No question, Domino’s has been a very successul franchise. And in this economy, people losing their jobs may be tempted to go into business for themselves by buying a franchise business. You can find dozens of articles claiming that franchises are recession-proof. There are plenty of companies that will, for a fee, help you select the right franchise opportunity.

If this thought crosses your mind, there are a lot of issues to think about besides a stupid joke video tarnishing your corporate reputation. Franchised businesses, like everything else in life, have their pros and cons.

The main reasons to buy a franchise are that you are provided with a proven business model, given administrative support, trained on all aspects of the business from hiring to making the product and marketing known brands that will attract people to your location.

The main reasons not to buy a franchise are that the franchise system is new, weak or not well-developed, you won’t get enough administrative or operational support/training, you may be forced to buy supplies or raw materials from the franchisor at an inflated price, or the trademark/brand is tarnished or weak.

In fact, the main asset of a franchise is its brand or trademark. The customer’s loyalty is to the brand, NOT the individual franchisee. Nobody walks into a McDonald’s because they know the owner; they go because they want a Big Mac, Coke and fries. And the quality of these items should be the same from Murphy to Manteo because every franchisee is making Big Macs with the same ingredients and using the same system.

Chief among things to consider when evaluating a franchise opportunity is the reputation of the brand. What is especially unfair in the Domino’s affair is that every single Domino’s franchisee (local owner) suffered because of the two idiotic North Carolina employees who thought they were being cute on YouTube.

Pointing out the obvious (and new!) power of social networking is Nightline reporter David Wright: “What seems to have changed is a couple of yahoos in a pizza joint sticking cheese up their nose can threaten a global brand.”

So if you are planning to invest tens or hundreds of thousands of dollars to buy a franchise, it is important to do your homework. You should be given a Franchise Disclosure Document that contains financial information, lawsuits, bankruptcies, franchisees who have left the system and other important information.

It is crucial to have an accountant or financial advisor review the document and assess the profitability of the business, and to have an attorney review the franchise agreement. You want to know what happens after the initial term of the franchise agreement, if the franchisor goes out of business, what types of fees you will pay to the franchisor, and what happens if you under-perform.

Even so, recent events demonstrate that a prank can capture the world’s attention for a few days and tank your business because your wagon is hitched to a national brand and because any franchise is only as strong as its weakest link. Google the franchise name and you may discover just how strong, or vulnerable, it is at the moment.

Even for non-franchise businesses, it is vital to monitor your trademarks and public relations. A scathing (and perhaps unfair) review on a local business review site can do as much damage to your business as a snafu with a random franchise across the country can do to a franchise business.

BioTech0296 wrote: if the owner/franchisee hired these morons, then he is responsible for their actions..NO EXCUSES!!!!

After two renegade Domino’s pizza employees posted viral “joke” videos on YouTube of them defiling sandwiches, Domino’s President Patrick Doyle announced the franchise will re-examine all of the corporate hiring practices to “make sure people like this don’t make it into our stores.”

What he’s getting at is avoiding negligent hiring and retention.

North Carolina courts typically recognize a tort claim for an employer’s negligent hiring or retention of employees where a plaintiff (victim) can establish: (1) a specific bad act by the employee in question; (2) the employee’s inherent unfitness or previous specified acts of negligence from which incompetence can be inferred; (3) the employer’s actual or constructive notice of the employee’s unfitness; and (4) injury resulting from such incompetence.

This is important to employers because it brings liability from the wrong-doer (employee) to the employer, who typically has “deeper pockets” and is a more attractive defendant in a lawsuit.

Typical examples of negligent hiring are hiring a bus driver with numerous traffic convictions, a controller with convictions for embezzlement or day care workers who are convicted sex offenders. Negligent retention is keeping these employees in position after you know about the traffic violations, embezzlement or sex crime. In these cases, a routine background check often reveals the initial unfitness for the job.

Courts will look at the fundamental questions of what did the employer know about its employees and when did it know. They will compare the employer’s hiring and retention practices to the industry standard and will determine if the employer used reasonable care.

North Carolina courts generally defer to employers on this issue, holding that there is an initial presumption that an employer uses due care in hiring employees, but this presumption can be overcome where a court finds that an employer ignored facts that would suggest that an employee is unfit or failed to follow customary hiring practices for its industry.

At a minimum, it is important to keep up with HR/hiring/retention practices in your industry. Employers should also consider implementing procedures for verifying facts given on resumes or applications, verifying and documenting employee references, using criminal background and credit checks for final job candidates, and pre-hiring drug tests (if appropriate) regardless of industry custom.

These areas are fraught with their own perils, such as improperly considering arrests instead of convictions, not complying with the Fair Credit Reporting Act or not following state drug testing laws, but a claim for negligent hiring could carry a much higher liability. See the above comment for an example of just how much you have to lose when you hire the wrong people.

In it, an employee put cheese up his nose, and farted and sneezed on sandwich fixings he was handling, while the narrator described how those sandwiches were on their way to customers. He also wiped his butt with a sponge and used it to wash dishes.

The video went viral and generated a public relations nightmare for both the Domino’s franchise and the local franchisee (owner). The employees were charged this morning with felony food tampering, although they have said that none of the tainted food was ever served.

There is a lot here to talk about from the business attorney’s perspective, which I will address in a series of blogs:

1. The Power of Social Media
2. Corporate Damage Control
3. Negligent Hiring
4. Franchising

These employees were goofing around. But imagine what a couple employees with a grudge and a video camera could do to your business.

The videos were posted Monday, and by Wedneday about a million people had seen them. It was spread through services like Twitter, Digg, and StumbleUpon. Readers of a popular consumer protection site that blogged about the video, identified the particular franchise by brief footage shot through the drive-through window, and notified the Domino’s CEO.

Twitter is a service where people “micro-blog” or send 140-word updates (“tweets’) on their activities, interests, opinions, blogs, etc. Numerous people commented on how gross the video was and “tweeted” to their friends, who presumably then also watched the video and “tweeted” to their friends.

Digg is a site where people submit news, videos, photos or other online content for other users to vote on (i.e., they “digg” it). More than 6200 people “dugg” the Domino’s video, which would translate into tens of thousands of people being directed to the video just from Digg alone.

StumbleUpon another social bookmarking site, similarly directs traffic to content, and many thousands more likely found the video that way. I’m sure numerous other people shared this video with their friends on Facebook and MySpace.

Domino’s opened its Twitter account yesterday, but many other companies have successfully used social media to their advantage to respond to customer complaints, launch new products or generate buzz.

I am not an expert on social media, but I would advise my clients to include social media in their overall marketing program. These social media outlets have become very powerful and mainstream. For some social marketing experts take on responding to social media attacks, click here and here.

Another example of how social media can affect local businesses is Yelp. Readers post reviews of restaurants, stores, hotels, mechanics, etc. Until recently, there was no way for a local business to respond to these reviews, but Yelp recently changed its policy to allow business owners to correct incorrect facts. For example, if someone writes a scathing review of your snail souffle, you can post that you don’t serve snail souffle. You would not, however, be able to challenge the opinions that the vegetables were mushy, the service slow or the atmosphere run-down.

The larger point is to be aware of what your customers are saying. Word of mouth marketing is very powerful. And with social media, word of mouth is no longer local.

“Nothing is local anymore,” Domino’s spokesman Tim McIntyre says (in USA Today). “That’s the challenge of the Web world. Any two idiots with a video camera and a dumb idea can damage the reputation of a 50-year-old brand.”