On October 11, 2012, the California Supreme Court granted review of Patterson v. Domino's Pizza to address the circumstances in which a defendant franchisor may be held vicariously liable for tortious conduct by a supervising employee of a franchisee.

Like many fast food chains, Domino’s Pizza (“Domino’s”) is a franchising operation in which individual franchisees operate storefronts under the Domino’s name.

In Patterson, the plaintiff, a sixteen-year-old employee of a Sui Juris, a Domino’s Pizza franchisee (“Sui Juris”), alleged that she was sexually harassed and assaulted at work by an assistant manager of the store. She filed a lawsuit against various Domino’s-related entities, including Sui Juris and Domino’s, as well as the assistant manager, alleging causes of action under the California Fair Employment and Housing Act, along with assault, battery and intentional infliction of emotional distress. She claimed that Domino’s was vicariously liable for the supervisor’s actions.

Although Sui Juris’ owner testified that he received employment direction from Domino’s and that his operation was monitored by Domino’s inspectors, the trial court granted summary judgment for Domino’s on the grounds that Sui Juris was an independent contract and was not an agent of Domino’s.

Particularly, it noted that the franchise agreement between Domino’s and Sui Juris provided that the latter was responsible for supervising and paying store employees. On this basis, the trial court concluded that Domino’s had no role in Sui Juris’ employment decisions.

The plaintiff appealed and the California Court of Appeal reversed the trial court. The appellate court stated that the nature of the franchise relationship will determine whether a franchisor is vicariously liable for injuries to a franchisee’s employee and that while a franchise agreement is relevant, it is not the exclusive evidence of the relationship between a franchisor and a franchisee.

The franchisor may be subject to vicarious liability where it assumes substantial control over the franchisee's local operation, its management-employee relations or employee discipline.

  • Here, the court determined that Domino’s exercised significant control over Sui Juris’ employees through the franchise agreement, which allows Domino’s to set employee qualifications and standards for their demeanor and appearance.
  • The court also determined that Domino’s asserted control over other areas of the business, such as store hours, pricing, advertising, equipment usage, recordkeeping and Sui Juris’ insurance policies, which required naming Domino’s as an additional insured.
  • Most importantly, the court concluded the Domino’s had instructed Sui Juris to terminate the assistant manager as well as another employee of the store for violating company policy, and that Sui Juris had acted based on these instructions.

Accordingly, the court reversed the order of summary judgment.

Domino’s has appealed to the California Supreme Court, which will determine whether a franchisee’s employee may bring an action against the franchisor for harassment or other wrongful acts alleged to have been committed by another employee of the franchisee.

The line drawn by the Court will be of interest to any retail establishments operating under franchise agreements.

If the appellate court’s decision is affirmed, franchisors that establish employment standards or communicate opinions regarding hiring or firing decisions to their franchisees may risk vicarious liability in actions brought by the franchisee’s employees, even if they do not facilitate operations of the franchisee on a daily or continual basis.

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