Architectural barrier cases under Title III of the Americans with Disabilities Act (ADA) are on the rise. Plaintiffs' groups are targeting establishments such as restaurants, hotels, theaters and stores, which means that franchisees often are the defendants. In addition to creating a public relations headache for the franchisor, these cases often assert franchisor liability and include demands that modifications be made to all of the franchised system's outlets.
The United States Department of Justice (DOJ) also has aggressively pursued architectural barrier cases, particularly against hotels and restaurants. DOJ enforcement actions typically include every store owned or operated by the defendant. For example, after filing five separate lawsuits against one large franchised system, DOJ eventually resolved all pending complaints by requiring the franchisor to ensure the accessibility of the system's facilities, establish a $4.75 million fund to provide interest-free loans so franchisees could make required changes and pay a civil penalty. These DOJ cases are likely to proliferate if a proposed expansion of the hotel and restaurant accessibility obligations under Title III is adopted.
The potential for franchisor liability stems from two provisions in the ADA. The first is Section 302, which provides, among other things, that: "[n]o individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation." 42 U.S.C. § 12182(a) (emphasis added). The applicability of this section to a franchisor will typically hinge on whether the franchisor is the "operator" of a public accommodation.
This issue was extensively analyzed in Neff v. American Dairy Queen Corp., 58 F.3d 1063 (5th Cir., 1995), which held that Dairy Queen did not operate one of its franchisees for purposes of the ADA. The Neff plaintiff argued that Dairy Queen was a joint operator of the franchised locations because the franchise agreement gave the company significant control over each location. After concluding that the control of certain non-structural aspects of the relationship (e.g., accounting and uniform requirements) had no bearing on whether the franchisor operated the facilities for purposes of Title III (a position that had been advocated by DOJ), the court focused on whether the franchisor controlled "modifications" of the stores to such a degree that it could force ADA compliance. The court examined three areas of the franchise relationship and concluded:
- Although the franchise agreement required the franchisor's approval of any replacement, reconstruction, addition or modification of the building, that authority, without more, was insufficient to support a holding that the franchisor "operates" the franchise;
- Requirements for how the location must be maintained (e.g., general maintenance schedules and requirements for replacing obsolete or unrepairable equipment) did not result in operator status, provided the ADA claim did not stem from a directive by the franchisor to use specific non-compliant equipment or that adversely affected the franchisee's ability to make modifications to bring the facility into ADA compliance; and
- The obligation to construct and equip the facility in accordance with the franchisor's approved specifications and standards for building design and layout was not relevant to determining operator status because the locations at issue had been built before the passage of the ADA and had not undergone significant modification since that date.
The court noted, however, that a franchisor would have the greatest level of operational control if the locations at issue had been built or modified pursuant to the franchisor's specifications after the passage of the ADA. This third area presents perhaps the greatest risk for franchisor liability, since most operating facilities likely have been built or significantly modified since the 1990 passage of the ADA.
In that regard, potential franchisor liability can also arise under Title III's "design and construct" provision. Section 303 of the ADA provides in part, that: "as applied to public accommodations and commercial facilities, discrimination for purposes of section [302(a)]...includes a failure to design and construct facilities...that are readily accessible to and usable by individuals with disabilities." 42 U.S.C. § 12183(a). This provision has resulted in the hotly contested issue of whether a franchisor that designs and constructs the franchised facilities is liable under Section 303 of the ADA, even if it does not "operate" the facilities under Section 302.
This issue was litigated in a series of cases DOJ filed against Days Inns of America (DIA) in various federal courts. DIA argued that the reference in Section 303 to Section 302 clarifies and limits the parties that may be liable. Two of the federal courts deciding these cases rejected DIA's argument and held that franchisors that design and construct public accommodations are subject to liability even if they do not operate the property; however, three other federal courts came to the opposite conclusion, holding that merely designing and constructing a facility should not subject a franchisor to liability.
Resolution of this unsettled question of law is only one part of the franchisor liability analysis. All federal district courts considering franchisor liability under Section 303's "design and construct" provision must also consider whether the franchisor possesses a significant degree of control over the construction of a facility. For example, in the Days Inns cases, the license agreement gave DIA extensive authority to control design and construction by requiring all design plans to be submitted and reviewed and all construction sites to be regularly inspected by DIA. The right to control in itself is not dispositive; liability instead will turn on whether the franchisor exercised that control or had knowledge of a Title III violation.
Although franchisor ADA cases can be very fact-specific, the underlying theories provide some valuable lessons. The subtleties of how a franchisor structures and manages the operation, design and construction of its franchisees' units will be critical in defending any litigation. Accordingly, avoiding Title III liability depends on adopting many of the same principles that have been used to avoid other types of vicarious franchisor liability (e.g., reducing control over terms and conditions of employment to eliminate employment claims). Considering these factors before a lawsuit is filed is clearly the most effective way to reduce exposure. While some Title III-specific approaches have been effective even after a complaint has been filed, taking preventive action clearly is the better alternative.