California Supreme Court Holds That A Franchisor Is Not Vicariously Liable For Claims Of Alleged Sexual Harassment By Employees Of Franchisee, Unless. . . .

In Patterson v. Domino’s Pizza, LLC., the California Supreme Court addressed the issue of whether a franchisor, such as Domino’s Pizza, LLC., can be held vicariously liable for claims of alleged sexual harassment by an employee of a franchisee, such as an individually owned Domino’s Pizza store.  The court framed the issue as follows:  “Does a franchisor stand in an employment or agency relationship with the franchisee and its employees for purposes of holding it vicariously liable for workplace injuries allegedly inflicted by one employee of a franchisee while supervising another employee of the franchisee?”  The court held a franchisor is not vicariously liable for claims of alleged workplace torts by employees of a franchisee unless. . . .

Taylor Paterson filed suit against Domino’s Pizza, LLC., the franchisee, and the employee of the franchisee who allegedly sexually harassed her, alleging violations of the California Fair Employment and Housing Act (“FEHA”), which prohibits workplace sexual harassment and requires employers to take reasonable steps to prevent sexual harassment from occurring in the workplace.  Paterson alleged Domino’s Pizza, LLC., was liable as an alleged “employer” of her and of the alleged harasser and alleged the Domino’s Pizza, LLC., was liable on the additional ground the franchisee was the agent of Domino’s Pizza, LLC.

The trial court granted summary judgment in favor of Domino’s Pizza, LLC., finding, as a matter of law, that Domino’s Pizza, LLC., was not an employer of Taylor or her alleged harasser and that the franchisee was not an agent of Domino’s Pizza, LLC.

On Appeal, the California Court of Appeal reversed the decision of the trial court and held the trial court should not have granted summary judgment because, according to the Court of Appeal, a jury could reasonably infer that Domino’s Pizza, LLC., exercised sufficient control over the operations of the franchisee to be deemed an “employer” of Taylor and of the alleged harasser and/or that the franchisee was an agent of Domino’s Pizza, LLC.

The California Supreme Court granted Domino’s Pizza, LLC’s petition for review of the Court of Appeal’s decision.

The Supreme Court reversed the decision of the Court of Appeal and held, consistent with the decision of the trial court, that Domino’s Pizza was entitled to summary judgment in its favor because the undisputed facts showed that the franchisee and not Domino’s Pizza, LLC., “made day-to-day decisions involving the hiring, supervision, and discipline of his employees.”  The Court explained, “[t]he contract-based operational division that otherwise exists between the franchisor and the franchisee would be violated by holding the franchisor accountable for misdeeds committed by employees who are under the direct supervision of the franchisee, and over whom the franchisor has no contractual or operational control.”   The Court further explained, “It follows that potential liability [for alleged FEHA violations] requires that the franchisor exhibit the traditionally understood characteristics of an ‘employer’ or ‘principal,’ i.e., it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.”  Although Domino’s Pizza, LLC., required each of its franchisees to conform to detailed operational standards, those standards did not govern hiring, firing, supervision, training, or discipline of franchisee employees, and Domino’s Pizza, LLC., did not otherwise exercise or attempt to exercise control over such personnel matters.

Obligations related to alleged joint employer liability can arise for franchisors and franchisees not only from alleged FEHA violations, but also from claims of alleged wage and hour violations and other employment related claims.  In those instances, franchisors and franchisees are reminded to consult their franchise agreements.

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