Thursday, July 26, 2012

Pizza Franchisor Could Be Vicariously Liable for Employee’s Injuries

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

Pizza restaurant franchisor Domino’s control over one of its California franchisees was such that Domino’s could be vicariously liable for the sexual harassment and assault inflicted on one of the franchisee’s employees by another of the franchisee’s employees, according to a California appellate court. Thus, a ruling by a California state trial court, granting summary judgment to Domino’s on the injured employee’s claims, was reversed.

The injured employee claimed that both the franchisee and Domino’s were the employers of the harassing employee and were vicariously liable for his actions under the doctrine of respondeat superior. In granting Domino’s motion for summary judgment, the trial court noted that the franchise agreement between Domino’s and the franchisee provided that the franchisee was responsible for "supervising and paying the persons who work in the Store.

The trial court found that the franchisee was an independent contractor and that the harassing employee was not an employee or agent of Domino’s for purposes of imposing vicarious liability. The employee argued on appeal that the language cited by the trial court was limited or qualified by other provisions of the agreement that vested substantial control in Domino's.

Provisions of the agreement substantially limited franchisee independence in areas that went beyond food preparation standards, the court observed. The franchisee's computer system was not within its exclusive control because Domino's had independent access to its data. Moreover, Domino's determined the franchisee's store hours, advertising, the handling of customer complaints, signage, the e-mail capabilities, the equipment, the furniture, the fixtures, the décor, and the method and manner of payment by customers. Domino's also regulated the pricing of items at the counter and home delivery, and set the standards for liability insurance.

Domino's Manager's Reference Guide (MRG) described the specific employment hiring requirements for personnel involved in product delivery, and it describes the documents that must be included in their personnel files, the court found. The MRG required all employees to submit time cards and daily time reports and specified standards for employee hair, facial hair, dyed hair, jewelry, tattoos, fingernails, nail polish, shoes, socks, jackets, belts, gloves, watches, hats, skirts, visors, body piercings, earrings, necklaces, wedding rings, tongue rings, clear tongue retainers, and undershirts, the court noted.

The MRG also specified the standards a franchisee is expected to maintain as minimum guidelines, including requirements in a variety of areas, such as: bank deposits, safes, mobile phone use, store closing procedures, refuse removal, phone caller identification requirements, security, delivery staffing, holiday closings, stereos, tape decks, wall displays, franchisee web sites, in-store conversations, and literature that is allowed in a store.

These requirements raised reasonable inferences supporting the harassed employee’s claim that the franchisee was not an independent contractor, the court decided. Domino's relied on decisions from other states suggesting the language of the franchise agreement was dispositive on the issue of control. However, California courts concluded that the provisions of the agreement are relevant, but not the exclusive evidence of the relationship. Instead, California courts looked to the totality of the circumstances to determine who actually exercises the ultimate control.

The franchisee owner testified that Domino's provided guidelines about the employees he could hire. They had to "look and act a certain way," and he implemented those policies when he hired applicants. The owner’s testimony, if believed by a trier of fact, supported reasonable inferences that there was a lack of local franchisee management independence.

The decision is Patterson v. Domino’s Pizza, LLC, CCH Business Franchise Guide ¶14,855.

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