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Recent California Supreme Court Opinion Holds That Franchisors Are Not Liable for the Misconduct of a Franchisee’s Employees

On August 29th a divided California Supreme Court held that Domino’s Pizza LLC could not be held liable for alleged sexual harassment by an employee at one of its franchisee’s outlets. (Patterson v. Domino’s Pizza, LLC 2014 DJDAR 12005) The decision is the first time the high court has addressed the relationship between a franchisor and the employees of its franchisees.

In the Patterson case, a franchisee’s female employee complained to the franchisee’s owner of sexual harassment by a manager. The manager’s conduct continued until the female employee resigned. The franchise agreement between Domino’s and the franchisee stated that the local franchisee would be solely responsible for recruiting and hiring employees and that the franchisee’s employees would not be the agents or employees of Domino’s Pizza, LLC (the franchisor). The owner of the franchisee testified that he conducted all aspects of the hiring process with no input from franchisor Domino’s. The franchise agreement furthermore made the franchisee solely responsible for supervising its employees. The franchisor provided no training on sexual harassment. Instead, the franchisee implemented his own sexual harassment training and was solely responsible for its enforcement. Domino’s representatives testified that at most they would recommend terminating employees they found to be harming Domino’s brand image.

The trial court granted summary judgment in favor of Domino’s Pizza, LLC (the franchisor). The intermediate court of appeal reversed the trial court ruling and Domino’s Pizza LLC subsequently filed a Petition for Review with the California Supreme Court.

The question before the Court was whether a franchisor stands in an employment or agency relationship with its franchisees and the franchisee’s employees for purposes of holding it liable for workplace injuries allegedly by one employee of a franchisee while supervising another employee of the franchisee. In a 4-3 decision, the court found that while Domino’s, as a franchisor, imposes comprehensive and meticulous standards for marketing its brand on its franchisees, the franchisee retains autonomy as both the manager and employer. Thus while Domino’s asserted broad control over the food preparation, marketing, and general store operations, it lacked any control over hiring, disciplining, or terminating employees. Without this control it could not be held vicariously liable for the acts of those employees.

The dissent argued that there was sufficient evidence that Domino’s representatives applied both direct and indirect pressure on its franchisors to terminate employees by threatening to terminate the franchise agreement with the franchisee. According to the dissent, evidence that Domino’s had the ability to indirectly dictate the franchisee’s employment decisions created a question of fact whether Domino’s could be considered an employer and liable for the manager’s actions. This question of fact, according to the dissent, should have been decided by a jury [the existence of a triable issue of fact will defeat a Motion for Summary Judgment].

The Court’s decision could have wider implications for any defendant arguing it is not vicariously liable for the torts of an agent or a fellow joint venturer. The Court, in finding no employment relationship existed between Domino’s and the plaintiff, disregarded the extensive control Domino’s exerted over the franchisee when it came to food safety, branding, and quality control. It instead focused its inquiry solely on the inability of Domino’s to exert control over the franchisee’s hiring, supervision, and disciplining of its employees.

No previous case has addressed an instance where a party asserts such complete control over certain aspects of another’s business but cannot be liable for those actions that fall outside the scope of its control. This decision suggests that a party may carefully limit what aspects of a business it controls to insulate itself from liability from conduct outside its control.

Nathaniel Lucey is an attorney in the San Jose office of Ericksen Arbuthnot. He can be reached at or (408) 286-0880.