In Taylor Patterson v. Domino’s Pizza, LLC, the California Supreme Court restricted the ability of a franchisee’s employees to sue the franchisor based on theories of vicarious liability and the theory that the franchisor was an “employer” under California’s Fair Employment and Housing Act (“FEHA”). With this decision, franchisors can breathe a sigh of relief as the Supreme Court’s decision could have opened the flood gates for employment claims brought by employees seeking a recovery from the perceived “deep pocket” franchisor.
The plaintiff in Taylor alleged that she was sexually harassed by her supervisor while employed at a Domino’s Pizza franchise owned and run by a company called Sui Juris. She subsequently filed suit against her supervisor, Sui Juris, and the franchisor, Defendant Domino’s Pizza Franchising, LLC (“Domino’s”). Plaintiff’s claims against Domino’s were premised on the theory that Domino’s was her and her supervisor’s employer.
Domino’s moved for summary judgment arguing that it was not Plaintiff’s employer and, therefore, could not be held vicariously liable for the misconduct of Plaintiff’s supervisor. In support of this motion, Domino’s offered evidence demonstrating that Domino’s and Sui Juris were separate legal entities, Domino’s had no responsibility for hiring employees, Sui Juris and its owner Daniel Poff were solely responsible for training all employees, the store was under the direct on-premises supervision of Mr. Poff, and Mr. Poff conducted the investigation concerning Plaintiff’s claims. In opposition to this motion, Plaintiff offered evidence concerning Domino’s control over the basic structure of the franchise and how Mr. Poff felt that he always had to follow the advice and recommendations of his “area leader,” a Domino’s employee.
The trial court granted Domino’s motion finding that Domino’s did not control the store’s day-to-day operations or employment practices. The Court of Appeal reversed, holding that there was sufficient evidence supporting the inference that Sui Juris lacked managerial independence. The California Supreme Court granted review and reversed the Court of Appeal’s ruling.
After discussing the history of franchising laws as well California agency principles, the Supreme Court held that a franchisor only becomes potentially liable for actions of the franchisee’s employees if it has retained or assumed rights of control over factors such as hiring, direction, supervision, discipline, and discharge of the franchisee’s employees. The Court also stated that a franchise agreement requiring adherence to uniform operating standards is insufficient by itself to demonstrate such control. According to the Supreme Court, the Court of Appeal’s ruling had to be reversed because neither the terms of the franchising contract between Sui Juris and Domino’s nor the actual day-to-day operation of the store evidenced Domino’s right or duty to control Sui Juris’s employment or personnel matters.
While Taylor protects franchisors from liability, franchisors must continue to exercise care in both the drafting of franchise agreements and in how they interact with their franchisees. This later point is important in order to prevent creative plaintiffs’ counsel from arguing that such interactions constitute implicit exercise and control over the franchisee’s employment and personnel matters.