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July 2012

Vicarious Liability in an Employment Context: A Franchisor's Actions Speak Louder Than Words

NOTE: The California Supreme Court overruled the Court of Appeal’s opinion in Patterson v. Domino’s Pizza, LLC on Aug. 28, 2014. Click here to read about the high court’s opinion. 

The California Court of Appeal, Second Appellate District, reversed a summary judgment in favor of franchisor, Domino's Pizza, LLC, Domino's Pizza, Inc., and Domino's Pizza Franchising, LLC (collectively “Domino's”).  In doing so, the Court held that sufficient evidence existed to hold Domino’s vicariously liable for the torts committed by the franchisee’s assistant manager. 

Patterson, a teenage employee at the Domino’s franchise, alleged that she was assaulted by Miranda, the assistant manager at the Domino’s franchise (“Sui Juris”).  Patterson filed an action against Sui Juris, Miranda, and Domino’s alleging causes of action for sexual harassment, failure to prevent discrimination, retaliation, emotional distress, assault, battery, and constructive discharge.  Relying on the franchise agreements’ language which stated that Sui Juris is responsible for “supervising and paying the persons who work in the Store,” the trial court held that Domino’s had no role in Sui Juris’ employment decisions.  Therefore, the trial court granted Domino’s motion for summary judgment on all causes of action. 

Plaintiff appealed, and the Court of Appeal reversed the trial court’s decision.  In its opinion -- Patterson v. Domino's Pizza, LLC et al., No. B235099, 2012 Cal. App. LEXIS 753 (Cal. Ct. App. June 27, 2012) -- the Court first explained the appropriate standard for determining whether a franchisor is vicariously liable for a franchisee’s torts: if the franchisor has substantial control over the local operations of the franchisee, it may potentially face liability for the actions of the franchisee’s employees.  Applying this standard, the Court of Appeal also analyzed the franchise agreement, pointing out language that stated that Sui Juris was “solely responsible for recruiting, hiring, training, scheduling for work, supervising and paying the persons who work in the Store and those persons shall be your employees, and not Domino’s agents or employees.”  However, other language in the franchise agreement limits or qualifies Sui Juris’ responsibility: Domino’s sets the qualifications for employees; Domino’s sets the required demeanor for employees; employee identities must be disclosed to Domino’s; and Domino’s sets training guidelines for the employees.  A violation of any of these terms results in termination of the franchise. 

The Court of Appeal also considered provisions in the franchise agreement that were not employee-related, but which gave substantial control to Domino’s.  These included Domino’s right to independent access of Sui Juris’ business data, Domino’s right to determine store hours, advertising, customer complaints, e-mail capabilities, restaurant décor, and payment methods, just to name a few.  The Court of Appeal concluded that these provisions in the franchise agreement raise a reasonable inference supporting Patterson’s claim that Domino’s had substantial control over Sui Juris’ local operations. 

The Court of Appeal also took the analysis one step further and considered actions outside of the franchise agreement, namely, how Mr. Poff, the owner of the Sui Juris, described the relationship between himself and Domino’s.  At his deposition, Poff explained that when he signed the franchise agreement, Domino’s told him that if he did not “play ball” his franchise would be in jeopardy.  Furthermore, he said that Domino’s gave him guidelines on who he could hire and how to deal with employee attendance and sexual harassment.  Moreover, Domino’s would routinely send inspectors and secret shoppers to Sui Juris to determine whether Poff was following the guidelines.  Finally, Poff explained that it was a Domino’s Area Leader who forced him to fire Miranda, the alleged harasser.  According to Poff, the Area Leader would routinely demand that he terminate employees with the implication that there would be problems if he did not comply. 

Ultimately, the court held that Poff’s testimony, coupled with the franchise agreement, if believed by a trier of fact, supported reasonable inferences that there was a lack of local franchisee management independence.  On this basis, the court reversed the summary judgment in favor of Domino’s and remanded the case back to the trial court for further proceedings.

The takeaway from the Court of Appeal’s application of the franchise vicarious liability doctrine is that the relationship between franchisor and franchisee is not defined solely by the writing in the franchise agreement.  Courts may sometimes apply a totality-of-the-circumstances approach when determining whether the franchisor has sufficient control over the franchisee so as to hold the franchisor liable for the franchisee’s torts.  It is also important to note that this case is not limited to employment-related claims.  This ruling provides that the totality-of-the-circumstances approach is appropriate when analyzing the franchisor/franchisee relationship for purposes of vicarious liability determinations regarding all tort causes of action.    

Employment Law

Brandon D. Saxon

Employment Law