A Victory for Franchising and Franchisors: California Supreme Court Holds that Franchisor is Not Liable for Sexual Harassment by a Franchisee’s Employee

In a 4-3 decision, the California Supreme Court found that a franchisor was not liable for sexual harassment by an employee of one of its franchisees. A worker claimed that she was sexually harassed at work at a Domino’s pizza franchise and sued the harasser, franchisee, and franchisor.

The issue before the Court was whether the franchisor had the requisite employment or agency relationship with the franchisee and its employees in order to be held liable for the sexual harassment committed by a franchisee’s employee.

The Court looked at the issues of agency, control, and the doctrine of respondeat superior. Under the doctrine of respondeat superior, an employer may be held liable for the tortious conduct of its employee if the tort is committed within the scope of employment. Plaintiff argued that the franchisee acted as an agent for the franchisor and that employees of the franchisee were in essence employees of the franchisor.

The franchise contract between the parties stated that there was no principal-agent relationship between the franchisor and franchisee and that there was no employment or agency relationship between them. The contract also stated responsibilities and duties related to employees were given to the franchisee. The Court found that the franchisee controlled the training about sexual harassment.

Because of the unique characteristics of a franchise relationship, franchisors generally exercise significant control over franchisees by establishing standards and uniform operating procedures. Although the franchisee has to follow the standards set by the franchisor, the franchisee generally has control of day-to-day management.

In this case, the Court concluded that the franchisor did not exercise sufficient control over the day-to-day operations of the franchisee and that an employment or agency relationship did not exist to hold the franchisor liable for the sexual harassment committed by the franchisee’s employee.

The dissent argued that the majority focused too much on the literal terms of the contract rather than the actual relationship and interaction between the franchisee and the franchisor. The dissent argued that the franchisor did exercise control over the franchisee in directing the franchisee to fire two employees.

Patterson v. Domino’s Pizza is a win for franchisors. However, the Court’s ruling is limited in its scope. The courts in California and throughout the US will continue to evaluate the relationship between franchisees and franchisors when it comes to liability in other situations. The main question in whether the franchisor in a particular case exercises actual control over what happens at the franchisee’s operation.

Contact the Arizona franchise lawyers at Gunderson, Denton & Peterson, P.C. today!

Written By Brad Denton

Gunderson, Denton & Peterson, P.C.

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