Facts

Approximately 40 dentists received telephone calls from sales representatives of a marketing company which sold search engine optimisation tools online. According to the marketing company, during the telephone calls all of the dentists accepted that their respective clinics needed this marketing tool.

The dentists were formally employed by company X. They were also the shareholders in X, the legal owner of each clinic. Under the X brand, the dentists ran the clinics as independent businesses, but X managed the business administration of each clinic so that the dentists could focus on their patients. Each clinic paid a fee based on its turnover for the business administration services provided by X. X recruited independent dentists and their clinics on its website, based on the idea that when dentists trained, they dreamt about becoming dentists, not being bogged down in book keeping and paperwork. By handing over paperwork together with the clinic to X in exchange for shares, the dentist could continue as business owner, but without the paperwork. On its website, X stressed that while dentists were employees of X, they were still entrepreneurs responsible for their clinics. Their responsibilities included the right to buy stock and clinic services.

The marketing company invoiced X, arguing that the 40 dentists had entered into agreements on X's behalf. X contested the invoices by arguing, among other things, that the dentists were only employed by X. As employees, the dentists did not have the power to conclude these agreements on X's behalf. The marketing company argued that the dentists had been presented as independent clinic operators on X's website and therefore could not be seen as employees, but rather as agents of X. The marketing company also showed that most of the dentists believed that they had the power to act as agents on behalf of X.

Decision

Both the district court and appellate court(1) ruled in favour of the marketing company. Both courts reasoned that X ought to understand that the structure of the company, together with its online marketing information, was so confusing in respect of whether the dentists were employees or independent entrepreneurs that a third party would not know whether it was dealing with one of X's dentists or an agent. The court stated that X had to bear the risk of the confusion since it created it and had the power to undertake clarifying measures. Consequently, the courts deemed the dentists to be agents of X and concluded that X must pay the invoices.

Comment

These rulings underline the importance of a clear business model and communication between franchisor and franchisee. A confusing message to franchisees and to the business market could be used by a third party against the franchisor in order to oblige the franchisor to meet an agreement entered into between a franchisee and the third party.

For further information please contact Dan-Michael Sagell at Sagell and Co by telephone (+46 8 611 55 42), fax (+46 8 611 90 14) or email (dms@saglaw.se). The Sagell and Co website can be accessed at www.saglaw.se.

Endnotes

(1) Svea hovrätt, T 6332-12.

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