In a recent opinion with important implications for California businesses, the California Supreme Court held that franchisors are not vicariously liable for the conduct of employees managed by its franchisees.

In Patterson v. Domino’s Pizza, LLC, et al., the plaintiff, a service employee at a Southern California Domino’s Pizza franchise, alleged that she had been sexually harassed by her supervisor, the store’s Assistant Manager.  She asserted claims against the alleged harasser, the franchisee, and Domino’s Pizza, the franchisor, alleging that, although she (and the alleged harasser) formally were employed by the franchisee, the franchisor was vicariously liable for her injuries.  More specifically, she argued that because the franchisor exercised extensive control over the franchisee’s operations, the franchisee was an “agent” of the franchisor and the franchisor was an “employer” of the franchisee’s employees, subjecting the franchisor to liability for injuries arising out of the employees’ performance of their job duties. 

The Supreme Court disagreed, finding that a franchisor’s imposition of “comprehensive and meticulous standards for marketing its trademarked brand and operating its franchises in a uniform way” was not the sort of “control” that would make it an employer of the franchisee’s workers under common law.  Rather, the franchisor must “exhibit the traditionally understood characteristics of an ‘employer’ or ‘principal’” by retaining control over, for example, the hiring, firing, discipline, direction, and day-to-day oversight of the employees, tasks that were explicitly left to the franchisee under the parties’ franchise agreement.

In dissent, a minority of the Court wrote that the franchisor’s status should have been decided by a jury, pointing to evidence that the franchisor may have played a part in certain employment-related functions, including by recommending that an employee be terminated on a separate occasion.

The Patterson decision is a victory for employers wishing to shield themselves from exposure to claims by workers with whom they have no direct employment, contractual, or supervisory relationship.  Nevertheless, California’s definition of “employer” remains uniquely broad, and companies therefore are encouraged to take steps to ensure their relationships with subordinate entities, contractors, and affiliates are structured so as to minimize the risk of potential employment claims.

For further reading, visit the Jackson Lewis website here.