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Sole Proprietorship and Franchises: La Grande Enchilada Case Study

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Updated: Sep 22nd, 2020

Based on the specifics of the case, La Grande Enchilada is a business format franchise since the company provides the franchisee an already established brand that comes with all the necessary equipment, products, and trained personnel to run the business efficiently (Terry & Chetwin, 2015). All the franchisee has to do is operate the business based on the prescribed guidelines that were set by the company.

The problem with sole propriertorship is that during instances of damage to the equipment or facilities of the restaurant, it is the franchisee who is responsible for replacement or repair (Schnell & Gardner Jr., 2015). There are exceptions to this where it has been proven that the equipment provided by the franchisor was faulty, to begin with. However, barring such circumstances, it is the responsibility of the franchisee to cover the cost of repairs.

The primary factor that the court would investigate would be if Del Rey’s La Grande Enchilada was really in violation of the prescribed safety procedures (Anwar, 2011). Yes, a fire did occur in the restaurant, but the specifics of the case did indicate that it was a result of complying with the safety manual (i.e., making sure a towel was located two feet away from the grill). From this perspective, the court would side with Del Rey when it comes to his argument that the franchise was unjustly terminated; however, before rendering judgment, there are other issues that the court would examine (Hutton & White, 2016).

For instance, the court would investigate why the grill sparked in the first place since this indicative of some fault in the equipment or lack of sufficient maintenance. Not only that, there is also the issue of the oil towel; why was the towel oily in the first place? Is it common for other La Grande Enchilada restaurants to have an oily cloth located so close to the grill, or is this a case that is unique to Del Rey’s franchise? Lastly, the court would also ask what the purpose of the towel was in the first place.

If it was proven that the cloth was used for cleaning up oily messes, as indicated in the manual, then the fault is not with Del Rey; however, if it is shown that the towel is supposed to be used for an entirely different purpose and was not intended to be oily, then it can be stated that Del Rey did not follow proper safety procedures.

The likelihood of the court ruling that La Grande Enchilada had good cause to terminate Del Rey’s franchise will all depend on whether it can be proven that the franchisee was in actual violation of the company’s prescribed safety procedures. If it is established that it was the procedures that were the cause of the fire in the first place or that it was an unforeseen accident due to circumstances outside the manual, then it is likely that the court will not rule in favor of La Grande Enchilada (Kyuho, Khan & Jae-Youn, 2010). On the other hand, if it is proven that Del Rey did not follow proper safety procedures and was lax in maintaining proper operations, then the court will rule in favor of La Grande Enchilada.

Reference List

Anwar, S. T. (2011). Franchising: category issues, changing dynamics and competitiveness. International Journal Of Commerce & Management, 21(3), 241-255.

Hutton, R. W., & White, F. J. (2016). DOL Issues Administrator’s Interpretation Impacting Joint Employer Liability in the Franchise Restaurant Industry. Venulex Legal Summaries, 1-3.

Kyuho, L., Khan, M. A., & Jae-Youn, K. (2010). Critical Issues and Challenges in the Management of International Restaurant Franchises: Franchisee Perspective. Journal Of Foodservice Business Research, 13(2), 85-97.

Schnell, B. B., & Gardner Jr., R. K. (2015). Battle over the Franchisor Business Judgment Rule and the Path to Peace. Franchise Law Journal, 35(2), 167.

Terry, A., & Chetwin, M. (2015). Issues at the end of a franchising relationship. Australian Business Law Review, 43(2), 152-166.

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"Sole Proprietorship and Franchises: La Grande Enchilada." IvyPanda, 22 Sept. 2020, ivypanda.com/essays/sole-proprietorship-and-franchises-la-grande-enchilada/.

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IvyPanda. "Sole Proprietorship and Franchises: La Grande Enchilada." September 22, 2020. https://ivypanda.com/essays/sole-proprietorship-and-franchises-la-grande-enchilada/.

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IvyPanda. 2020. "Sole Proprietorship and Franchises: La Grande Enchilada." September 22, 2020. https://ivypanda.com/essays/sole-proprietorship-and-franchises-la-grande-enchilada/.

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IvyPanda. (2020) 'Sole Proprietorship and Franchises: La Grande Enchilada'. 22 September.

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