Artificial intelligence (AI) is officially here. In 2024, we anticipate that franchisors in a wide range of industries will seek to adopt AI technologies in various capacities—whether they fully understand AI’s capabilities and implications or not. Some franchisors are also turning to robots to streamline their operations, and this is a trend that we expect to see continue throughout the year as well.
As a franchisee, what does this mean for you?
The short answer is, “It’s complicated.” As a franchisee law firm, our practice is devoted to helping new and existing franchisees make informed decisions and protect their legal rights. This has been the focus of our practice for more than three decades, and we have seen a lot of changes over the years. But, through all of these changes, one thing has remained constant: When franchisors adopt major changes, it is usually their franchisees who pay the price.
What if Your Franchisor Wants You to Buy Robots or Implement AI?
Let’s say your franchisor is on the AI bandwagon. It has issued a system-wide mandate to adopt new AI-driven software for all franchisees in 2024.
But you are perfectly satisfied with your franchise’s current technology. Also, you aren’t convinced that your customers will be receptive to artificial intelligence. At best, you think adopting AI will be a zero-sum game. At worst, it will cause you to lose business and perhaps even threaten your franchise.
So, what should you do?
Unfortunately, you may not have much of a choice. If your franchisor wants you to adopt new AI-driven technology, it can almost certainly require you to do so under the terms of your franchise agreement. Franchisors typically “incorporate” their operations manuals into their franchise agreements by reference, which means that compliance with the operations manual is mandatory. Franchisors also typically reserve the right to modify their system standards over time, and they typically require franchisees to comply with all modifications at their expense.
We know this might not be what you want to hear, but this is the reality of franchise ownership. While franchisors often offer limited support, they almost always reserve substantial control. When they make decisions, they often do so without regard to the potential implications for individual franchisees. If they think that using robots or adopting AI can help increase their revenue and attract more quality franchise candidates, then this is what they are going to do.
Dealing with the Legal Risks Associated with Robots and AI
While robots and AI may (or may not) help to streamline operations and increase revenues, they also present unique legal risks. Both of these technologies are relatively new—which means that they are also relatively untested. If you invest in a robotic device (at your franchisor’s insistence) and the robot injures an employee or customer, who is liable? What if you use AI (also at your franchisor’s insistence) and the algorithm causes an accident or creates something that violates someone else’s intellectual property or privacy rights? Could you be on the hook—even though you never wanted to adopt the technology in the first place? These are very real questions that franchisees will be forced to confront in the not-too-distant future.
They are also questions that don’t necessarily have straightforward answers—or even answers at all. These new technologies have developed without a body of laws, regulations, and court decisions that are directly on point. While pre-existing laws, regulations, and precedent may apply to an extent, the simple truth is that we still don’t know how the law surrounding these technologies, and AI in particular, is going to develop.
In general, companies can use contracts to ensure that liability rests with the appropriate party. But, as a franchisee, your leverage to negotiate protections can be severely limited. Your franchisor almost certainly isn’t going to take responsibility, and even if it negotiates with a robotics or AI vendor on behalf of the entire franchise system, the terms that it negotiates may or may not provide you with an adequate level of comfort. If you need to negotiate with a vendor directly, the vendor may be less willing to accept liability given that both (i) it is dealing with tens or hundreds of franchisees and (ii) it knows that you are required to use its technology.
What Is a Franchisee to Do?
Given these concerns, what can (and should) you do? As with nearly all franchise-related legal issues, the answer depends on your individual circumstances. One option that may be worth considering is getting together with other like-minded franchisees in the system. As a franchisee law firm, we often provide group representation, and taking action as a group can help you and your co-franchisees build the leverage you need to influence your franchisor’s decision-making.
Working as a group can be a highly effective way to address shared concerns. Whether you are concerned about the costs of implementing robots or AI, the lack of return on investment you are likely to achieve, the legal risks involved, or all of the above, you almost certainly aren’t alone. Other, and perhaps many other, franchisees likely share your concerns as well, and they may also be willing to work together to protect your collective interests.
Of course, there are no guarantees. Some franchisors take a cram-down approach, and when questioned about their reasoning, they simply say, “Because I said so.” But, if you have significant concerns about your franchise’s viability, profitability or liability, it will be worth engaging a franchisee law firm to learn about the options you have available.
Contact Our Franchisee Law Firm for a Free, No-Obligation Consultation
If you need to know more about how to deal effectively with your franchisor, we encourage you to schedule a free, no-obligation consultation at Goldstein Law Firm. To speak with founding attorney Jeffrey M. Goldstein in confidence, please call 202-293-3947 or request an appointment online today.
