Franchise Agreements and Employment Liability on Franchisors

July 10, 2012
Paul Schrieffer, Esq
P.K. SCHRIEFFER LLP

Dear Clients and Colleagues,

The Court of Appeal held that the language of a franchise agreement must be examined to determine the extent to which a franchisor can be liable for the acts of a franchisee’s supervisor. Ms. Patterson was an employee of Sui Juris, a Domino’s pizza franchisee. She claimed that one of the franchisee supervisors sexually harassed and assaulted her. She then filed suit against both the franchisee (Sui Juris) and the franchisor, Domino’s Pizza Franchising LLC (Domino’s). The trial court granted summary judgment in favor of Domino’s, holding that Domino’s was not Patterson’s employer and played no role in the training, supervision or hiring of Sui Juris’ employees. The trial court also found that Sui Juris was an independent contractor, and that the supervisor alleged to have harassed Patterson was not an employee or agent of Domino’s for purposes of imposing vicarious liability.

The Court of Appeal rejected the trial court’s findings. Instead, it ruled that in order to determine whether a franchisor is vicariously liable for injuries to a franchisee’s employee, the court must look to the franchise agreement itself. Here, although the franchise agreement between Domino’s and Sui Juris provided that Sui Juris was “solely responsible for recruiting, hiring, training, scheduling for work, supervising and paying the persons who work in the Store and those persons shall be your employees and not [Domino’s] agents or employees” other language in the franchise agreement provided for a level of control over Sui Juris’ operations that created a triable issue of fact of whether the franchisee and the franchisee supervisor were independent contractors or agents of Domino’s. Testimony offered by Sui Juris’ owner as to the level of control exerted by Domino’s offered further reasonable inferences that there was a lack of local franchisee management, and established triable issues of fact as to those issues. The court overturned the trial court’s ruling and reversed the judgment in favor of Domino’s.

This case is an important reminder that when dealing with issues regarding independent contractor relationships and agency relationships in employment cases, the language in contracts will be examined in order to determine potential exposure.