Franchising, especially in the fast-food industry, has become a ubiquitous, lucrative, and thriving business model. This contractual arrangement benefits both parties. The franchisor, which sells the right to use its trademark and comprehensive business plan, can expand its enterprise while avoiding the risk and cost of running its own stores. The other party, the franchisee, independently owns, runs, and staffs the retail outlet that sells goods under the franchisor's name. By following the standards used by all stores in the same chain, the self-motivated franchisee profits from the expertise, goodwill, and reputation of the franchisor.
In the present case, a male supervisor employed by a franchisee allegedly subjected a female subordinate to sexual harassment while they worked together at the franchisee's pizza store. The victim, who is the plaintiff herein, sued the franchisor, along with the harasser and franchisee. The plaintiff claimed that because the franchisor was the "employer" of persons working for the franchisee, and because the franchisee was the "agent" of the franchisor, the latter could be held vicariously liable for the harasser's alleged breach of statutory and tort law.
The trial court granted summary judgment for the franchisor on the ground the requisite employment and agency relationships did not exist. The Court of Appeal disagreed, and reversed the judgment of the trial court.
We granted review to address the novel question dividing the lower courts in this case: Does a franchisor stand in an employment or agency relationship
Over the past 50 years, the Courts of Appeal, using traditional "agency" terminology, have reached various results on whether a franchisor should be held liable for torts committed by a franchisee or its employees in the course of the franchisee's business. In analyzing these questions, the appellate courts have focused on the degree to which a particular franchisor exercised general "control" over the "means and manner" of the franchisee's operations.
Meanwhile, franchising has seen massive growth. A franchisor, which can have thousands of stores located far apart, imposes comprehensive and meticulous standards for marketing its trademarked brand and operating its franchises in a uniform way. To this extent, the franchisor controls the enterprise. However, the franchisee retains autonomy as a manager and employer. It is the franchisee who implements the operational standards on a day-to-day basis, hires and fires store employees, and regulates workplace behavior.
Analysis of the franchise relationship for vicarious liability purposes must accommodate these contemporary realities. The imposition and enforcement of a uniform marketing and operational plan cannot automatically saddle the franchisor with responsibility for employees of the franchisee who injure each other on the job. The contract-based operational division that otherwise exists between the franchisor and the franchisee would be violated by holding the franchisor accountable for misdeeds committed by employees who are under the direct supervision of the franchisee, and over whom the franchisor has no contractual or operational control. It follows that potential liability on the theories pled here requires that the franchisor exhibit the traditionally understood characteristics of an "employer" or "principal"; i.e., it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee's employees. (See Vernon v. State of California (2004) 116 Cal.App.4th 114, 124 [10 Cal.Rptr.3d 121] (Vernon) [considering "the `totality of circumstances' that reflect upon the nature of the work relationship of the parties"].)
Here, the franchisor 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. However, there was considerable, essentially uncontradicted evidence that the franchisee made day-to-day decisions involving the hiring, supervision, and disciplining of his employees. Plaintiff
Plaintiff highlights the franchisee's testimony that a representative of the franchisor said the harasser should be fired. But, consistent with the trial court's ruling below, any inference that this statement represented franchisor "control" over discipline for sexual harassment complaints cannot reasonably be drawn from the evidence. The uncontradicted evidence showed that the franchisee imposed discipline consistent with his own personnel policies, declined to follow the ad hoc advice of the franchisor's representative, and neither expected nor sustained any sanction for doing so.
For these reasons, we will reverse the Court of Appeal's decision overturning the grant of summary judgment in the franchisor's favor.
In September 2008, a company named Sui Juris, LLC (Sui Juris or the franchisee), acquired an existing Domino's pizza franchise in Southern California. The franchise agreement was signed for Sui Juris by its sole owner, Daniel Poff (Poff). The other contracting party was Domino's Pizza Franchising, LLC, which was related to both Domino's Pizza, Inc., and Domino's Pizza, LLC (collectively, Domino's or the franchisor).
When operations began, Sui Juris retained, as its employees, the 17 or 18 people who already staffed the store. One of them was Renee Miranda (Miranda), an adult male who held the title of assistant manager.
In November 2008, a young woman named Taylor Patterson (Patterson) was hired to serve customers at the Sui Juris store. Her job soon ended under circumstances set forth in the pleadings, which we now describe.
In June 2009, Patterson filed this action against Miranda, Sui Juris, and Domino's. She alleged the following facts: Miranda worked as a manager at the Sui Juris store. He sexually harassed her whenever they shared the same shift. He made lewd comments and gestures, and grabbed her breasts and buttocks. After Miranda refused to stop, Patterson reported the problem to her father and to Poff.
The complaint stated several causes of action. The first three counts invoked the California Fair Employment and Housing Act (FEHA), and alleged sexual harassment, failure to take reasonable steps to avoid harassment, and retaliation for reporting harassment. (See Gov. Code, § 12900 et seq.)
