The California Supreme Court Delivers: Domino’s Pizza Not Liable for Franchisee’s Employment Actions

The California Supreme Court has become the most recent legal body to weigh in on the issue of franchisor liability for franchisee employment actions. The Court held, in a 4-3 decision, that Domino’s Pizza, LLC was not liable for the actions of a shift manager employed by one of its franchisees because Domino’s did not exercise the requisite level of control over the franchisee. Patterson v. Domino’s Pizza, LLC, No. S204543, 2014 WL 4236175 (Cal. Aug. 28, 2014). This is contrary to the position that the NLRB General counsel has taken with McDonald’s, as previously reported here.

Alleged Facts

The Plaintiff, Taylor Patterson, obtained a job at a Domino’s franchise in Southern California. In her Complaint against Domino’s as the franchisor, the local franchisee, and her shift manager, Ms. Patterson alleged that the shift manager sexually harassed her whenever they shared the same shift. Ms. Patterson claimed that the manager made lewd comments and grabbed her breasts and buttocks. When the manager refused to stop, Ms. Patterson allegedly reported the conduct to Domino’s and her father. According to the Complaint, she stayed away from work for one week and, when she returned, she perceived that her hours had been cut in retaliation for reporting the harassment.

In the trial court, Domino’s sought summary judgment, stating that it was not an employer or principal of the manager, and that it could not be held vicariously liable as a result. The trial court agreed, but then the Court of Appeal reversed, holding that there was a triable issue of fact as to whether Domino’s was an employer or principal for vicarious liability purposes.

The Court’s Analysis

The California Supreme Court granted certiorari to review the question dividing the lower courts: Did Domino’s as 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 answered the above question in the negative and held that Domino’s was not vicariously liable for the actions of the franchisee’s employees. In so holding, the Court explained the controlling test: that a franchisor is vicariously liable for a franchisee and its employees only if it has a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and employees’ relevant day-to-day behavior. The Court applied these factors to the so called “means and manner test”: an agency relationship exists only where the principal dictates — not just the desired result of the enterprise, but also the manner and means by which the result is achieved.

After analyzing the relevant factors related to the Domino’s franchisee/franchisor relationship, the Court held that the Domino’s franchisees are owner-operators who hire and train employees. The Court further found that Domino’s had no contractual authority to manage the behavior of franchisee employees and, in fact, that it did not have any such actual authority, either. Domino’s was not involved in the application, review, or hiring processes of its franchisees. The franchisee was also solely responsible for training employees on how to treat each other at work and how to avoid sexual harassment. In other words, Domino’s did not exercise the requisite “manner and means” control over hiring, direction, supervision, discipline, discharge, and the employees’ relevant day-to-day behavior. Thus, it could not be held vicariously liable.

The Domino’s case on its face appears to be an important win for franchisors. On the other hand, however, the Court’s opinion essentially serves as a roadmap for plaintiffs looking to proceed past the summary judgment phase in franchisor liability litigation. And, the opinion is narrowly tailored to the facts of this case and only applies in California. Thus, while it is a clear victory for franchisors, it is not as sweeping a victory as it might otherwise appear.

Arent Fox will continue to monitor the developments in this area. If you have any questions, please contact the authors of this post, or the Arent Fox professional who regularly handles your matters.