Blog

Franchisor May Be liable for Franchisee’s FEHA violations

Patterson v. Domino’s Pizza, LLC (20120) 207 Cal.App.4th 385, 143 Cal.Rptr.3d 396

Background: Plaintiff Taylor Patterson was employed by defendant Sui Juris, LLC, a Domino’s Pizza franchisee. During her employment, Plaintiff alleged to have been sexually harassed and assaulted by Renee Miranda, supervisor of Sui Juris. Plaintiff filed an action pursuant to Government Code section 12940 (Fair Employment and Housing Act) against Sui Juris and the franchisor Domino’s Pizza, LLC, Domino’s Pizza, Inc., and Domino’s Pizza Franchising, LLC (collectively Domino’s), alleging causes of action for sexual harassment, failure to prevent discrimination, retaliation for exercise of rights, infliction of emotional distress, assault, battery and constructive wrongful termination. Plaintiff claimed that Sui Juris and Domino’s were Miranda’s employers and hence, vicariously liable for his actions under the doctrine of respondeat superior.

Court History: Plaintiff filed a complaint and Domino’s answered. Thereafter, Domino’s filed a cross-complaint against Renee Miranda (alleged harasser) seeking “indemnity” and “apportionment of fault.” Sui Juris filed for bankruptcy relief.

“Domino’s filed a motion for summary judgment claiming that: 1) Sui Juris was an independent contractor pursuant to the terms of a written franchise agreement, and 2) there was no principal-agency relationship between Sui Juris and Domino’s. The notice of motion indicated that summary judgment on all causes of action was based on the ground that “DOMINO’S was not PATTERSON’S employer and was not involved in the training, supervision or hiring of any employees of Defendant SUI JURIS.” (Patterson v. Domino’s Pizza, LLC (20120) 207 Cal.App.4th 385, 143 Cal.Rptr.3d 396)

Plaintiff opposed the motion claiming Domino’s exercised substantial control over Sui Juris, and there are triable issues of fact relating to Domino’s liability.

The trial court granted summary judgment in favor Domino’s. Plaintiff appealed.

Pertinent Issue addressed: The Court of Appeal deciding on the issue of “control” by Domino’s over Sui Juris scrutinized the following evidences, among others:

a. Domino’s Manager’s Reference Guide (MRG) described the specific employment hiring requirements for all “personnel involved in product delivery,” and it describes the documents that must be included in their personnel files. It required all employees to submit “time cards and daily time reports.” It further specified standards for employee hair, facial hair, “dyed hair,” jewelry, tattoos, fingernails, nail polish, shoes, socks, jackets, belts, gloves, watches, hats, skirts, visors, body piercings, earrings, necklaces, wedding rings, “tongue rings,” “clear tongue” retainers, and undershirts.

b. Domino’s Manager’s Reference Guide (MRG) specified the standards a franchisee is expected to maintain as “minimum guidelines for the operation of all Domino’s Pizza stores….” The guidelines included a variety of requirements in a variety of areas, which included: bank deposits, safes, “front till” cash limits, type of credit cards that must be accepted, mobile phone use, store closing procedures, store records, refuse removal, radar detectors, phone caller identification requirements, security, delivery staffing, holiday closings, stereos, tape decks, wall displays, franchisee web sites, “in-store conversations,” and literature that was “allowed in a store.”

c. The provisions of the franchise agreement substantially limited franchisee’ independence in areas that go beyond food preparation standards. The franchisee’s computer system was not within its exclusive control. Domino’s had “independent access” to its data. Further, Domino’s had the right to audit the franchisee’s tax returns and financial statements. Domino’s also determined the franchisee’s store hours, its advertising, the handling of customer complaints, signage, the e-mail capabilities, the equipment, the furniture, the fixtures, the décor, and the “method and manner of payment” by customers. Domino’s regulated the pricing of items at the counter and home delivery, and it set the standards for liability insurance. A franchisee’s liability insurance policies required Domino’s as “additional insureds.”

d. Domino’s also decided the franchisee’s book and record keeping methods. It could determine the franchisee’s location and right to re-locate and could send inspectors to monitor its operations. It also controlled whether the franchisee may “engage, or own any interest, in any other business activity” or “be employed by any other business.” Domino’s also required its franchisees to report “weekly” on sales, and to provide with their state and local business tax returns “for any period” and “such other information as Domino’s may reasonably require.”

e. The owner of Sui Juris testified that he was being instructed by Domino’s on two occasions to fire employees (one of whom was Miranda).

Based upon foregoing evidences, the Court of Appeal stated that, “California courts have concluded that the provisions of the agreement are relevant, but not the exclusive evidence of the relationship. Consequently, “the provisions of franchise agreements are not necessarily controlling.” Instead, we look to the totality of the circumstances to determine who actually exercises the ultimate control.

Accordingly, the Court of Appeal reversed the trial court’s judgment and held that, genuine issue of material fact as to control precluded summary judgment on issue of vicarious liability.

The Court further noted that, a single sexually offensive act by one employee against another usually is not sufficient to establish employer liability. But “where the act is committed by a supervisor, the result may be different”, because the employer cloaks the supervisor with authority, we ordinarily attribute the supervisor’s conduct directly to the employer. Thus, a sexual assault by a supervisor, even on a single occasion, may well be sufficiently severe so as to alter the conditions of employment and give rise to a hostile work environment claim.

Pointers:

  • The case has the potential to bring a surge of suits against franchisor on employment matters. Ideally, the franchisors should reassess and if required, remodel the level of control exercised over the franchise.
  • Clearly, the franchise agreement alone does not establish a relationship and the parties should focus on the nature of the relationship.