Critical here is Patterson's portrayal of the legal relationship between Domino's and the employees of Sui Juris. As to all causes of action, the complaint maintained that Domino's was the "employer" of both Patterson and Miranda, and that they were the "employee[s]" of Domino's. Each defendant was described as "the agent, employee, servant and joint venturer" of the other defendants. At all relevant times, defendants purportedly acted "within the course, scope and authority of such agency, employment and joint venture, and with the consent and permission of" the other defendants. Also, it was alleged that the officers and/or managing agents of every defendant "ratified and approved" all actions of the other defendants.
In November 2010, Domino's sought summary judgment, or, alternatively, summary adjudication, against Patterson. Responding to allegations in the complaint, Domino's argued that it was not an "employer" or "principal," and could not be held vicariously liable for Miranda's misconduct as a result. Domino's acknowledged that it imposed and enforced broad standards for selling its trademarked pizza brand. That way, customers expected and received a similar experience each time they patronized any franchised store. Domino's maintained, however, that Sui Juris was a separate business run by Poff, and that he selected, managed, and disciplined his employees. Hence, Domino's claimed, the internal day-to-day control needed for an employment or agency relationship was lacking.
Domino's submitted excerpts from its franchise agreement with Sui Juris. Domino's also provided (1) a declaration by Joseph P. Devereaux (Devereaux), Domino's director of franchise services, (2) excerpts from the deposition of Poff, who owned Sui Juris, and (3) excerpts from the deposition of Patterson, the plaintiff. We now review this evidence.
Patterson's employment with Sui Juris reflected the foregoing policy and practice. Patterson, like Poff, testified that in November 2008 she walked into the Sui Juris store, and asked for a job application. She was interviewed by Poff. In Patterson's words, Poff hired her "on the spot."
Otherwise, the contract removed from Domino's any right or duty to "implement a training program for [Sui Juris's] employees," or to "instruct [them] about matters of safety and security in the Store or delivery service area." Poff, in turn, agreed to be "solely responsible" for implementing programs to train his employees on the legal, safe, and proper performance of
Poff testified that when he first opened the Sui Juris store, he received guidance over three days from Claudia Lee (Lee), an "area leader" for Domino's. She "did nothing" to help him train his employees. Poff personally trained newly hired employees himself. However, Domino's provided an orientation program for new employees on the store's computer system, i.e., the "PULSE" system. Those programs covered pizza making, store operations, safety and security, and driving instructions. The PULSE training program was accompanied by a Domino's handbook.
Regarding sexual harassment training for his employees, Poff was "not sure" that Domino's covered this topic in its PULSE programs. Poff answered "no" in his deposition when asked if "anybody from Domino's ... provide[d] sexual harassment training to [his] employees."
Instead, Poff implemented his own (i.e., "my") sexual harassment policy. Poff explained that his policy involved "zero tolerance" and the "reasonable woman standard." Store managers received such instruction during multiple meetings with Poff. He told them to contact him if an issue or question arose. Nonmanagerial employees received some sexual harassment information as well. Poff placed his policy on the PULSE system. In her deposition, Patterson gave this additional account: "When [Poff] had first hired me, [he said] that it was a big thing to him, sexual harassment; and that if it had happened, that he would want me to contact him right away."
Patterson testified that she was supervised at work either by Poff or by one of his managers or assistant managers, including Miranda. Poff testified that Patterson and Miranda were on the payroll of Sui Juris.
Poff testified that, in actuality, he "suspended" Miranda "pending an investigation" into Patterson's sexual harassment complaint. The results were inconclusive, because Poff lacked the resources to satisfactorily complete the task. The problem solved itself, Poff explained, when Miranda failed to show up for work. He "self-terminated," in Poff's view.
Patterson testified that shortly after the foregoing events occurred, she quit her job. There was one week in which she was scheduled to work only three days, rather than four days. Patterson admitted, however, that she was never told she would always work a minimum of four days a week.
Patterson disputed Domino's claim that it did not control Sui Juris's day-to-day operations, including employment matters. Hence, she asked the trial court to find a triable issue of fact in this regard. For support, Patterson relied primarily on the franchise documents and the role of Domino's area leaders.
Sui Juris agreed to sell Domino's products at a specific site for a 10-year term, and to pay a royalty fee (calculated as a percentage of weekly sales) in exchange for the right to use the "Domino's System" and related trademarks. The bulk of the contract concerned the following topics: site construction; store refurbishing; equipment and furnishings; menus and pricing; advertising and promotions; reports and audits; computer systems and data access; trademark use and infringement; company inspections; contract termination; posttermination rights and procedures; and contract interpretation and enforcement. The contract also required compliance with a separate managers reference guide (the MRG), which we describe below.
