It’s a constant push/pull in the franchise relationship; how much control is too much? Two recent cases in California have revisited the issue.
In the first case, Patterson v. Domino’s Pizza, LLC, et al. (Super. Ct. No. 56-2009-00347668-CU-OG-SIM), the California Court of Appeal found that Domino’s Pizza, LLC, the franchisor of the Domino’s brand, may have exerted too much control over a franchisee, giving rise to the possibility that the franchisor may be vicariously liable for a sexual harassment claim brought by an employee of a franchisee. The plaintiff alleged that he was sexually harassed and assaulted by an employee of Sui Juris, a Domino’s franchisee. The plaintiff sued Sui Juris and the franchisor under California’s Fair Employment and Housing Act.
Domino’s prevailed at the trial court level in its motion for summary judgment, claiming that Sui Juris was an independent contractor and that no agency relationship between the franchisor and franchisee existed. Domino’s based its argument on its franchise agreement which stated, in part, that “Sui Juris is responsible for supervising and paying the persons who work in the store.” Id.
The appellate court disagreed. In the first sentence of the Court’s opinion, it states, “Here, for purposes of a summary judgment motion, a franchisor’s actions speak louder than words in the franchise agreement.” Id. The court then focused on testimony provided by a principal of Sui Juris regarding the degree of control Domino’s exerted over his day-to-day business operations. The franchisee testified that an “area leader” of the franchisor told him to terminate certain employees, including the plaintiff, on more than one occasion. The franchisee testified that his understanding was failure to follow such directives would result in the termination of his franchise agreement. While Domino’s presented evidence to the contrary, the court did not resolve factual disputes as it was evaluating a motion for summary judgment. The matter is now pending before California’s Supreme Court to determine whether the franchisor is entitled to summary judgment on plaintiff’s claim that it is vicariously liable for tortious conduct by a supervising employee of a franchisee.
A second case, The People v. JTH Tax, Inc. 2013 Cal. App. LEXIS 37 (Cal. Ct. App. Jan. 17, 2013), a California appellate court found a franchisor vicariously liable for its franchisee’s unlawful advertising. The matter involved allegations that the franchisee violated California’s consumer protection laws. The Court found that the level of control exerted by the franchisor over the franchisee established an agency relationship, and therefore, the franchisor was held liable for its franchisee’s illegal conduct.
These matters remind franchisors that they must remain ever vigilant of the controls in place within their system and balance system standards with the need to insulate the franchisor from vicarious liability claims.