Court of Appeal Imposes Franchisor Liability for Franchisee Harassment Claim

A Domino's franchisee's employee claimed sexual harassment against her supervisor and her employer, the franchisee (Sui Juris).  However, she also sued franchisor Domino's Pizza.  Normally, only the "employer" can be held liable for FEHA violations.  But the victim, Patterson, claimed that Domino's was also her employer because of its control over franchisee Sui Juris. The trial court disagreed, but the Court of Appeal reversed.

The appellate court decided there at least was a triable issue of fact regarding whether the franchisor exercised sufficient control over Sui Juris' employment practices to make it an "employer."  The court did not apply "single employer" or "joint" employer standards that normally apply to these analyses.  Nor did the Court analyze franchisor liability under FEHA's text.  Rather, the Court of Appeal applied an independent contractor-type analysis applying to torts generally:

Whether a franchisor is vicariously liable for injuries to a franchisee's employee depends on the nature of the franchise relationship.  . . . ."The general rule is where a franchise agreement gives the franchisor the right to complete or substantial control over the franchisee, an agency relationship exists." . . . "'[I]t is the right to control the means and manner in which the result is achieved that is significant in determining whether a principal-agency relationship exists.'" (Ibid.) Consequently, a franchisee may be found to be an agent of the franchisor even where the franchise agreement states it is an independent contractor.  .... If the franchisor has substantial control over the local operations of the franchisee, it may potentially face liability for the actions of the franchisee's employees. 

"[T]he franchisor's interest in the reputation of its entire system allows it to exercise certain controls over the enterprise without running the risk of transforming its independent contractor franchisee into an agent."  ... Consequently, it may control its trademarks, products and the quality of its services. But 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. 

Applying this rule, the Court decided there should be a trial on whether Domino's was sufficiently controlling of Sui Juris to the considered an "employer" and liable for the harassment.

Significantly, Domino's then argued it could not be liable because it had no advance knowledge there was sexual harassment at that franchise.  But the Court of Appeal ruled that the franchisor could be held strictly liable for the harassment of the franchisee's supervisor. 

Anyway, this decision opens up a significant avenue for franchisor liability when it exercises tight control over a franchisee's operations. 

It will be interesting to see if the California Supreme Court takes this one up or if Domino's seeks rehearing. The standard for liability under FEHA is usually analyzed under whether the corporate entity is an "employer."  At the same time, FEHA does impose liability on "agents" of the employer.   

The case is Patterson v. Domino's Pizza, LLC and the opinion is here.