Product liability is the legal responsibility of a business for harm caused by a defective product it manufactures, distributes, or sells. In franchising, product liability may affect both the franchisor and franchisee depending on how the products are sourced, labeled, and marketed. Liability can arise from defects in design, manufacturing, or failure to warn consumers.
In the franchise relationship, product liability refers to the legal exposure that either the franchisor or franchisee—or both—may face if a product sold through the franchise causes injury, illness, or damage. This can occur in food service, retail, health and beauty, and many other franchise sectors. Liability can result from three types of product defects: design defects (inherent flaws in how the product is made), manufacturing defects (errors in how the product was produced), and marketing defects (inadequate instructions or failure to warn).
Franchise agreements often include indemnity clauses that attempt to allocate risk between franchisor and franchisee. If the franchisor supplies or mandates the product, or controls how it’s labeled and presented, they may bear primary responsibility. However, franchisees may also be held liable if they improperly handle, prepare, or store the product. Both parties often carry insurance policies that specifically address product liability claims to protect the business and brand from legal and financial risk.
Additional Definition: In franchising, the term implies the risk assumed by franchisor and franchisee in providing the franchised goods and/or services to the consuming public.
Learn more about franchising in The Educated Franchise - 3rd Edition
The concept of product liability has its roots in common law and began evolving rapidly in the 20th century as consumer protection became a legal priority. Landmark U.S. court decisions expanded manufacturers’ and sellers’ responsibilities for the safety of their products. In franchising, product liability became increasingly important as national brands expanded through local operators, making it more complex to assign legal fault.
High-profile product recalls, foodborne illness outbreaks, or defective merchandise have drawn attention to how franchise systems manage product sourcing, quality control, and liability insurance. As a result, most modern franchise agreements and operations manuals contain detailed standards and procedures aimed at minimizing product liability risk.
Product liability is a critical legal concern in franchising, where the sale of goods to consumers carries potential risks. Both franchisors and franchisees must understand how liability is shared and protected through clear agreements, supplier standards, and insurance. Managing product liability effectively helps safeguard the brand, the business, and customer trust across the entire franchise system.
