In Patterson v. Domino’s Pizza, LLC, the California Court of Appeals overturned the lower court’s order granting summary judgment to a franchisor and held that the terms of the franchise agreement did not necessarily govern whether the franchisor could be held strictly liable for the actions of an employee of the franchisee. 

In Patterson, the plaintiff brought a claim under the California Fair Employment and Housing Act against both her employer, Sui Juris, LLC (the franchisee), and Domino’s (the franchisor), alleging that she had been sexually harassed and assaulted by the manager of the restaurant at which she worked.  The plaintiff claimed that both Sui Juris and Domino’s were the employers of the alleged harasser and, thus, were both strictly liable for the actions of the alleged harasser, also a Sui Juris employee.

Domino’s filed a motion for summary judgment, arguing that it could not be held liable for the manager’s alleged actions because (i) Sui Juris was an independent contractor under the terms of the franchise agreement and (ii) there was no principal/agent relationship between Sui Juris and Domino’s.  The trial court granted Domino’s motion, noting that the franchise agreement specified that Sui Juris, the franchisee, was responsible for supervising and paying restaurant employees.

The Court of Appeals reversed the lower court’s decision, holding that courts must consider the “totality of the circumstances” to determine whether a franchisor had substantial control over the franchisee, such that an agency relationship exists.  (If an agency relationship does exist, then the franchisor may potentially be liable for the acts of the franchisee’s employees.)  In making this determination under California law, the provisions of a written franchise agreement are “relevant,” but “not necessarily controlling.”

In deciding to overturn the trial court’s grant of summary judgment, the Court of Appeals highlighted testimony from the franchisee, who stated that Domino’s exerted extensive oversight and control over his hiring and firing decisions, essentially dictating how the franchisee should manage his restaurant staff.  The Court also highlighted the seeming conflict between the provisions in the franchise agreement making the franchisee responsible for the restaurant employees and those provisions providing that Domino’s would retain the right to set standards for restaurant employees “qualifications” and “demeanor,” among other things.

This decision expands the potential scope of liability faced by franchisors -- and other businesses that use independent contractors -- for harassment or other employment-related claims brought by employees of franchisees or contractors.  Businesses that retain significant control over the hiring, firing, and management of their franchisees’ or contractors’ employees are particularly vulnerable to such claims.  To avoid such liability, businesses must ensure that their relationships with their franchisees or contractors are truly independent -- both on paper and in day-to-day practice.