In a case of first impression, Patterson v. Domino’s Pizza, LLC (Cal. Aug. 28, 2014) [124 FEP Cases 994], the California Supreme Court concludes franchising does not automatically create an employment or agency relationship with a franchisor for purposes of holding it vicariously liable for the sexual harassment of a franchisee store’s employee by her supervisor. In a 4-3 opinion authored by Justice Baxter, the Supreme Court holds a franchisor becomes potentially liable for the actions of a franchisee’s employees only if it has retained control over “relevant day-to-day aspects of workplace behavior” of the franchisee’s employees.

Factual Background

The plaintiff Taylor Patterson, a former pizza store employee, brought a sexual harassment lawsuit against her male supervisor, franchisee Sui Juris LLC (solely owned by Daniel Poff) and franchisor Domino’s Pizza, LLP (“Domino’s”). Patterson asserted the franchisor was the “employer” of persons working for the franchisee and the franchisee was the “agent” of the franchisor, arguing the franchisor could be held vicariously liable for her harasser’s alleged breach of statutory and tort law. Plaintiff argued the store manager Rene Miranda sexually harassed her whenever they shared the same shift. He made lewd comments and gestures, and grabbed her breasts and buttocks. After he refused to stop, Patterson reported the problem to her father and to Poff. Patterson stayed away from work for one week, and then returned. She soon resigned. She perceived that her hours were reduced in retaliation for reporting sexual harassment.

The trial court granted summary judgment for the franchisor on the ground that agency and employment relationships were lacking. The Court of Appeal reversed the judgment of the trial court.

The Supreme Court granted Domino’s petition for review on the issue of determining a franchisor’s potential vicarious liability for wrongful acts committed by one employee of a franchisee while supervising another employee of the franchisee.

Domino’s statutory liability for the acts of sexual harassment that allegedly occurred at the Sui Juris store depends on whether Domino’s was an “employer” of both plaintiff and the harasser, Miranda.

Traditional common law principles of agency and respondeat superior supply the proper analytical framework under FEHA, as they do for franchising generally. Courts in FEHA cases have emphasized “the control exercised by the employer over the employee’s performance of employment duties.” (Bradley v. Department of Corrections & Rehabilitation (2008) 158 Cal.App.4th 1612, 1626 [102 FEP Cases 1016], accord, McCoy v. Pacific Maritime Assn. (2013) 216 Cal.App.4th 283, 301-302 [118 FEP Cases 630].) This standard requires “a comprehensive and immediate level of ‘day-to-day’ authority” over matters such as hiring, firing, direction, supervision, and discipline of the employee.

Domino’s prescribed standards and procedures involving pizza-making and delivery, general store operations, and brand image. These standards were vigorously enforced through representatives of the franchisor who inspected franchised stores.  Domino’s provided new employees with orientation materials in both electronic and handbook form. Such programs supplemented the training that Poff was required to conduct.

However, the franchisee, not Domino’s, controlled the training of employees on how to treat each other at work and how to avoid sexual harassment. No evidence existed that Domino’s covered these subjects in the training programs. As best Poff could recall, only pizza-making, store operations, safety and security, and driving instructions were involved.

Poff implemented his own sexual harassment policy and training program for his employees.  He adopted a zero tolerance approach, among other things. Poff held meetings in which he personally and vigorously trained his managers about sexual harassment. He also installed his policy on the computer system for employees to view. Nothing indicates the extent, if any, to which Poff borrowed from his mandatory Domino’s training as a franchisee to craft a sexual harassment policy for his store. Poff could not recall what, if anything, he learned from Domino’s about these topics.  No Domino’s representative trained Sui Juris’s employees on sexual harassment. Nothing in the record indicates that any Domino’s representative reviewed Poff’s sexual harassment policy, discussed its substance with Poff or his employees, or observed any training sessions at the store.  No evidence existed that Poff discussed the topic of sexual harassment with Domino’s area leaders before Patterson reported Miranda’s misconduct to Poff, or before her father contacted Domino’s by calling the 1-800 number established for Domino’s customers complaining about their meal or service.

Poff’s sexual harassment policy and training program provided Poff the authority to impose discipline for any violations.  Domino’s did not have such significant control. Poff first suspended Miranda. Poff then started an investigation. However, he could not reach a conclusive result. Miranda subsequently lost his job because he failed to report to work.  Poff refused to rehire Miranda. No evidence existed that Poff solicited Domino’s advice or consent on any of these decisions, or that he was required to do so.

Findings of the Supreme Court

Although Plaintiff highlighted the franchisee’s testimony that a representative of the franchisor said the harasser should be fired, the Supreme Court could not infer from the evidence that Domino’s had “control” over discipline for sexual harassment complaints.

Plaintiff herself testified that after the franchisee hired her, she followed his policy, and reported the alleged sexual harassment to him.  The franchisee suspended the offender consistent with his own personnel policies. Poff declined to follow the ad hoc advice of the franchisor’s representative, and neither expected nor sustained any sanction for doing so. Nothing contractually required or allowed the franchisor to intrude on this process. Thus, the Supreme Court concluded the franchisee made day-to-day decisions involving the hiring, supervision, and disciplining of his employees.

Practical Tips

This case provides practical tips for minimizing potential exposure for franchisors and other alleged joint employers.  First, harassment complaints by franchisee employees should be reported directly to the franchisees.  Second, franchisors should not conduct training or oversee harassment complaints by employees of franchisees.  Third, franchisees should exercise exclusive authority for disciplinary and responsive action.  Finally, each situation presents unique facts and should be evaluated independently to determine the best course of action.