United States: A Glimmer Of Hope For Franchisors Fearing Joint Employer Liability

In a recent article published by the Franchise Law Journal1, authors Mary-Christine Sungaila and Martin M. Ellison survey the current status of joint employer liability in the franchise context and the pervasive influence of Patterson v. Domino's2 in this area of the law. In the wake of the National Labor Relations Board's (NLRB)  majority decision in Browning-Ferris Industries3, franchisors have been forced to grapple with defining what controls may not be considered those "customarily exercised by a franchisor for the purpose of protecting the franchisor's trademark and brand." Controls outside those parameters may expose franchisors to liability for actions of their franchisees and franchisees' employees.

Prior to the NLRB's groundbreaking decision, courts across jurisdictions applied either the "means and manner" test or the "instrumentality" test to determine whether franchisors exercised sufficient control over their franchisees to be held vicariously liable as a joint employer. Under the "means and manner" test, the relevant inquiry is whether the franchisor exercised control, or had the right to exercise control, over the means and manner in which the franchisee conducted its day-to-day operations.4 Contrastingly, under the "instrumentality" test the relevant inquiry is whether the franchisor controls the actual aspect of the franchisee's business that caused an alleged harm.5

In 2014, the California Supreme Court directly addressed the issue of joint employer liability in the franchise context in Patterson v. Domino's, and many other jurisdictions have adopted the new test endorsed by California's highest court. In Patterson, Sui Juris, LLC owned and operated a Domino's pizza franchise in California. The parties to the franchise agreement were Sui Juris and Domino's Pizza Franchising, LLC.

The Plaintiff, Taylor Patterson, was an hourly employee who alleged the assistant store manager made lewd comments and gestures to her and inappropriately touched her. She reported this behavior to Sui Juris's owner, and her father reported the behavior to the police and Domino's corporate human resources department. Patterson believed that her hours were then reduced for reporting the assistant manager's behavior. When the owner of Sui Juris informed a regional leader for Domino's about the allegations the regional leader said, "You've got [to] get rid of this guy." Patterson sued Sui Juris, the assistant manager, and Domino's, alleging sexual harassment, failure to take reasonable steps to avoid harassment, and retaliation for reporting harassment. She alleged that she and the assistant manager were both employees of Domino's, and that Sui Juris and Domino's had an agency relationship such that Domino's was responsible for Sui Juris's conduct. Domino's moved for summary judgment, arguing that it had neither an agency relationship with Sui Juris nor an employment relationship with the assistant manager.

The trial court granted summary judgment for Domino's, finding that, because Domino's did not control the day-to-day operations or employment practices of Sui Juris, no agency or employment relationship existed that could subject Domino's to any liability for the assistant manager's misconduct. The appellate court reversed the trial court's decision. The appellate court held that the operational standards and procedures imposed by Domino's exerted the type of day-to-day control that could subject Domino's to vicarious liability for the acts of Sui Juris's assistant manager. Furthermore, the appellate court cited the comment of the Domino's regional leader as evidence that raised a triable issue of fact as to whether the assistant manager was an employee of Domino's and whether Sui Juris was an agent of Domino's.

The California Supreme Court reversed the appellate court decision and ruled that the trial court properly granted summary judgment in favor of Domino's. The court determined that "Domino's lacked the general control of an 'employer' or 'principal' over relevant day-to-day aspects of the employment and workplace behavior of Sui Juris's employees." The California Supreme Court held that uniform marketing and operational plans cannot automatically impose liability on the franchisor for the actions of a franchisee's employees. Rather, to be potentially liable, the franchisor must retain or assume "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."6

Since the Patterson decision, at least six different courts have applied its holding in the franchise context.7 These cases illustrate that the aspects of a business format franchise system including, but not limited to those listed below, amount to nothing more than the comprehensive and meticulous standards by which business format franchisors ensure uniformity among their franchises.8

General Franchise Aspects

  1. Detailed franchise agreements containing specifications, standards, operating procedures and rules.
  2. Standardized computer system software for use in all franchises.
  3. Regional developers to recruit potential franchisees and assist in opening new franchises.
  4. Franchise inspections to ensure compliance; employee uniforms.
  5. Restrictions on the types of services offered and products sold.
  6. Scripts for interaction with customers or clients.

The post-Patterson cases further demonstrate:

  1. the test announced in Patterson extends to claims beyond the California Fair Employment and Housing Act;
  2. a franchisor's status as a joint employer may be decided via a motion to dismiss or motion for summary judgment; and
  3. brand-maintenance controls should not factor into the joint employer liability determination unless those controls are directly related to the conduct that allegedly caused the harm.

The Patterson test, which very closely resembles the "instrumentality" test, focuses on allocating liability to the entity or persons who are in a position to control the tortfeasor's behavior. Thus, the Patterson analysis and its wide-ranging acceptance gives franchisor's greater assurance that exercising general control such as specifying quality, marketing and operational requirements will not be sufficient to expose franchisors to liability for the acts and omissions of their franchisees under the theory of joint employer liability.

Footnotes

1 Mary-Christine Sungaila and Martin M. Ellison, Joint Employer Liability in the Franchise Context: One Year After Patterson v. Dominos', 35:3 FRANCHISE L.J. 339 (2016).

2 Patterson v. Domino's Pizza, LLC, 60 Cal. 4th 474 (Cal. 2014).

3  BFI Newby Island Recyclery, 2015 NLRB LEXIS 672 (N.L.R.B. Aug. 27, 2015).

4 See Pizza K, Inc. v. Santagata, 249 Ga. App. 36 (Ga. Ct. App. 2001); Schlotzsky's, Inc. v. Hyde, 245 Ga. App. 888 (Ga. Ct. App. 2000); Hart v. Marriott Int'l, Inc., 304 A.D.2d 1057 (N.Y. App. Div. 3d Dep't 2003).

5 Kerl v. Rasmussen, 682 N.W.2d 328, 342 (Wis. 2004); see also Ketterling v. Burger King Corp., 152 Idaho 555 (Idaho 2012); Hong Wu v. Dunkin' Donuts, Inc., 105 F. Supp. 2d 83 (E.D.N.Y. 2000); Fitz v. Days Inns Worldwide, Inc., 147 S.W.3d 467 (Tex. App. San Antonio 2004).

6 Patterson, 60 Cal. 4th 474 at 503.

7 See Vann v. Massage Envy Franchising LLC, 2015 U.S. Dist. LEXIS 1002 (S.D. Cal. Jan. 5, 2015); Hahn v. Massage Envy Franchising LLC, 2015 U.S. Dist. LEXIS 62963 (S.D. Cal. Mar. 6, 2015); Brunner v. Liautaud, 2015 U.S. Dist. LEXIS 46018 (N.D. Ill. Apr. 8, 2015); Henning v. Narconon Fresh Start, 2015 U.S. Dist. LEXIS 99160 (S.D. Cal. July 28, 2015); Keller v. Narconon Fresh Start, 2015 U.S. Dist. LEXIS 53596 (S.D. Cal. Apr. 22, 2015); Ochoa v. McDonald's Corp., 2015 U.S. Dist. LEXIS 129539 (N.D. Cal. Sept. 24, 2015).

8 Vann, 2015 U.S. Dist. LEXIS 1002 at *3-6, 16.

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