With artificial intelligence (AI) continuing to gain mainstream acceptance, franchisors are now using AI in various ways. In many cases, they require their franchisees to use AI as well. If your franchisor wants you to use AI, what do you need to know? National franchisee lawyer Jeffrey M. Goldstein explains.
Franchisors Generally Reserve Broad Rights to Impose New Requirements
The first thing you need to know is that franchisors generally reserve broad rights to impose new requirements on their franchisees. They do this through their franchise agreements, specifically through the provisions requiring compliance with their operations manuals. Franchisors almost always require franchisees to comply with the operations manual, “as modified from time to time,” which allows franchisors to update (or completely overhaul) their system standards as desired.
With regard to AI, this means that most franchisors will be able to require their franchisees to adopt AI technologies. Franchisees who refuse will run the risk of being declared in default, and, in this scenario, franchisors will often take swift and decisive action (i.e., terminating non-compliant franchisees) to maintain system uniformity.
What If I Have Concerns About Adopting AI?
Given this, what if you have concerns about adopting AI in your franchise? For example, what if you are concerned that your franchisor’s chosen AI platform will give your customers or employees wrong information? Or, what if you are concerned about being sued if your franchisor’s chosen AI platform causes injuries, property damage, or other harm?
Or, what if you just believe that you can do better than AI?
Unfortunately, the reality is that you might not have much of a choice. The franchisor’s right (and obligation) to maintain system uniformity is one of the hallmarks of the franchise model. As a result, if your franchisor decides that it’s time to start using AI, there might not be much that you can do.
If you are not the only one who has concerns, you may be able to work with other franchisees and leverage your collective influence to get your franchisor to reconsider. However, if your franchisor has already committed to moving forward, it could already be too late. If you would like to know what options are available, it is worth talking to a franchisee lawyer who can provide advice based on the specific circumstances.
What If My Franchise Gets Sued?
Let’s say you adopt AI at your franchisor’s direction, and let’s say your franchise gets sued. Maybe an employee sues for discrimination, maybe a competitor sues for copyright infringement, or maybe a customer sues for harm caused by AI. If this happens, what can (and should) you do?
As with all liability risks, the best approach is to be proactive. What contractual protections can you secure? While contractual protections in place won’t necessarily protect your company against being sued, if it is, they can help ensure that your company will not be the one ultimately held responsible.
How Much Control Can My Franchisor Assert Over My Use of AI?
While franchisors will generally seek to absolve themselves of any potential liability arising out of their franchisees’ operations, they will also typically seek to assert substantial control over their franchisees’ operations. With regard to mandating the use of AI, this could involve some (or all) of the following:
- Requiring franchisees to use AI for human resources, supply chain management, inventory management, and other operational functions
- Requiring franchisees to use AI for compliance management
- Requiring franchisees to use AI-powered point-of-sale systems and payment platforms
- Requiring franchisees to use AI for automation (including replacing employees)
- Requiring franchisees to offer AI-powered products, services, or experiences to their customers
Of course, even these are just examples. As artificial intelligence continues to evolve and franchisors see the need to adopt AI to keep pace with their competitors, franchisees are likely to find themselves asked (or forced) to use AI in an increasing number of ways.
What If I Can’t Afford It?
For many franchisees, this is the heart of the issue. Even though they may not be fully prepared to embrace AI, they understand what they have signed up for as a franchisee. But the simple fact of the matter is that they weren’t planning to invest in AI, and, at this moment in time, they simply can’t afford it.
If you can’t afford to invest in expensive new AI technology, what are your options?
In this scenario, you may have little choice but to raise the funding, whether that means dipping into your savings or taking on additional debt. As a general rule, “I can’t afford it” is not an excuse for noncompliance. Franchisors prioritize standardization and uniformity, and, in many cases, if a franchisee can’t meet a franchisor’s system standards, the simplest option for the franchisor is to declare a default and pursue termination.
All Franchisees Have Rights
With all of that said, all franchisees have rights. For example, an alleged “for cause” termination cannot be a pretext for discrimination. In some cases, mandating the use of AI (among other changes to system standards) may raise antitrust issues and unfair franchise practices. For franchisees who have concerns about adopting AI (or the costs of doing so), the best approach is to proactively consult an experienced franchisee attorney to help ensure they make informed, strategic decisions.
Discuss Your Legal Options with National Franchisee Lawyer Jeffrey M. Goldstein
Do you have concerns about your franchisor’s mandate to incorporate artificial intelligence (AI) into your franchise’s operations? If so, national franchisee lawyer Jeffrey M. Goldstein can help you make informed and strategic decisions about your next steps. To discuss your legal options with Mr. Goldstein in confidence, call us at 202-297-3947 or tell us how we can reach you online today.