The contract described the parties as "independent contractors," regardless of any training or support on Domino's part. Domino's was not liable under the contract for "any damages to any person or property arising directly or indirectly out of the operation of the Store." The parties agreed that they had no "principal and agent" relationship. Domino's disclaimed "any relationship with [Sui Juris's] employees," and assumed "no rights, duties, or responsibilities" as to their employment. Other provisions made clear that Sui Juris had no authority "to act for or on [Domino's] behalf."
Poff testified that he did not see Lee often because her service area was large.
Poff acknowledged that he adopted his own personnel policies. One of them was the sexual harassment policy. Others concerned attendance. For example, "if an employee did not show up and did not call after three times, ... they had voluntarily ... self-terminated from employment."
Poff confirmed that Miranda was an assistant manager who supervised other employees. At some unspecified point after Patterson told Poff about Miranda's sexual advances, Poff relayed the information to Lee. According to Poff, Lee mentioned that Patterson's father had called Domino's and complained about Miranda's alleged acts of sexual harassment.
In discussing the matter with Poff, Lee reportedly said, "You've got [to] get rid of this guy." Poff answered "no" in his deposition when asked whether Lee told him "what was going to happen to you if you didn't fire Miranda." Nor could he recall any specific implication in her remark. When asked whether he told Lee that he did not intend to fire Miranda, Poff said "no." The matter became a "nonissue" when Miranda "self-terminat[ed]."
Poff further testified that shortly after he first spoke with Lee about Patterson's complaint, Lee made a brief visit to the Sui Juris store. Lee expressed ongoing interest in the Patterson case. According to Poff, Lee asked whether he had training procedures and materials in place, and whether he would retrain his staff. Lee "made suggestions" in this regard. Poff
Lee described other tasks she performed, all of which prevented harm to Domino's brand and to its customers and employees. Lee would train franchisees when their doors first opened or when a new product was launched. Lee testified that, while managers employed by the franchisees sometimes attended these sessions, the franchisees were responsible for training their employees. During regular store inspections, Lee would coach franchisees and employees on problems she saw with pizza making, food safety, product packaging, store cleanliness, employee hygiene, customer orders, consumer complaints, and delivery procedures. Sometimes, franchisees were asked to temporarily close stores that had imminent safety hazards, like poor refrigeration or fire damage. Other times, Lee recommended that Domino's send a notice of default when stores did not follow procedures that were contractually required.
Regarding employees, if one of them was rude in Lee's presence, she would ask the franchisee to correct the problem. Lee testified that she was not involved in the hiring process. Nor was it her job to fire employees or demand that they be fired. On rare occasions, Lee encountered an employee whose performance was so deficient that it was hurting Domino's brand or endangering the franchise. Lee, at most, "recommended" or "suggested" to the franchisee that such employee might not be the right person for the job.
Devereaux indicated that Domino's had no procedure for processing sexual harassment complaints by employees of a franchisee. He testified that Domino's had a "1-800" telephone number for customer complaints about products and services. Devereaux understood that Patterson's father had called the customer complaint line to report the alleged sexual harassment of his daughter.
Devereaux recalled one instance in which the franchisee himself (not an employee of the franchisee) had been personally accused of sexual harassment. That case was resolved when the franchisee was placed in default and required to undergo sexual harassment training. Devereaux could not rule out the possibility that a franchisee might undergo sexual harassment training if someone working in his store was accused of such misconduct.
After a hearing, the trial court issued a lengthy statement of decision granting summary judgment for Domino's on all counts. The court determined that Domino's did not control day-to-day operations or employment practices such that Sui Juris was an agent of Domino's, or that Miranda was an employee of Domino's. In the court's view, Domino's operating standards protected brand identity and integrity, and excluded hiring, firing, and other personnel matters. The court found no significance in Lee's statement that
On appeal, the court applied the same basic principles as did the trial court, but reached the opposite result. According to the Court of Appeal, reasonable inferences could be drawn from the franchise contract and the MRG that Sui Juris lacked managerial independence. The court listed many of the standards and procedures imposed by Domino's, and noted that they concerned far more than food preparation. The Court of Appeal also found evidence that Domino's meddled in Sui Juris's employment decisions. On this score, the court emphasized Poff's testimony about following Lee's instructions, particularly her reference to firing Miranda. Hence, faced with Domino's contrary evidence (which it never described), the Court of Appeal found a triable issue of fact on Domino's role as an "employer" or "principal" for vicarious liability purposes. The judgment that had been entered in Domino's favor was reversed.
We granted Domino's petition for review. The issue was limited to determining a franchisor's potential vicarious liability for wrongful acts committed by one employee of a franchisee while supervising another employee of the franchisee.
