Moral Hazard, Path Dependency, and Failing Franchisors: Mitigating Franchisee Risk through Participation

(2019) 47(2) Federal Law Review 261

33 Pages Posted: 28 May 2021

See all articles by Jennifer L. Gant

Jennifer L. Gant

University of Derby - School of Law and Criminology

Jenny Buchan

UNSW Sydney ; Condor Hitchcock & Associates Pty Ltd

Date Written: May 27, 2021

Abstract

Employment relations are well understood. Business format franchising is a newer and rapidly
evolving business expansion formula, also providing employment. This article compares the fates
of employees and franchisees in their employer/franchisor insolvency.Whereas employees enjoy
protection, franchisees continue to operate in conditions that have been described as Feudal.
We identify the inherence of moral hazard, path dependency and optimism bias as reasons for
the failure of policies and corporations laws, globally, to adapt to the franchise relationship. This
failure comes into sharp focus during a franchisor’s insolvency. We demonstrate that the models
of participation available to employees in the United States, Australia and the United Kingdom
could be used to inform a re-balancing of the franchisees’ relationship with administrators and
liquidators during the insolvency of their franchisor, providing franchisees with rights and
restoring their dignity.

Keywords: franchising; employment law; corporate insolvency; path dependency; moral hazard; comparative law; insolvency law

JEL Classification: G3, J8

Suggested Citation

Gant, Jennifer and Buchan, Jennifer M., Moral Hazard, Path Dependency, and Failing Franchisors: Mitigating Franchisee Risk through Participation (May 27, 2021). (2019) 47(2) Federal Law Review 261, Available at SSRN: https://ssrn.com/abstract=3854792

Jennifer Gant (Contact Author)

University of Derby - School of Law and Criminology ( email )

Kedleston Road
Derby, Derbyshire DE22 1GB
United Kingdom

Jennifer M. Buchan

UNSW Sydney ( email )

Australian School of Business
Sydney, NSW 2052
Australia
+61 432 87 99 88 (Phone)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/jennybuchan

Condor Hitchcock & Associates Pty Ltd ( email )

Birchgrove
NSW 2041
Australia

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