Franchise relationships are growing and need to be regulated. It is important to make both the franchisor and the franchisee responsible for the companies they create and/or run and/or set up. According to California Law, a franchisee is granted the right to engage in a business under a plan or system set up by the franchisor (think McDonald’s where 80% of its restaurants are operated under franchise agreements, with 20% operated as a chain).
The California Supreme Court put its thumbs on the wrong side of the scale of justice by letting Domino’s Pizza off the hook for sexual harassment because it was a franchisor. Patterson v. Domino’s Pizza, 60 Cal.4th 474 (2014). Nonetheless, it is important that any victim of sexual harassment or wrongful conduct look carefully at the franchise contract and the conduct of the franchisor and franchisee before determining whether or not to sue a franchisor.
The California Supreme Court found that, on the facts of this case, Domino’s didn’t have control or the right to control hiring/firing/discipline/employment policies and practices, and thus wasn’t responsible for the sexual harassment of Ms. Patterson. The Court declared that since Domino’s doesn’t have the right to control, or actual control, over these things, an employee can only sue the franchisee for sexual harassment. In reality, the Court decided it just didn’t want to make the franchisor responsible – regardless of the facts or the law.
In every case involving a franchise relationship, it is important that employees and their lawyers look carefully at all the facts involving the right to control. Some cases have gone the opposite way of Patterson. For example, Nichols v. Arthur Murray, Inc., 248 Cal.App 2d 610 (1967), concluded that the franchisor had the right to control day-to-day operations including employment relations. It came out the opposite of the Patterson case because of the specific facts regarding the franchisor’s “right to control” the franchise.
It is also important to ask whether the franchisor actually exercised control and/or acted as a joint employer. As noted by the dissent in the Patterson v. Domino’s case, the franchisor did exercise control, and did act as a joint employer. It did so by regular inspections and threats that it could revoke a franchisee’s status. It went so far as to “strongly hint[ed]” that certain employees should be fired.
Just because the California Supreme Court made a bad decision doesn’t mean that employees should give up on making a case for franchisor liability.
November 20, 2014