Companies can market goods and services in more than one way. In an integrated method of distribution, the company uses its own employees and other assets to operate chain or branch stores. In doing so, it reaps the full benefits (e.g., maximizing profits) and bears the full burdens (e.g., investing capital and risking liability) of running a business. (Killion, Franchisor Vicarious Liability — The Proverbial Assault on the Citadel (2005) 24 Franchise L.J. 162, 165 (Citadel); see Shelley & Morton, "Control" in Franchising and the Common Law (2000) 19 Franchise L.J. 119, 121 (Control) [noting huge cost of company-owned stores].)
Franchising is different. (See Beck v. Arthur Murray, Inc. (1966) 245 Cal.App.2d 976, 981 [54 Cal.Rptr. 328].) It is a distribution method that has
However, it was not until the 1950's that a form of franchising called the "business format" model began to emerge. (Catch 22, supra, 40 Ind. L.Rev. 611, 615-616.) This model (which we describe below) is used heavily, but not exclusively, in the fast-food industry. The rise of business format franchising has been attributed to the post-World War II growth in population, personal income, retail spending, and automobile use. (Killion, The Modern Myth of the Vulnerable Franchisee: The Case for a More Balanced View of the Franchisor-Franchisee Relationship (2008) 28 Franchise L.J. 23, 24 (Modern Myth).)
Today, the economic effects of franchising are profound. Annually, this sector of the economy, including the fast-food industry, employs millions of people, carries payrolls in the billions of dollars, and generates trillions of dollars in total sales.
Under the business format model, the franchisee pays royalties and fees for the right to sell products or services under the franchisor's name and trademark. In the process, the franchisee also acquires a business plan, which the franchisor has crafted for all of its stores. (Catch 22, supra, 40 Ind. L.Rev. 611, 615-616.) This business plan requires the franchisee to follow a system of standards and procedures. A long list of marketing, production, operational, and administrative areas is typically involved. (See Control, supra, 19 Franchise L.J. 119, 121.) The franchisor's system can take the form of printed
The business format arrangement allows the franchisor to raise capital and grow its business, while shifting the burden of running local stores to the franchisee. (Citadel, supra, 24 Franchise L.J. 162, 165.) The systemwide standards and controls provide a means of protecting the trademarked brand at great distances. (King, Limiting the Vicarious Liability of Franchisors for the Torts of Their Franchisees (2005) 62 Wash. & Lee L.Rev. 417, 423 (Vicarious Liability).) The goal — which benefits both parties to the contract — is to build and keep customer trust by ensuring consistency and uniformity in the quality of goods and services, the dress of franchise employees, and the design of the stores themselves. (Blair & Lafontaine, Understanding the Economics of Franchising and the Laws That Regulate It (2006) 26 Franchise L.J. 55, 59-60; Control, supra, 19 Franchise L.J. 119, 121.)
The franchisee is often an entrepreneurial individual who is willing to invest his time and money, and to assume the risk of loss, in order to own and profit from his own business. (Modern Myth, supra, 28 Franchise L.J. 23, 28.) In the typical arrangement, the franchisee decides who will work as his employees, and controls day-to-day operations in his store. (Inadvertent Employer, supra, 27 Franchise L.J. 224.) The franchise arrangement puts the franchisee in a better position than other small business owners. (Catch 22, supra, 40 Ind. L.Rev. 611, 617.) It gives him access to resources he otherwise
We know of no decision by a California court addressing a franchisor's statutory or common law liability under FEHA for sexual harassment claims made by one employee of a franchisee against another employee (or supervisor) of the franchisee. Nor has this court decided whether a franchisor may be considered an "employer" who is vicariously liable for torts committed by someone working for the franchisee.
Against this backdrop, the parties debate here, as they did in the courts below, the significance of certain Court of Appeal cases that have considered whether a franchisee was the "agent" of the franchisor for purposes of compensating a nonemployee for actionable harm caused by the franchisee. According to Patterson, the agency principles set forth in these decisions support her claim that, because business format franchisors wield detailed control over their franchisees' general operations, liability for personal harm sustained in the course of a franchisee's business should be borne by the franchisor. On the other hand, Domino's suggests that too literal an application of the traditional "agency" approach ignores the realities of modern franchising, which impose a meaningful division of autonomous authority between franchisor and franchisee. Domino's claims the critical factor is whether the franchisor had day-to-day control over the specific "instrumentality" that caused the alleged harm — here, sexual harassment of one employee of the franchisee by another. We now review the relevant law.
