United States: A Review of Key Cases and New Laws Affecting Employers (September 2014)

California Supreme Court Clarifies the Scope of Franchisor's Exposure for Employment Claims Brought by its Franchisee's Employees

Decision: In Patterson v. Domino's Pizza, LLC, the California Supreme Court addressed an unsettled question of law: Can a franchisor be held liable as an employer or vicariously liable under agency principles for workplace injuries allegedly inflicted by the employee of a franchisee?

The plaintiff in Patterson alleged that she was sexually harassed by her supervisor at a Domino's Pizza franchise. She sued the alleged harasser, as well as the franchisee and Domino's, claiming that the franchisor was the "employer" of persons working for the franchisee and that the franchisee was the franchisor's agent and could thus be held vicariously liable for the franchisee's conduct.

The Supreme Court refused to assign liability to the franchisor simply because it had implemented a "comprehensive operating system" for its franchisees. The Court explained that "[t]he imposition and enforcement of a uniform marketing and operational plan cannot automatically saddle the franchisor with responsibility for employees of the franchisee who injure each other on the job." Instead, the Court explained that a franchisor "becomes potentially liable for actions of the franchisee's employees only if it has retained or assumed a general right to control other 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 found that Domino's did not exercise control over the "means and manner" of the franchisee's operations when it came to relevant personnel matters. Rather, the Court noted that "[t]he uncontradicted evidence showed that the franchisee imposed discipline consistent with his own personnel policies, declined to follow the ad hoc advice of the franchisor's representative, and neither expected nor sustained any sanction for doing so."

Impact: The California Supreme Court's decision provides important guidance to franchisors on how to decrease their level of exposure to employment claims based on the conduct of their franchisees' employees. It is not solely the amount of the franchisor's control that dictates its exposure, but the control over the relevant aspects of the employment relationship. To insulate themselves from liability, franchisors must therefore exercise care both in the drafting of franchise agreements and in how they interact with their franchisees with respect to the franchisee's employment and personnel matters, even as they seek to protect the brand.

President Obama and the Department of Labor Issue New Directives Affecting Federal Contractor Reporting Requirements

Action: President Obama recently signed the Fair Pay and Safe Workplaces Executive Order, which imposes new requirements on federal contractors beginning in 2016. The order requires contractors to disclose any labor law violations, along with the steps they have taken to correct those violations. The order also requires contractors to provide individuals with wage records detailing their hours worked, overtime hours, pay and any additions made to, or deductions taken from, their pay. Finally, the order makes it illegal for contracts in which the estimated value of goods provided or services rendered exceeds $1 million to require employees to arbitrate claims arising under Title VII of the Civil Rights Act of 1964 or any tort related to sexual assault or harassment. Contractors will also, with some exceptions, be responsible for ensuring that their subcontractors comply with the executive order.

On the heels of the president's executive order, the US Department of Labor's Office of Federal Contract Compliance Programs (OFCCP), at the president's direction, proposed a rule that would require government contractors to report summary data on employee pay by sex, race, ethnicity and specified job categories.

Impact: Federal contractors should look for forthcoming regulations implementing the executive order. In the meantime, contractors should begin compiling detailed records of any labor law violations and their resolution, review their employment-related arbitration agreements to determine whether the order impacts those agreements and consider implementing additional due diligence requirements with respect to their subcontractors. To prepare for the OFCCP's increased focus on pay disparities, contractors might consider conducting internal compensation audits to ameliorate any pay disparities and ensure that there is no discrimination in advance of whatever new reporting requirements may result from the OFCCP's proposed rules.

The National Labor Relations Board Determines that "Liking" a Facebook Post Can Be Protected Activity

Decision: In Three D, LLC d/b/a Triple Play Sports Bar and Grille, two Triple Play Sports Bar employees, Sanzone and Spinella, engaged in an offsite, off-duty Facebook conversation with their co-worker, La France, a former employee of the bar, and the bar's customers about the employees owing more in state income taxes than they had expected. Sanzone responded to LaFrance's post that "I owe too. Such an asshole." Spinella "Liked" LaFrance's initial post. When the owners of Triple Play learned of the Facebook conversation, they fired Sanzone for disloyalty and Spinella because "he liked the disparaging and defamatory comments" in the discussion thread.

The NLRB found that the employees' Facebook activity constituted protected concerted activity for which they could not be terminated. The NLRB explained that neither employee's post was so disloyal, reckless or maliciously untrue as to lose its protection under the National Labor Relations Act. While other individuals posted even more defamatory comments, stating that they believed the employer was "pocketing employees' money," and used derogatory terms to describe the owners, only Sanzone's and Spinella's individual posts in response to La France could be considered for purposes of determining whether they were protected by the Act. The NLRB held that "neither Sanzone nor Spinella would have lost the protection of the Act merely by participating in an otherwise protected discussion in which other persons made unprotected statements."

Impact: The NLRB's ruling in this case confirms that a Facebook "Like" can be protected concerted activity. Further, this case serves as an important reminder that, in general, employees' social media activity that otherwise is protected under the Act will not lose its protection merely because other parts of the discussion contain unprotected statements.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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