fair Trading Act liability.
Thomson Playford Cutlers works with franchisors as a strategic partner to improve overall network performance. We manage compliance issues and address the legal considerations that contribute to franchise network efficiency, profitability and expansion.
20.02.2008
FCA Member
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