Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Cal. Sup. Ct.: Domino’s not vicariously liable for workplace injuries caused by franchisee employee, (Aug 28, 2014)

By Linda O’Brien, J.D., LL.M.

A pizza restaurant franchisor did not stand in an employment or agency relationship with its franchisee and franchisee employees for purposes of holding the franchisor vicariously liable for workplace injuries allegedly inflicted by one employee while supervising another employee of the franchisee, the California Supreme Court has ruled (Patterson v. Domino’s Pizza, LLC, August 28, 2014, Baxter, M.).

In September 2008, Sui Juris, LLC acquired an existing Domino’s pizza franchise. The franchise agreement was executed between Sui Juris (franchisee), through its sole owner Daniel Poff, and Domino’s Pizza, LLC (franchisor). The franchisor prescribed standards and procedures involving pizza-making and delivery, general store operations, and brand image. The franchisee made the day-to-day decisions involving the hiring, supervision, and disciplining of his employees. When operations began, Sui Juris retained most of the employees who already staffed the store, including Renee Miranda, an assistant manager.

In November 2008, Taylor Patterson was hired to serve customers at the Sui Juris store. In June 2009, Patterson filed suit against Domino’s, Sui Juris, and Miranda, alleging that Miranda subjected her to sexual harassment while they worked together at the Sui Juris store, in violation of the Fair Employment and Housing Act (FEHA), among other claims. Patterson claimed that the franchisor was the employer of persons working for the franchise and could be held vicariously liable for employees who injure each other on the job. The trial court granted summary judgment for the franchisor on the ground that no employment or agency relationships existed between franchisor and franchisee. The appellate court disagreed, and reversed the judgment of the trial court.

On review, the California Supreme Court held that the imposition and enforcement of a uniform marketing and operational plan could not automatically impose vicarious liability on a franchisor for misdeeds committed by employees who were under the direct supervision of the franchisee, and over whom the franchisor had no contractual or operational control. Under the franchise business model, the franchisee pays royalties and fees for the right to sell products and services under the franchisor’s name and trademark. The franchisee also acquires a business plan, under which the franchisee is required to follow a system of standards and procedures. This arrangement allows the franchisor to raise capital and grow its business, while the franchisees have the burden of operating local stores.

FEHA. Under the FEHA, it is unlawful “[f]or an employer . . . because of . . . sex . . . to harass an employee” or to retaliate against any person who has complained about unlawful sexual harassment. Patterson contended that the operating systems used by Domino’s protected more than trademark, trade name, and goodwill and deprived franchisees of the means to assert managerial control. She claimed that the degree of control exercised by Domino’s rendered the franchisee an agent of the franchisor for all business purpose. The state high court disagreed, noting that the “means and manner” test used by the appellate courts cannot stand for the proposition that a comprehensive operating system alone constitutes “control” for purposes of vicarious liability claims. A franchise contract consists of standards, procedures, and requirements that regulate each store for the benefit of both parties by minimizing chain-wide variations that can affect product quality, customer service, trade name, and public reputation. Franchisees are owner-operators who hold a personal and financial stake in the business and a major incentive is the franchisee’s right to hire the people who work for him, according to the court.

Franchise agreement. In this case, Domino’s lacked the general control of an employer or principal over the day-to-day aspects of the employment and workplace behavior of Sui Juris employees. Under the terms of the franchise agreement, Sui Juris agreed to act as an independent contractor, and no principal-agent relationship was formed. Domino’s was not granted any of the functions performed by employers, had no duty to operate the Sui Juris store, and had no right to direct Sui Juris’ employees in store operations. Moreover, the evidence showed that Poff implemented his own training program and sexual harassment policy for his employees and he had the authority to impose discipline for any violations. The court concluded there no basis to find a triable issue of fact that an employment or agency relationship existed between Domino’s and Sui Juris to support Patterson’s claims against on Domino’s on vicarious liability grounds.

Dissent. In a dissenting opinion, Justice Kathryn Werdegar maintained that the FEHA defined “employer” as any person regularly employing one or more persons and the totality of the circumstances should be considered when determining whether the requisite employment relationship exists. In Werdegar’s view, the majority placed too much emphasis on the terms of the franchise agreement when concluding that Domino did not have the power to force Poff to discharge one of his employees.

The case is No. S204543.

Attorneys: Alan Charles Dell’Ario and Alexis S. McKenna (Winer & McKenna) for Taylor Patterson. Elizabeth L. Kolar (Kolar & Associates) and Mary-Christine Sungalia (Snell & Wilmer) for Domino’s Pizza, LLC.

Companies: Domino’s Pizza, LLC

Cases: FranchisingDistribution CaliforniaNews