One early California decision addressing the allocation of legal liability between franchisor and franchisee is Nichols v. Arthur Murray, Inc. (1967) 248 Cal.App.2d 610 [56 Cal.Rptr. 728] (Nichols). In Nichols, the plaintiff was a customer who had signed contracts with the franchisee, a dance studio, and had paid in advance for lessons she never received. The Court of Appeal found sufficient evidence to support the trial court's ruling that the franchisor was responsible for the contractual obligations incurred by its franchisee. Relying heavily on much older decisions of this court, none of which concerned franchising, the Nichols court observed that "[a]n undisclosed principal is liable for the contractual obligations incurred by his agent in the course of the agency...." (Id. at p. 612, citing Shamlian v. Wells (1925) 197 Cal. 716, 721 [242 P. 483] and Geary St. etc. R. R. Co. v. Rolph (1922) 189 Cal. 59, 64 [207 P. 539]; see Hulsman v. Ireland (1928) 205 Cal. 345, 352 [270 P. 948].)
The Court of Appeal in Nichols identified the "right to control" as a significant factor in defining an agency relationship. (Nichols, supra, 248 Cal.App.2d 610,
Analyzing the record before it, the Court of Appeal in Nichols rejected the franchisor's claim that the parties' contract was narrowly tailored to protect the trade name under which the business operated. (See Nichols, supra, 248 Cal.App.2d 610, 613.) Nor were the controls retained by the franchisor necessarily limited to protecting its trade name, professional methods, customer goodwill, or commercial image. (Id. at p. 615.) Rather, much like the trial court there, the appellate court in Nichols concluded that the franchisor retained complete control over most areas of the business, and deprived the franchisee of any independence in managing the "`day to day details of [its] operation.'" (Id. at p. 614; see id. at pp. 615-617.)
In particular, the franchisor retained the right to control the employment of all persons working in any capacity for the franchisee; to decide matters related to studio location, decoration, and advertisement; to set minimum tuition rates and select the institution handling student financing; to make student refunds and charge those amounts to the franchisee; to settle and pay all claims against the franchisor arising out of the operation of the business; to reimburse itself for the payment of any refunds, claims, or related litigation costs from a fund consisting of weekly payments by the franchisee; to invest the proceeds from this fund and pay the franchisee only such portion of the income as the franchisor saw fit; to dictate the manner in which unused dancing lessons would be honored among franchisees; and to require the franchisee to provide records on accounting, insurance, and tax matters. The contract also contained a broad provision requiring the franchisee to run the studio according to "`the general policies of the [franchisor] as established from time to time,'" and permitting immediate cancellation for failure to maintain such policies. (Nichols, supra, 248 Cal.App.2d 610, 615.) Such pervasive controls made the franchisor the party responsible for the franchisee's contractual obligations towards the plaintiff. (Id. at p. 617.)
One of the more recent cases analyzing franchising in agency terms is Cislaw v. Southland Corp. (1992) 4 Cal.App.4th 1284 [6 Cal.Rptr.2d 386] (Cislaw). There, the parents of a teenage boy filed a wrongful death action against Southland Corporation (Southland), which owned the 7-Eleven trademark and was the franchisor of 7-Eleven stores in California. The plaintiffs claimed their son died after using clove cigarettes sold at a 7-Eleven franchise owned by the Trujillos. The complaint stated tort and breach of warranty claims. Southland sought summary judgment asserting, inter alia, that it had no vicarious liability for the Trujillos' conduct because, as franchisees, they were independent contractors who had no agency or other relationship with Southland over which it had control. Based on the franchise
On appeal, the court in Cislaw relied on the few available California decisions to define the effect of franchise relationships on third parties. The court stated the law as follows: "The general rule is where a franchise agreement gives the franchisor the right of complete or substantial control over the franchisee, an agency relationship exists. [Citation.] `[I]t is the right to control the means and manner in which the result is achieved that is significant in determining whether a principal-agency relationship exists.'" (Cislaw, supra, 4 Cal.App.4th 1284, 1288.) The court observed, however, that "the franchisor's interest in the reputation of its entire system allows it to exercise certain controls over the enterprise without running the risk of transforming its independent contractor franchisee into an agent." (Id. at p. 1292.) Such interests were identified as the protection of "trademark, trade name and goodwill." (Id. at pp. 1295, 1296.)
The court in Cislaw determined that the evidence showed no agency relationship in which the franchisor had the requisite control over the franchisee. At the outset, the court observed that the Trujillos bought the right to use the 7-Eleven name in exchange for a percentage of net sales. The Trujillos were contractually required to undergo training; keep the store clean; maintain the equipment; carry an inventory of a "`type, quality, quantity and variety'" that reflected the 7-Eleven image; operate the store at certain times; make daily deposits into a designated account; provide purchase and sales records; and make the books available for inspection. (Cislaw, supra, 4 Cal.App.4th 1284, 1294.)
Nevertheless, the Cislaw court concluded that Southland did not possess the "all-important right to control the means and manner" in which the store operated on a day-to-day basis. (Cislaw, supra, 4 Cal.App.4th 1284, 1295.) First, the Trujillos made all inventory decisions. The contract stated that they were not required to use certain vendors, to purchase merchandise recommended by 7-Eleven, or to sell merchandise at prices suggested by 7-Eleven. Consistent with these terms, the evidence showed that the Trujillos alone decided to sell the clove cigarettes that allegedly killed the plaintiffs' son. Southland did not recommend the sale of this product to the Trujillos or advertise it to the public. Nor could Southland block the sale of clove cigarettes at the Trujillos' store. (Id. at pp. 1293-1294.)
Second, under the terms of the contract, the Trujillos made all employment decisions in their store. In other words, they had the sole right to employ and discharge staff as they saw fit. Such persons were deemed to be the employees of the Trujillos, not of Southland. In a related vein, the contract
Third, and in more general terms, the contract in Cislaw described the Trujillos as "independent contractors" who controlled "`the manner and means'" by which the store operated. (Cislaw, supra, 4 Cal.App.4th 1284, 1294.) The Trujillos paid all operating expenses. (Id. at p. 1293.) Absent a material breach of contract, Southland could not terminate the contract — evidence the Cislaw court deemed significant in determining that an independent contractor relationship was in fact created by the parties. (Id. at p. 1296.) In sum, the court found, as a matter of law, that no agency relationship existed between the franchisor and franchisee. Accordingly, it held that summary judgment had properly been entered against the plaintiffs on vicarious liability grounds. (Id. at p. 1297.)
Patterson contends, based on the foregoing principles and authorities, that operating systems like the one used by Domino's protect far more than trademark, trade name, and goodwill, and deprive franchisees of the means and manner by which to assert managerial control. Like the instant Court of Appeal, she reasons that the degree of control exercised by franchisors like Domino's makes each franchisee the agent of the franchisor for all business purposes, and renders each employee of the franchisee an employee of the franchisor in vicarious liability terms.
More to the point, there are sound and legitimate reasons for business format contracts like the present one to allocate local personnel issues almost exclusively to the franchisee. As we have explained, franchisees are owneroperators who hold a personal and financial stake in the business. A major incentive is the franchisee's right to hire the people who work for him, and to oversee their performance each day. A franchisor enters this arena, and becomes potentially liable for actions of the franchisee's employees, only if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects
Courts in other states have endeavored to apply their own standards under analogous circumstances. As in the present case, these courts were faced with applying traditional vicarious liability principles involving the extent of the franchisor's control over the franchisee's day-to-day operations. Reaching pretrial results favoring the franchisors, these out-of-state courts declined to rely on the uniform operating standards inherent in franchising to establish an agency or employment relationship between the franchisor and the franchisee and its employees. Their terminology varies, but these courts have focused on the franchisor's lack of control over the "instrumentality" (Papa John's Internal., Inc. v. McCoy (Ky. 2008) 244 S.W.3d 44, 54), the "conduct" (Depianti v. Jan-Pro Franchising Internal., Inc. (2013) 990 N.E.2d 1054, 1063; Viado v. Domino's Pizza, LLC (2009) 230 Or.App. 531 [217 P.3d 199, 210]), or the "`specific aspect of the franchisee's business'" (Ketterling v. Burger King Corp. (2012) 152 Idaho 555 [272 P.3d 527, 533]; see Kerl v. Rasmussen, Inc. (2004) 273 Wis.2d 106 [682 N.W.2d 328, 341]) that caused the alleged injury.
Patterson contends that rejection of her views would immunize franchisors from vicarious liability for enterprise-related harm. Such an outcome, she maintains, contravenes the public interest in protecting employees from sexual harassment, and in securing compensation from companies that can absorb the loss. However, as Domino's suggests, these policy arguments lose force when the party from whom compensation is sought did not directly
There are few California cases defining an "employer" under the FEHA provisions invoked here. But, it appears, 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 [71 Cal.Rptr.3d 222], citing Vernon, supra, 116 Cal.App.4th 114, 124-125; accord, McCoy v. Pacific Maritime Assn. (2013) 216 Cal.App.4th 283, 301-302 [156 Cal.Rptr.3d 851].) 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. (Vernon, supra, 116 Cal.App.4th at pp. 127-128.)
As discussed above, Domino's lacked the general control of an "employer" or "principal" over relevant day-to-day aspects of the employment and workplace behavior of Sui Juris's employees. Application of the FEHA test for determining an employment relationship produces no different result in this franchising case than the one we have already reached. Plaintiff is mistaken to the extent she implies that the contrary is true.
In reviewing a grant of summary judgment, we independently evaluate the record, liberally construing the evidence supporting the party opposing the
We start with the contract itself. Under its literal terms, Sui Juris paid for the right to sell Domino's products using the company's business format system, including the contract and the MRG. The contract said there was no principal-agent relationship between Domino's and Sui Juris. The latter also had no authority to act on the former's behalf. Notwithstanding any training, support, or oversight on Domino's part, Sui Juris agreed to act as an "independent contractor."
Likewise, the contract stated that persons who worked in the Sui Juris store were the employees of Sui Juris, and that no employment or agency relationship existed between them and Domino's. Domino's disclaimed any rights or responsibilities as to Sui Juris's employees. Hence, nothing in the contract granted Domino's any of the functions commonly performed by employers. All such rights and duties were allocated to Sui Juris. They included, but were not expressly limited to, "recruiting, hiring, training, scheduling for work, supervising and paying" persons employed by Sui Juris.
The contract also stated that Domino's had no duty to operate the Sui Juris store. Nor did Domino's have the right to direct Sui Juris's employees in store operations. Rather, the contract made Sui Juris solely responsible for managing its employees with respect to the proper performance of their tasks. Poff agreed to provide close, full-time supervision in this regard. Domino's disclaimed liability under the contract for any damages arising out of the operation of the store.
Thus, under the foregoing terms, Domino's had no right or duty to control employment or personnel matters for Sui Juris. In other words, Domino's lacked contractual authority to manage the behavior of Sui Juris's employees while performing their jobs, including any acts that might involve sexual harassment.
Of course, the parties' characterization of their relationship in the franchise contract is not dispositive. (Nichols, supra, 248 Cal.App.2d 610, 613.) We must also consider those evidentiary facts set forth in the summary judgment materials as to which objections were not made and sustained. (See Hernandez v. Hillsides, Inc., supra, 47 Cal.4th 272, 285; Cislaw, supra, 4 Cal.App.4th 1284, 1292.)
According to the testimonial evidence, Poff exercised sole control over selecting the individuals who worked in his store. He did not include Domino's in the application, interview, or hiring process. Nor did anyone attempt to intervene on Domino's behalf. It was Poff's decision to hire Patterson as a new employee and to otherwise retain the existing staff when he bought the franchise.
Evidence about the training of Sui Juris's employees is more nuanced, but did not indicate control over relevant day-to-day aspects of employment and employee conduct. It appears the parties did not follow the literal language of the contract placing sole responsibility on Sui Juris for handling all training programs for its employees. 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. Lee, Poff's area leader, did not help him train anybody.
However, with respect to training employees on how to treat each other at work, and how to avoid sexual harassment, it appears that Sui Juris, not Domino's, was in control. There was no evidence that the training programs Domino's placed on the PULSE computer system covered these subjects. As best Poff could recall, only pizza making, store operations, safety and security, and driving instructions were involved. Also, 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 on this score.
No Domino's representative, including Lee, trained Sui Juris 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.
Of particular relevance is that Poff's sexual harassment policy and training program came with the authority to impose discipline for any violations. The record shows that Poff, not Domino's, wielded such significant control.
First, Poff encouraged the reporting of sexual harassment complaints directly to him. In training sessions, Poff told his managers to contact him if any issue or question about sexual harassment arose. Poff also told Patterson at the start of her job to advise him of any such problem — a step she soon took. The apparent purpose of Poff's admonitions was to give him the chance to respond by taking appropriate disciplinary action against the offending employee.
Second, Domino's had no procedure for monitoring or reporting sexual harassment complaints between the employees of franchisees. Devereaux, Domino's franchise director, confirmed that the company was not involved in such issues at the local level unless the franchisee himself was implicated or otherwise required training. Consistent with the general "hands-off" approach of area leaders on sexual harassment, there is no evidence that Lee and Poff discussed the topic before Patterson reported Miranda's misconduct to Poff, or before her father contacted Domino's. As noted, Patterson's father used the 1-800 number established for Domino's customers complaining about their meal or service.
Third, Poff acted on Patterson's complaint by taking unilateral disciplinary action. He first suspended Miranda. Poff then started an investigation. However, he could not reach a conclusive result. Miranda subsequently lost his job when he failed to report to work. In doing so, Miranda apparently triggered the "self-termination" clause in Poff's personnel policies. Poff refused to rehire Miranda. There is no evidence that Poff solicited Domino's advice or consent on any of these decisions, or that he was required to do so.
Like the dissenting opinion, Patterson emphasizes evidence that Lee said Poff should "get rid" of Miranda. It is not clear when this statement was
As noted above, Poff acted with the obvious understanding that the decision whether and how to discipline Miranda was his alone to make. He chose to proceed in a prudent and methodical way by investigating the complaint before a final decision was made. He did not act rashly or as though only one outcome were permissible — i.e., summary termination on sexual harassment grounds.
In addition, Poff acknowledged that Lee's statement was not accompanied by a specific threat, express or implied. She never stated that Poff would risk any sanction if he did not terminate Miranda's employment. Indeed, her statement left Poff with no negative memory about possible repercussions at all. When Lee arrived at the Sui Juris store a short time later, Miranda's disciplinary fate was not discussed. The only concern was whether and how to retrain the Sui Juris staff. By Poff's own account, Lee made helpful training suggestions, not demands.
Cantil-Sakauye, C. J., Chin, J., and Corrigan, J., concurred.
I write separately to express my disagreement with the majority's application of the law to the facts of this case.
The California Fair Employment and Housing Act (Gov. Code, § 12900 et seq.; hereafter FEHA) makes employers liable for sexual harassment (§ 12940, subd. (j)(1), (4)(A)). Thus, as the majority recognizes, plaintiff Taylor Patterson may recover from defendant Domino's Pizza, LLC (Domino's), on her statutory claim of sexual harassment (Gov. Code, § 12940, subd. (j))
The common law offers various definitions of employment. Consequently, courts in FEHA cases have found "no magic formula for determining whether the requisite employment relationship exists. The prevailing view is to consider the totality of the circumstances, reflecting upon the nature of the work relationship between the parties, and placing emphasis on the control exercised by the employer over the employee's performance of employment duties." (Bradley, supra, 158 Cal.App.4th at p. 1626, citing Vernon v. State of California (2004) 116 Cal.App.4th 114, 124-125 [10 Cal.Rptr.3d 121] (Vernon).) The majority, offering its own synthesis of the common law, asks whether the alleged employer "has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee's employees." (Maj. opn., ante, at p. 478, citing Vernon, at p. 124.)
Asked whether Domino's area leader Claudia Lee had "ever t[old] you that you needed to fire any employees," Poff answered "Yes." Those employees were Dave Knight, a manager who had delivered non-Domino's food to schools, and Renee Miranda, plaintiff's alleged harasser. Asked whether Poff rather than Lee had "ultimately ma[d]e the decision to terminate" Knight, Poff answered that he "had to pull the trigger on the termination, but it was very strongly hinted that there would be problems if I did not do so." Asked "[h]ow was it strongly hinted," Poff explained that "[t]he area leaders would pull you into your office at the store, for example, and tell you what they wanted. If they did not get what they wanted, they would say you would be in trouble." In fact, Lee indicated to Poff that not firing Knight might cause Poff to lose his franchise. Lee candidly testified she told Poff that, "`[i]f you have anyone that works for you that is damaging the brand or going to cause you to lose your franchise agreement, that person is not the person you want working for you.' And I told him, `Right now, Dave [Knight] is hurting your franchise.'" Poff fired Knight a few weeks later.
This interaction between Poff and Lee provides essential context for their later interaction concerning Miranda. Upon learning of plaintiff's allegations of harassment against Miranda, Lee told Poff, "You've got to get rid of this guy." Asked how he had answered, Poff testified that his "response always to the area leader was `yes' or `I'll get it done' or, you know, `Give me a little
Under the common law, "`[p]erhaps no single circumstance is more conclusive to show the relationship of an employee than the right of the employer to end the service whenever he sees fit to do so.'" (Burlingham v. Gray (1943) 22 Cal.2d 87, 100 [137 P.2d 9].) While no one factor is determinative, the power to discharge an employee offers "`strong evidence'" both of the fact of control and of the ultimate existence of an employment relationship. (Kowalski v. Shell Oil Co. (1979) 23 Cal.3d 168, 177 [151 Cal.Rptr. 671, 588 P.2d 811]; see Borello, supra, 48 Cal.3d at p. 350; Tieberg, supra, 2 Cal.3d at p. 949.) This is because the employer's power to terminate the employee's services gives the employer the means of controlling the employee's activities (see Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, 531 [173 Cal.Rptr.3d 332, 327 P.3d 165]; Malloy v. Fong (1951) 37 Cal.2d 356, 370 [232 P.2d 241]) and because, as a matter of logic, a person's reservation of the power to terminate another's employee "is incompatible with the full control of the work by another" (National Auto. Ins. Co. v. Ind. Acc. Com. (1943) 23 Cal.2d 215, 220 [143 P.2d 481], italics added). For these purposes "[i]t is not essential that the right of control be exercised or that there be actual supervision of the work of the [employee]." (Malloy, at p. 370.) "What matters is whether the hirer `retains all necessary control' over its operations." (Ayala, at p. 531, quoting Borello, supra, at p. 357.)
In summary, if Domino's relationship with Poff gave it the power to force him to fire his employees, then those employees were subject not just to Poff's control but also to Domino's and thus were the employees of both. Viewing the evidence in the light most favorable to plaintiff, as we must when reviewing an order granting a defense motion for summary judgment (McDonald v. Antelope Valley Community College Dist. (2008) 45 Cal.4th 88, 96 [84 Cal.Rptr.3d 734, 194 P.3d 1026]), the record would clearly permit the trier of fact to conclude that Domino's retained and exercised that power.
As mentioned, my disagreement with the majority is not so much with its statement of the applicable law as with its application of the law to the facts.
For these reasons, I dissent.
Liu, J., and Chaney, J.,