USA – ILLINOIS Law and Practice Contributed by: Carmen D. Caruso, Bill Whitner and Gage Meyers, Carmen D. Caruso Law Firm
8. Choice of Governing Law 8.1 Possibility of a Franchisor Stipulating Non-Local Law A franchise agreement subject to the IFDA must designate Illinois law as its governing law. Although parties may ordinarily select the law governing their contractual relationship, a franchise agreement may not select the law of a state other than Illinois. See 14 Ill Admin Code Section 200.608. The same regula - tion prohibits an agreement from requiring litigation under the agreement or the Act to occur outside Illi - nois, though the agreement may provide for arbitration outside the state. See also 815 ILCS 705/4. The IFDA’s anti-waiver provision provides additional protection: under Section 41, any provision purport - ing to require a franchisee to waive compliance with the Act or another Illinois law is void. See 815 ILCS 705/41. A franchisor thus may not use a choice-of-law clause or other provision to avoid otherwise applica - ble Illinois franchise protections. Franchisors typically address the IFDA’s requirements through a state-specific addendum, allowing them to retain a uniform franchise agreement system-wide while modifying the governing law, forum-selection, termination, non-renewal and other provisions as nec - Illinois Administrative Code Section 200.608 requires franchise agreements subject to the IFDA to designate Illinois law as their governing law. Although neither the IFDA nor the Administrative Code addresses intellec - tual-property provisions separately, neither authorises applying different states’ laws to the intellectual-prop - erty and service components of the same agreement. Illinois courts may also decline to enforce a foreign choice-of-law provision that would contravene fun - damental Illinois public policy. See Donaldson v Fluor Engineers , Inc , 169 Ill App 3d 759, 762–63 (1988) (refusing to enforce a California choice-of-law clause conflicting with Illinois’ fundamental policy against indemnity for one’s own negligence). Accordingly, Illinois law generally governs the parties’ contractual rights and obligations under both components of the agreement. essary to comply with Illinois law. 8.2 Local Law Requirements
franchisee’s employees, so its authority to demand compliance and terminate the agreement was insuf - ficient to establish liability. Similarly, in Oliveira - Brooks v Re / Max Int ’ l , Inc , 372 Ill App 3d 127, 128, 865 NE2d 252, 253 (2007), the court found no vicarious liability because the franchisor’s control was limited to brand protection, not the franchisee’s daily real-estate activi - ties or the vehicle causing the plaintiff’s injury. In contrast, in Bruntjen v Bethalto Pizza , LLC , 2014 IL App (5th) 120245, the court upheld a verdict finding a pizza franchisor vicariously liable under an actual- agency theory, based on evidence of the franchisor’s operational controls – including requirements govern - ing the franchisee’s menu, suppliers, hours, delivery area, advertising, uniforms, insurance and delivery drivers – despite the agreement’s independent-con - tractor label. An independent-contractor designation thus will not prevent vicarious liability where the fran - chisor’s actual authority extends beyond brand pro - tection to the franchisee’s manner of operation. Id. Apparent Agency A franchisor may also be held liable under an apparent agency theory where: • the franchisor held the franchisee out as its agent or knowingly permitted the franchisee to do so; • the plaintiff reasonably believed that an agency relationship existed; and • the plaintiff relied on that appearance to the plain - tiff’s detriment. See Oliveira - Brooks , 372 Ill App 3d at 137. Common branding or the public display of the fran - chisor’s trade marks does not, without more, establish apparent agency. In O ’ Banner v McDonald ’ s Corp , 173 Ill 2d 208, 670 NE2d 632 (1996), the Illinois Supreme Court considered whether McDonald’s could be liable under apparent agency for its franchisee’s negligence, and although it rejected the claim it acknowledged that apparent agency could arise if the franchisor’s actions led a third party to reasonably believe that an agency relationship existed.
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