Recruitment Leak Could Have Painful Consequences: FT Q&A

The following question was published in the Financial Times on 5th November and answered by John Enstone, a partner in the London office of Faegre & Benson LLP.

I run a fast-food chain which is part of a large franchise.  I conducted an employment drive recently as I was looking to take on three more staff.  During the recruitment process, one of my employees misused the personal details of one of the applicants.  The applicant found out and complained.  As a result, my franchisor terminated my franchise agreement.  I feel this termination was wrongful as I was unaware of the actions of my employee and immediately terminated her employment after the incident.  Where do I stand in this matter?

Welcome to the minefield of data protection.  As reasonable as the data protection principles are, a breach can have far reaching consequences.  The obligation to protect personal data is sacrosanct nevertheless and with good reason.  Whether your position is an unintended or unfair consequence depends on several factors.  Basic law is to the effect that an employer is vicariously liable if an employee breaches the Data Protection Act in the course of doing their job, even if the breach was contrary to the company's policies or practices.  The exception is if the employee "knowingly or recklessly, without the consent of the data controller" discloses personal data.

If the franchisor has the unconditional right to terminate your franchise agreement for breach of law, then you may be able to use this exception to show that you are not responsible and, therefore, the franchisor has no right of termination.  Hopefully the actual text of the agreement requires that the breach is "material", which gives you another possible reason to request reinstatement and/or damages.  The challenge in your question is to determine whether the breach is being used as an excuse to bring your franchise to a premature end because the franchisor wishes to go in a different direction.

If your relationship with the franchisor simply isn't working, you may decide that it is time to move on, but try for compensation regardless.