United States: Who's In Control Here? California's Supreme Court Establishes New Standards For Potential Franchisor Liability For Employee Tort Claims

Last Updated: September 3 2014
Article by Christopher E. Cobey, Adam Ryan Rosenthal and Michael J. Lotito

On August 28, 2014, the Supreme Court of California, in Patterson v. Domino's Pizza, LLC, decided whether a franchisor was entitled to summary judgment on the plaintiff's claims that the franchisor was vicariously liable for alleged tortious conduct by the franchisee's employee. In a 4-3 decision, the court held that a franchisor becomes potentially liable for the actions of a franchisee's employees only if the franchisor: 

... has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee's employees.  

The court determined that the plaintiff's evidence presented in opposition to the franchisor's motion for summary judgment in the trial court did not establish the required amount of control by the franchisor.  On that basis, the court found in favor of the franchisor.  This resulted in the reversal of the court of appeal's decision that overturned the trial court's grant of summary judgment in the franchisor's favor (restoring the summary judgment for the franchisor).

Events Leading up to the Supreme Court's Decision

The plaintiff, an employee of a Domino's Pizza franchise (or "franchisee"), alleged she was sexually harassed and assaulted by the franchise's assistant manager.  After resigning from her job, the plaintiff sued the assistant manager, the franchise, and Domino's Pizza, LLC (the "franchisor") –the latter as one of her employers. Early in the ligation, the franchise filed for bankruptcy protection, leaving the franchisor as the only "deep-pocket" defendant. 

During discovery, the franchise owner testified he, and not the franchisor, (1) hired employees to work at the restaurant (including both the plaintiff and the alleged harasser); (2) implemented his own "zero tolerance" sexual harassment policy; and (3) supervised the franchise's employees. At his deposition, the franchise owner testified that during a discussion with the franchisor's "area leader" about the alleged harasser, the area leader told the owner: "You've got to get rid of this guy [the alleged harasser]."  However, there was no evidence that the area leader ever instructed the franchise to terminate the alleged harasser.  

Before trial on the merits, the franchisor moved for summary judgment, arguing that all claims should be dismissed because: (1) the franchise was an independent "owner and operator" of the restaurant under a standard franchise agreement; and (2) there was no principal-agent relationship between the franchisor and the franchise. The trial court agreed with the franchisor, concluding that the franchisor could not be vicariously liable for plaintiff's wrongful termination claims, as the franchisor was not the plaintiff's employer. 

In 2012, the intermediate appellate court reversed the trial court's entry of summary judgment in favor of the franchisor.  The court found sufficient triable issues of material fact about whether the franchisor exercised "substantial control" over the franchise, and that a jury could conclude the franchisor was vicariously liable on the plaintiff's employment claims. In reaching this conclusion, the court relied on (1) evidence of the franchisor's day-to-day control over the franchise; and (2) what the court saw as the franchisor's significant involvement in the franchise's personnel decisions – specifically, the "get rid of this guy" comment made by the area leader to the owner.    

The California Supreme Court's Decision

The court first discussed significant differences in operation and effect between franchises and other business models.  Franchises are a "ubiquitous, lucrative, and thriving business model" that benefits both franchisor and franchisee.  While the franchisor controls the enterprise only to protect its brand and operate its franchises in a uniform way, the franchise owner implements the operational standards in its franchise on a day-to-day basis. 

The court noted that the relevant facts included the master agreement's designation of the franchise as an independent contractor, the acknowledgement by the franchise owner that he was solely responsible for the day-to-day employment decisions in his franchise, and that the franchisor provided neither training of franchise employees concerning sexual harassment (the franchise owner did that for his employees), nor a procedure by which franchise employees could contact the franchisor with sexual harassment complaints.  The franchise owner was solely responsible for investigating sexual harassment complaints, and imposing discipline if it were detected. 

The court then reviewed the primary California cases relevant to the analysis of the issue before it.  In Nichols v. Arthur Murray, Inc,1 a 1967 case against a dance studio franchise, the court concluded that the franchisor was responsible for the contractual obligations of the franchise, based on the extensive evidence of the franchisor's control of the franchise's operations.  "In particular, the franchisor retained the right to control the employment of all persons working in any capacity for the franchisee;...."  The court then observed that California appellate court decisions after Nichols have "declined to impute to franchisors the harm inflicted on the public by their franchisees." 

The court next reviewed a 1992 case, Cislaw v. Southland Corp.,2 contrasting it with the 1967 case.  The court focused in Cislaw on whether the franchisor had the right to control the means and manner in which results were achieved.  Cislaw involved a claim against both the franchise and the franchisor that the franchise's sale of clove cigarettes had caused a customer's death.  The court concluded that the evidence showed that the franchise had complete control of its inventory, was responsible for the operation of the franchise on a day-to-day basis, and made all employment decisions in the store. 

Turning to the case at hand, the court disagreed with the plaintiff's contention that the degree of control exercised by the franchisor made it an agent for all business purposes, and rendered each franchise employee an employee of the franchisor by vicarious liability.  It stated that a franchisor's comprehensive operating system alone does not constitute the control needed to support vicarious liability claims such as the plaintiff's.  A franchisor becomes potentially liable for the franchise's employees' actions only if the franchisor has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchise's employees.  Uniform workplace standards are not enough, standing alone, to impose "employer" or "principal" liability on the franchisor.  The franchisor had no right or duty to control employment or personnel matters for its franchises.  Finally, there was no evidence that the franchise solicited the franchisor's advice or consent on any key personnel decisions, or that he was required to do so. 

The court noted also that the area leader's "get rid of this guy" comment was not accompanied by an express or implied threat, or that the franchise owner would risk any sanction if the alleged harasser's employment was not terminated. 

In its conclusion, the court emphasized that it did not mean to imply that franchisors can never be held accountable for sexual harassment at a franchised location:  

A franchisor will be liable if it has retained or assumed the right of general control over the relevant day-to-day operations at its franchised locations that we have described, and cannot escape liability in such a case merely because it failed or declined to establish a policy with regard to that particular conduct. 


In reversing the appellate court, the California Supreme Court endorsed a position consistent with the vast majority of other courts throughout the country that have considered the liability of a franchisor for the torts or other employment law claims against a franchise. 

The decision indicates that, if the parties are clear in allocating responsibilities in a franchise agreement, courts will enforce those choices where followed in practice. 

Associated Developments

In a related national development, the issue of whether a franchisor can be considered a "joint employer" with its franchises has recently gained considerable attention due to the National Labor Relations Board General Counsel's decision to authorize several unfair labor practices complaints against individual McDonalds' franchises as well as the franchisor.3  

The California Supreme Court is not the only state governmental entity revisiting the franchisor-franchise relationship.  At this writing, California Senate Bill (SB) 610, having passed the Legislature on August 21, is on the desk of California Governor Jerry Brown.  If signed by the Governor, SB 610 will substantially readjust the current relationship between franchisors and franchises in California.  Among other changes, the bill calls for changing the legal standard required for a franchisor to terminate a franchise from "good cause" to a "substantial and material breach" by the franchise of the franchise agreement.4


1 248 Cal.App.2d 610 (1967).

2 4 Cal.App.4th 1284 (1992).

3 See Michael J. Lotito, McDonald's is not lovin' a recent NLRB ruling, Los Angeles Daily Journal (Aug. 1, 2014).

4 The term "substantial and material breach" is one that appears nowhere in California's 29 Codes or the State Constitution, and has never been interpreted in a commercial context by any California appellate court decision. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Christopher E. Cobey
Michael J. Lotito
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions