Supreme Court of California Justia
Citation 60 Cal.4th 474, 333 P.3d 723, 177 Cal.Rptr.3d 539, 2014 WL 4236175 (Cal.), 124 Fair Empl.Prac.Cas. (BNA) 994, 79 Cal. Comp. Cases 1111, 14 Cal. Daily Op. Serv. 10,174, 2014 Daily Journal D.A.R. 12,005

Patterson v. Domino's Pizza

Filed 8/28/14



IN THE SUPREME COURT OF CALIFORNIA



TAYLOR PATTERSON,

Plaintiff and Appellant,

S204543

v.

Ct.App. 2/6 B235099

DOMINO‘S PIZZA, LLC, et al.,

Ventura County

Defendants and Respondents. )

Super. Ct. No.

56-2009-00347668-CU-OE-SIM



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,

1


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

with the franchisee and its employees for purposes of holding it vicariously liable

for workplace injuries allegedly inflicted by one employee of a franchisee while

supervising another employee of the franchisee? The answer lies in the inherent

nature of the franchise relationship itself.

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

2

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

(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 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. Nothing contractually

required or allowed the franchisor to intrude on this process.

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

3

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.

I. PROCEDURAL BACKGROUND

A. The Parties

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.

B. The Complaint

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 continued: Patterson‘s father contacted the police. He also

called Domino‘s ―corporate office,‖ and told someone in the human resources

4

department about the sexual harassment his daughter had endured at the Sui Juris

store. Patterson stayed away from work for one week, and then returned. She

soon resigned. She perceived that her hours were reduced because she had

reported Miranda‘s misconduct to others.

The complaint stated several causes of action. The first three counts

invoked the 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.)1 Otherwise, the

complaint asserted common law counts for intentional infliction of emotional

distress, assault and battery, and constructive termination against public policy

under FEHA. Compensatory and punitive damages were sought.

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, the 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.

C. Summary Judgment Motion

In November 2010, Domino‘s sought summary judgment, or, alternatively,

summary adjudication, against Patterson. Responding to allegations in the

1

All further statutory references are to the Government Code except as

otherwise stated.

5

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.

D. Evidence Supporting Summary Judgment

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.

1. Franchise Relationship. According to both Devereaux and Poff,

Domino‘s and Sui Juris had distinct legal identities and corporate structures.

Neither business held any ownership or partnership stake in the other, and they

had no officers or directors in common. Domino‘s had no access to Sui Juris‘s

bank accounts. Sui Juris filed its own tax returns. It also obtained all necessary

business licenses and operating permits. While Sui Juris paid Domino‘s a royalty

fee and other miscellaneous costs, the two companies did not otherwise share

profits or losses. Under the franchise contract, Sui Juris maintained property and

liability insurance at its own expense.

2. Hiring. The franchise contract stated that Sui Juris was ―solely

responsible‖ for ―recruiting [and] hiring‖ employees to operate its store. Those

persons, the contract said, ―shall be [Sui Juris‘s] employees, and not [Domino‘s]

agents or employees.‖ Consistent with these terms, Poff testified that he received

6

and retained applications directly from job candidates, and that he never sent or

showed those documents to Domino‘s. Poff also personally interviewed all

applicants. Domino‘s did not participate in any job interviews. Poff explained

that he deliberately excluded Domino‘s from the hiring process. The reason was

that the decision was his alone to make, and that no input or oversight was

required on Domino‘s part.

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.‖

3. Training. Under the contract, Poff, as Sui Juris‘s sole owner, promised

to personally undergo training with Domino‘s as a condition of opening and

operating his store. Domino‘s reserved the option of requesting supplemental

training on Poff‘s part at his own expense.

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 their jobs. Such was the

case even if Poff obtained ―advice or suggestions‖ from Domino‘s on the matter.

The contract precluded him from employing untrained or unqualified persons.

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

7

driving instructions. The PULSE training program was accompanied by a

Domino‘s handbook.2

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.‖ 3

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.‖


2

Poff and other witnesses described the PULSE computer system as a

comprehensive sales and accounting program that Domino‘s required franchisees
to buy and use in their stores. Domino‘s could access the system in order to track
certain sales, such as those involving product promotions and repeat customers.
The program also contained employee information that franchisees could use to
prepare work schedules and payroll documents.

3

Elsewhere in his deposition (in excerpts that Patterson provided) Poff

testified that he ―believe[d]‖ he had received sexual harassment training from
Domino‘s when he first became a franchisee. However, he could not recall any
―specifics.‖ As we discuss further below, Patterson also submitted excerpts from
the deposition of Devereaux, who headed franchise services for Domino‘s.
Devereaux indicated that new franchisees received sexual harassment training, but
he did not know what it entailed.

8

4. Supervision. The franchise contract required the Sui Juris store to ―at

all times be under the direct, on-premises supervision‖ of Poff. He agreed to

function as a full-time ―manager,‖ and not to engage in other business endeavors

without first obtaining Domino‘s written consent.

The contract stated that persons who worked in the store were Sui Juris‘s

employees ―and not [Domino‘s] agents or employees.‖ Some of the managerial

tasks over which Poff assumed control included ―scheduling for work,

supervising[,] and paying‖ his employees. Domino‘s disclaimed any right or duty

to ―operate the Store‖ or to ―direct [Sui Juris‘s] employees‖ in their jobs. Those

functions were made Poff‘s sole responsibility.

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.4

5. Alleged harassment and subsequent events. Testimony by Patterson

described the following chain of events: Miranda began sexually harassing

Patterson at work shortly after Poff hired her. Two weeks later, she complained to

her father and to Poff. Patterson spoke to Poff about the matter on a second

unspecified occasion. At that time, according to Patterson, Poff said he was

―going to fire‖ Miranda. The police were called. Miranda was apparently arrested

and taken into custody.


4

Our record contains a few lines of incomplete testimony about ―writ[ing]

up‖ employees who violated company policy at the Sui Juris store. Poff testified
that he performed this task ―[m]ost of the time,‖ and that Domino‘s never asked
him to present any writeup to his employees on its behalf. It is not clear what a
writeup entailed, what consequences ensued, or who could impose them.

9

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.5

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.

E. Evidence in Opposition to Summary Judgment

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.

1. The contract. Patterson submitted the full franchise contract. It

contained relevant provisions not included in Domino‘s materials, as follows:

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


5

Poff testified that Miranda later returned and asked for his job back. He

denied sexually harassing Patterson. Poff refused to rehire Miranda.

10

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.‖

2. The MRG. Patterson submitted one section of the MRG. Most

provisions were not employment related.6 That said, managers and employees

new to their jobs were to be trained with programs provided or approved by

Domino‘s. Time cards and reports were expected. Domino‘s delivery drivers

needed to meet minimum age and experience standards. Also, because employees

were required to wear uniforms, the MRG set forth detailed clothing and accessory

guidelines. Various grooming and hygiene standards were designed to promote


6

The MRG mostly covered the following matters: money management and

security, including limits on workplace talk about cash or sales; customer
deliveries and driver transportation; refuse disposal; sanitation and safety; food
ingredients, preparation, and handling; store hours and daily closing procedures;
phone systems and computer programs; promotional and other interior displays;
customer payments and complaints; sales marketing and product packaging; leases
and building construction; exterior and interior signage; utility services and
kitchen equipment; and store inspections.

11

neatness and sanitation. Employees could not possess or consume alcohol or illicit

drugs while working or on store premises. Tobacco use was limited.7

3. Poff’s deposition. Patterson supplemented Domino‘s evidence by

providing additional excerpts from Poff‘s deposition. Poff implied that he had

little choice but to follow the advice of his area leader, Lee. He felt he always had

to say ―yes‖ to her, and he did not recall ever ―intentionally‖ rejecting her

suggestions. Poff assumed that a franchisee who did not ―play ball‖ with the area

leader might be ―in jeopardy,‖ ―in trouble,‖ or ―out of business.‖ Poff

acknowledged, however, that area leaders like Lee simply ―tried to be helpful‖ in

monitoring implementation of the standards set forth in the contract and the MRG.

Poff testified that he did not see Lee often because her service area was

large.8 Other Domino‘s inspectors visited the store four times during the year Poff

owned it. He recalled two occasions on which Domino‘s had used unidentified

(―mystery‖) callers to assess operations.

Poff acknowledged that he adopted his own personnel policies. One of

them was the sexual harassment policy. Others concerned attendance. For


7

Patterson submitted other documentary evidence. Forms from 2008 and

2009 showed that Domino‘s inspectors had rated the Sui Juris store on customer
orders, food preparation, product packaging, employee uniforms, and store
cleanliness. Also, Domino‘s sent letters in 2009 about contractual problems
unrelated to Patterson‘s sexual harassment complaint. Such matters concerned use
of unapproved products, delivery outside territorial limits, failure to provide
financial records, and nonpayment of royalties and other fees. We note that in
July 2009, after Sui Juris was placed in default, its contract with Domino‘s was
terminated. It appears Poff, who owned Sui Juris, then filed for bankruptcy.

8

Lee testified in her deposition, which we describe below, that she visited

Poff‘s store every two weeks while he owned the franchise. She also placed
phone orders to check the quality of the food and service.

12

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 testified that he was under

pressure in running the business and meeting Domino‘s expectations at that time.

4. Lee’s deposition. Patterson submitted excerpts from Lee‘s deposition.

Lee testified that, in November 2008, when the alleged harassment occurred, she

monitored 101 Domino‘s franchises for compliance with operational and

marketing standards. When sales were low, she recommended changes in pricing

and staffing levels. ―But,‖ Lee explained, ―that‘s the franchisee‘s decision.‖

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

13

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.9


9

Lee was asked about a disciplinary matter at the Sui Juris store involving a

manager named Dave Knight. Lee testified that she visited the store and saw that
Knight was using Domino‘s bags to deliver non-Domino‘s food outside Poff‘s
service area — acts which involved serious violations of Domino‘s rules. Knight
also did not follow general operating procedures when he ran the store in Poff‘s
absence. Lee told Poff that such conduct was hurting the franchise, and risked a
contractual default. According to Lee, she did not tell Poff to fire Knight. Rather,
she recommended that Knight not be placed ―in charge of the store,‖ or ―left alone
running the shift.‖ Lee and Poff developed written guidelines, or an ―action plan,‖
setting forth the steps Poff would take to remedy Knight‘s misdeeds, including a
description of the discipline Poff imposed upon him. Consistent with Lee‘s
account, Poff testified that he ultimately fired Knight, i.e., ―pull[ed] the trigger on
the termination.‖ Poff never testified that Lee told him to do so.

14

5. Devereaux’s deposition. Patterson provided excerpts from

Devereaux‘s deposition to supplement his declaration, which Domino‘s had

included in its moving papers. Devereaux testified as follows: Domino‘s had

9,000 stores worldwide, only 500 of which were company owned. Domino‘s

human resources department offered no guidance to franchisees on handling

personnel issues. If a franchisee asked Domino‘s for such advice, the company

would recommend that the franchisee resolve the situation himself or retain

counsel to do so. A similar response was expected of any area leader asked to

answer a sexual harassment question posed by a franchisee. Devereaux suggested

that area leaders were neither compelled nor trained to handle such matters.

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.10

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


10

Devereaux testified that there was a procedure by which both franchise

owners (e.g., Poff) and area leaders (e.g., Lee) received e-mails generated by calls
to the 1-800 customer complaint line. According to both Devereaux and Lee, the
area leader would then ask the franchise owner whether and how the matter
reflected in the e-mail was handled. Lee further testified that serious matters were
relayed to her by telephone, apparently on an ad hoc basis. For instance, she
recalled that ―someone‖ from Domino‘s called and said Miranda ―was going to be
arrested.‖ She was ―not sure exactly‖ how such information came to Domino‘s
attention, and she did not know if ―someone called the customer care line.‖


15

that a franchisee might undergo sexual harassment training if someone working in

his store was accused of such misconduct.

F. Lower Court Rulings11

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 Poff should fire Miranda,

because it was an offhand remark that Poff ignored. The trial court concluded, as

a matter of law, that Domino‘s was not vicariously liable on any claim alleged in

the complaint. Patterson‘s action against Domino‘s was dismissed.

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


11

We note that Domino‘s replied to Patterson‘s opposition to summary

judgment. Domino‘s repeated its prior arguments that the ―employer‖ and
―agency‖ elements of Patterson‘s claims were missing as a matter of law.
Domino‘s also objected to Patterson‘s evidence in certain respects. Most of these
objections were overruled. None is relevant here.

16

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.

II. DISCUSSION12

A. Special Features of the Franchise Relationship

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 LiabilityThe

Proverbial Assault on the Citadel (2005) 24 Franchise L.J. 162, 165 (Citadel); see

Shelley & Morton, ―Controlin 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.) It is a distribution method that has existed in this country

in one form or another for over 150 years. (Obermeyer, Resolving the Catch 22:

Franchisor Vicarious Liability for Employee Sexual Harassment Claims Against


12

Joint amicus curiae briefs have been filed on behalf of Domino‘s by (1) the

International Franchise Association and the California Restaurant Association,
(2) the Employers Group, the California Employment Law Council, and the
California Chamber of Commerce, (3) the Automobile Club of Southern
California, and (4) ―Eleven Health Club Franchisees.‖ An amicus curiae brief has
been filed on Patterson‘s behalf by the Consumer Attorneys of California.

17

Franchisees (2007) 40 Ind. L.Rev. 611, 614-615 (Catch 22) [describing ―product

distribution‖ franchises that began in the mid-1800‘s when farm and sewing

machine manufacturers sold goods to dealers who resold them to the public].)

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.13

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.


13

In 2010, the United States Census Bureau released its first-ever

comprehensive report for franchised business. The report is based on the 2007
Economic Census — a survey that is conducted every five years. Franchises
accounted for 10.5 percent of businesses with paid employees in the 295 industries
in which data was collected. Franchised businesses also accounted for almost $1.3
trillion out of the $7.7 trillion in total sales for these industries, $153.7 billion out
of the $1.6 trillion in total payroll, and 7.9 million workers out of a total workforce
of 59 million. (U.S. Census Bureau, ―Census Bureau‘s First Release of
Comprehensive Franchise Data‖ (Sept. 14, 2010) <https://www.census.gov/
newsroom/releases/archives/economic_census/cb10-141.html> [news release] [as
of August 28, 2014]; U.S. Census Bureau, ―2007 Economic Census Franchise
Statistics‖ <http://www.census.gov/econ/census/pdf/franchise_flyer.pdf >
[selected graphs] [as of August 28, 2014].)

18

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 manuals, training programs,

advertising services, and managerial support, among other things. (Catch 22,

supra, 40 Ind. L.Rev. 611, 616.)14

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


14

(See Corp. Code, § 31005, subd. (a) [defining a ― ‗[f]ranchise‘ ‖ under the

Franchise Investment Law, which regulates the offer and sale of franchises, as a
contractual right granted to a franchisee, in exchange for a franchise fee, to engage
in a business which offers, sells, or distributes goods or services, and which is
operated under a marketing plan or system prescribed in substantial part by a
franchisor and substantially associated with the franchisor‘s trademark]; see also
Bus. & Prof. Code, § 20001, subd. (a) [setting forth a similar definition of
― ‗franchise‘ ‖ in the California Franchise Relations Act, which regulates the
renewal, transfer, and termination of franchises]; see, generally, Gentis v.
Safeguard Business Systems, Inc
. (1998) 60 Cal.App.4th 1294, 1297-1301.)

19

and the Laws That Regulate It (2006) 26 Franchise L.J. 55, 59-60; Control, supra,

19 Franchise L.J. 119, 121.)15

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 businesses. (Catch 22, supra, 40 Ind. L.Rev. 611, 617.)

It gives him access to resources he otherwise would not have, including the

uniform operating system itself. (Control, supra, 19 Franchise L.J. 119, 121.)16

B. Analysis of the Arguments and the Law

Patterson‘s allegations against Domino‘s under FEHA center on the

provision making it unlawful ―[f]or an employer, . . . because of . . . sex, . . . to


15

Federal trademark law plays some role in this process. (See Fournaris, The

Inadvertent Employer: Legal and Business Risks of Employment Determinations
to Franchise Systems
(2008) 27 Franchise L.J. 224 (Inadvertent Employer) [stating
that federal law ―obligates a licensor of trademarks, such as a franchisor, to protect
the integrity of its registered and unregistered marks by monitoring their use, as
well as the quality of the goods and services bearing such marks‖]; Vicarious
Liability, supra
, 62 Wash. & Lee L.Rev. 417, 468 [noting trademark may be
deemed ―abandoned‖ under federal law if licensor fails to exercise sufficient
control over its use by licensee]; see also, 15 U.S.C. § 1127 [defining when
trademark is deemed ―abandoned‖]; 1 Browne, Cal. Business Litigation
(Cont.Ed.Bar 2014) Trademarks, § 6.128, pp. 6-87 to 6-90 [discussing defense of
―abandonment‖ in trademark infringement suits].)

16

Domino‘s franchisees are known to be particularly well motivated. (See

Catch 22, supra, 40 Ind. L.Rev. 611, 616, fn. 45.) According to Devereaux, the
company has an ―internal‖ selection system. Most of its franchisees have been the
manager of a Domino‘s pizza store for at least one year, and have completed
training as both a manager and a franchisee.

20

harass an employee.‖ (§ 12940, subd. (j)(1), italics added; see id., subds. (h) [an

―employer‖ cannot retaliate against any person who has complained about

unlawful sexual harassment], and (k) [an ―employer‖ must take all reasonable

steps necessary to prevent unlawful sexual harassment]; see also id. subd.

(j)(1)(4)(A) [an ―employer‖ includes ―any person regularly employing one or more

persons‖].) Also, ―under the FEHA, an employer is strictly liable for all acts of

sexual harassment by a supervisor.‖ (State Dept. of Health Services v. Superior

Court (2003) 31 Cal.4th 1026, 1042 (State Dept.), italics added and omitted; see

id. at p. 1041, fn. 3 [harassment must occur while supervisor was acting in such

capacity and cannot be unconnected with employment].) Broadly speaking,

FEHA seeks to prevent workplace sexual harassment through the employer‘s

adoption, use, and enforcement of sexual harassment policies. (State Dept., supra,

at pp. 1034 [employers are ―the first line of defense against sexual harassment in

the workplace‖], 1044 [an employer is not liable for sexual harassment damages

the employee reasonably could have avoided by using policies already in place].)

Likewise, the venerable respondeat superior rule provides that ―an

employer may be held vicariously liable for torts committed by an employee

within the scope of employment.‖ (Mary M. v. City of Los Angeles (1991) 54

Cal.3d 202, 208, italics added.) The doctrine contravenes the general rule of tort

liability based on fault. (Ibid.) Under certain circumstances, the employer may be

subject to this form of vicarious liability even for an employee‘s willful,

malicious, and criminal conduct. (Lisa M. v. Henry Mayo Newhall Memorial

Hospital (1995) 12 Cal.4th 291, 296-299.) Three policy justifications for the

respondeat superior doctrine have been cited — prevention, compensation, and

risk allocation. They do not always apply. (See id. at pp. 304-305 [concluding

that such aims would not necessarily be served by holding hospital vicariously

liable for sexual assault by a technician against a patient during ultrasound test];

21

cf. Farmers Ins. Group v. County of Santa Clara (1995) 11 Cal.4th 992, 1003-

1019 [public entity need not indemnify employee under Government Claims Act

in § 825 et seq. because his liability under FEHA for sexual harassment of

coworkers was outside scope of employment].)

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 (Nichols). In Nichols, the plaintiff was a customer who had

22

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; Geary St. etc. R. R. Co. v. Rolph (1922) 189

Cal. 59, 64; see Hulsman v. Ireland (1928) 205 Cal. 345, 352.)

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, 613.) No express definition of ―control‖ was given. However,

the Nichols court cited various cases of this court (ibid.) for the basic proposition

that an agency relationship exists where the principal dictates, not just the desired

result of the enterprise, but also ―the manner and means‖ by which such result is

achieved. (City of Los Angeles v. Vaughn (1961) 55 Cal.2d 198, 201; see Malloy

v. Fong (1951) 37 Cal.2d 356, 370; Burlingham v. Gray (1943) 22 Cal.2d 87, 94,

99-100; Robinson v. George (1940) 16 Cal.2d 238, 243-244.)

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

23

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.)17


17

(Accord, Holland v. Nelson (1970) 5 Cal.App.3d 308, 313 [upholding trial

court finding that agency relationship existed between franchisor, Arthur Murray,
Inc., and its franchisee, under circumstances similar to those present in Nichols,
supra
, 248 Cal.App.2d 610]; Porter v. Arthur Murray, Inc. (1967) 249 Cal.App.2d
410, 420-421 [similar conclusion against same franchisor]; see People v. JTH Tax,
Inc
. (2013) 212 Cal.App.4th 1219, 1243-1247 [finding sufficient evidence to
support trial court judgment that franchisor, a tax and loan service company, was
vicariously liable for its franchisees‘ illegal advertising]; Kuchta v. Allied Builders
Corp
. (1971) 21 Cal.App.3d 541, 546-547 [finding sufficient evidence to support


(footnote continued on next page)

24

Other Court of Appeal decisions, however, have since declined to impute to

franchisors the harm inflicted on the public by their franchisees. These courts

reasoned that the franchisors there at issue lacked sufficient control of their

franchisees‘ day-to-day operations, including employment matters. (See Kaplan v.

Coldwell Banker Residential Affiliates, Inc. (1997) 59 Cal.App.4th 741, 745-746

[upholding summary judgment for real estate brokerage company insofar as it was

not liable on a ―true agency‖ theory for fraud a real estate broker committed

against his client where the broker owned and operated the franchise, hired and

fired employees, and set wages and office hours, among other things];18 Weiss v.

Chevron, U.S.A., Inc. (1988) 204 Cal.App.3d 1094, 1100 [upholding summary

judgment for oil company on ground it was not liable on agency theory for a

vehicle crash caused by a service station employee, where station operated as an

independent business whose employees were not hired, supervised, or fired by oil

company]; Wickham v. Southland Corp. (1985) 168 Cal.App.3d 49, 54 [finding

sufficient evidence to support jury verdict that franchisor was not liable on agency

grounds for franchisee‘s sale of liquor to intoxicated minor who caused fatal crash



(footnote continued from previous page)

jury verdict that franchisor, a building company, was vicariously liable to plaintiff
homeowners for fraud and breach of contract by its franchisee, a contractor].)

18

Elsewhere in its discussion, the Court of Appeal in Kaplan v. Coldwell

Banker Residential Affiliates, Inc., supra, 59 Cal.App.4th 741, concluded that a
triable issue of fact existed on the entirely distinct question whether the franchisee
was an ―ostensible agent‖ of the franchisor. (Id. at p. 748.) ― ‗Liability of the
principal for the acts of an ostensible agent rests on the doctrine of ―estoppel,‖ the
essential elements of which are representations made by the principal, justifiable
reliance by a third party, and a change of position from such reliance resulting in
injury.‘ ‖ (Id. at p. 747) There is no issue of ostensible agency in the present case.

25

where franchisee hired and fired employees, set and paid their wages, and directed

their work, among other things].)

One of the more recent cases analyzing franchising in agency terms is

Cislaw v. Southland Corp. (1992) 4 Cal.App.4th 1284 (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 contract, and the declarations of Mrs. Trujillo and a

Southland employee, the trial court granted summary judgment for Southland. (Id.

at p. 1287.)

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.)

26

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 gave the Trujillos

full responsibility for the conduct of their employees, including the power to

supervise, discipline, and compensate them, and to arrange their work schedules.

27

(Cislaw, supra, 4 Cal.App.4th 1284, 1294.) In fact, the Trujillos handled

personnel matters with no input or oversight by Southland. (Id. at p. 1293.)

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.19 We disagree.


19

We note that the Court of Appeal opinion in this case reached a result at

odds with the apparent majority of decisions in other states which have framed the
issue in analogous terms. These sister-state courts have declined on summary
judgment to find an agency or employment relationship that would support a
vicarious liability claim against a franchisor. A few of them involve sexual
misconduct in the workplace. (See, e.g., Kennedy v. Western Sizzlin Corp. (Ala.
2003) 857 So.2d 71, 77 [franchisee sexually harassed employees in his restaurant];
D.L.S. v. Maybin (Wash.Ct.App. 2005) 121 P.3d 1210, 1212-1213 [assistant


(footnote continued on next page)

28

At the outset, we observe, as Domino‘s suggests, that no prior California

decision has faced a modern business-format system operating on a grand scale

while allocating control along a fine contractual line. In Nichols, supra, 248

Cal.App.2d 610, for instance, the franchise contract left virtually nothing in the

franchisee‘s hands. Conversely, the franchisee possessed almost all operational

control in Cislaw, supra, 4 Cal.App.4th 1284. We conclude as follows:

The ―means and manner‖ test generally used by the Courts of Appeal

cannot stand for the proposition that a comprehensive operating system alone

constitutes the ―control‖ needed to support vicarious liability claims like those

raised here. As noted, a franchise contract consists of standards, procedures, and

requirements that regulate each store for the benefit of both parties. This approach



(footnote continued from previous page)

manager of McDonald‘s engaged in sexual relationship with teenage coworker];
J.M.L. ex rel. T.G. v. A.M.P. (N.J.Super.Ct.App.Div. 2005) 877 A.2d 291, 296-297
[franchisee engaged in sexual relationship with underage girl who worked in his
karate studio].) Different wrongful acts by franchisee employees appear in other
pro-franchisor decisions resolved before trial in other states. (See, e.g., Rainey v.
Langen
(Me. 2010) 998 A.2d 342, 346-351 [vehicle collision]; McLaughlin v.
Chicken Delight, Inc
. (Conn. 1973) 321 A.2d 456, 459-460 [vehicle collision];
Foster v. Steed (Utah 1967) 432 P.2d 60, 62-63 [service station accident];
Parmenter v. J & B Enterprises, Inc. (Miss.Ct.App. 2012) 99 So.3d 207, 213-215
[assault]; Ellison v. Burger King Corp. (Ga.Ct.App. 2008) 670 S.E.2d 469, 475
[battery]; Martinez v. Higher Powered Pizza, Inc. (N.Y.App.Div. 2007) 43 A.D.3d
670, 671-672 [vehicle collision]; Gabler v. Holder and Smith, Inc. (Okla.Civ.App.
2000) 11 P.3d 1269, 1274 [breach of contract]; Smith v. Foodmaker, Inc.
(Tex.App. 1996) 928 S.W.2d 683, 688 [murder]; Little v. Howard Johnson Co.
(Mich.Ct.App. 1990) 455 N.W.2d 390, 393-394 [slip and fall].) It appears fewer
out-of-state decisions have reached a contrary result. (See, e.g., Miller v.
McDonald’s Corp
. (Or.Ct.App. 1997) 945 P.2d 1107; Balderas v. Howe
(Mo.Ct.App. 1995) 891 S.W.2d 871; Parker v. Domino’s Pizza, Inc.
(Fla.Dist.Ct.App. 1993) 629 So.2d 1026.)

29

minimizes chain-wide variations that can affect product quality, customer service,

trade name, business methods, public reputation, and commercial image.20

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 owner-

operators 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 of the


20

(See generally Citadel, supra, 24 Franchise L.J. 162, 164 [noting that the

problem with applying the traditional agency model to determine vicarious
liability in the franchising context is that franchising is ―all about controls‖];
Control, supra, 19 Franchise L.J. 119, 120 [calling for a clear distinction between
―two fundamentally different concepts of control‖ — the control implicit in the
franchise relationship, which should not necessarily warrant vicarious liability,
and day-to-day operational control, which might warrant vicarious liability];
Flynn, The Law of Franchisor Vicarious Liability: A Critique (1993) 1993 Colum.
Bus. L.Rev. 89, 91 [observing that the traditional agency model does not work
well in determining the vicarious liability of a franchisor because there must be
some franchisor control ―over the means of performance‖]; Laufer & Gurnick,
Minimizing Vicarious Liability of Franchisors for Acts of Their Franchisees
(1987) 6 Franchise L.J. No. 4, 3 (Minimizing) [maintaining that the ―control
required for a franchise to exist is not inherently sufficient to establish an actual
agency‖].)

30

workplace behavior of the franchisee‘s employees.21 Any other guiding principle

would disrupt the franchise relationship.22

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


21

Thus, the mere fact that the franchisor has reserved the right to require or

suggest uniform workplace standards intended to protect its brand, and the quality
of customer service, at its franchised locations is not, standing alone, sufficient to
impose ―employer‖ or ―principal‖ liability on the franchisor for statutory or
common law violations by one of the franchisee‘s employees toward another.
Here, for example, Domino‘s right to enforce rules relating to franchise territories
and brand integrity was the clear basis for any suggestions area leader Lee made to
franchise owner Poff concerning the treatment of Poff‘s employee Dave Knight.
(See, ante, fn. 9.) As noted above, in blatant violation of these rules, Knight was
delivering non-Domino‘s food in marked Domino‘s bags to a location outside
Poff‘s designated delivery area. Contrary to implications in the dissenting
opinion, the Knight incident does not indicate Lee had asserted the right to control
relevant aspects of the day-to-day workplace behavior of Poff‘s employees.

22

(See generally Inadvertent Employer, supra, 27 Franchise L.J. 224

[observing that franchisees ―control the day-to-day operations of their franchised
businesses,‖ including the right to ―hire and fire their own employees‖]; Ellis &
Alcantar, Franchisor Liability for the Criminal Acts of Others (1998) 18 Franchise
L.J. 11, 12 [asserting that a franchisor should not be held liable for injurious acts
of a franchisee‘s employees ―if it does not control personnel decisions,‖ including
hiring and firing]; Vicarious Liability, supra, 62 Wash. & Lee L.Rev. 417, 467
[noting that the franchise relationship ― ‗sets out a detailed scheme of control
between two autonomous businesses‘ ‖]; Minimizing, supra, 6 Franchise L.J. 3, 6
[suggesting that franchise contracts ―normally‖ give the franchisee control over
the hiring and firing of employees].)

31

employees. Their terminology varies, but these courts have focused on the

franchisor‘s lack of control over the ―instrumentality‖ (Papa John’s Intern., Inc. v.

McCoy (Ky. 2008) 244 S.W.3d 44, 54), the ―conduct‖ (Depianti v. Jan-Pro

Franchising Int’l, Inc. (Mass. 2013) 990 N.E.2d 1054, 1063; Viado v. Domino’s

Pizza, LLC (Or.Ct.App. 2009) 217 P.3d 199, 210), or the ― ‗specific aspect of the

franchisee‘s business‘ ‖ (Ketterling v. Burger King Corp. (Idaho 2012) 272 P.3d

527, 533; Kerl v. Rasmussen, Inc. (Wis. 2004) 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 control the workforce,

and could not have prevented the misconduct and corrected its effects. (See State

Dept., supra, 31 Cal.4th 1026, 1044.) As noted above, we cannot conclude that

franchise operating systems necessarily establish the kind of employment

relationship that concerns us here. A contrary approach would turn business

format franchising ―on its head.‖ (Control, supra, 19 Franchise L.J. 119, 120.)

Finally, nothing we say here is materially at odds with the analysis that

would apply if we examined plaintiff‘s three FEHA claims in terms of the

principles developed under this statutory scheme outside of the franchising

context. In general, FEHA is designed to prevent and deter unlawful employment

practices, and to redress their adverse effects. (§ 12920.5; State Dept., supra, 31

Cal.4th 1026, 1044.) Essential to plaintiff‘s statutory claims is the existence of

―an employment relationship.‖ (Vernon, supra, 116 Cal.App.4th 114, 127.) In

other words, and as noted above, Domino‘s statutory liability for the acts of sexual

32

harassment that allegedly occurred at the Sui Juris store depends on whether

Domino‘s was an ―employer‖ of both plaintiff and the harasser, Miranda.

(§ 12940, subds. (h) [retaliation for reporting sexual harassment], (j)(1) [sexual

harassment], (k) [failure to take preventative steps].)

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, citing Vernon, supra, 116

Cal.App.4th 114, 124-125; accord, McCoy v. Pacific Maritime Assn. (2013) 216

Cal.App.4th 283, 301-302.) 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.

C. Application of the Law to the Present Case

In reviewing a grant of summary judgment, we independently evaluate the

record, liberally construing the evidence supporting the party opposing the motion,

and resolving any doubts in his or her favor. (Lyle v. Warner Brothers Television

Productions (2006) 38 Cal.4th 264, 274.) As the moving party, the defendant

33

must show that the plaintiff has not established, and reasonably cannot be

expected to establish, one or more elements of the cause of action in question.

(Hernandez v. Hillsides, Inc. (2009) 47 Cal.4th 272, 285.) Here, the Court of

Appeal erred in finding a triable issue of fact on whether an employment or

agency relationship existed as a prerequisite to holding Domino‘s strictly or

vicariously liable for Miranda‘s alleged sexual harassment of Patterson.23

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


23

At least two courts in other states have recently upheld summary judgment

for Domino‘s, as a franchisor, because it did not possess sufficient supervisorial
control to be held vicariously liable on an agency or employment theory for torts
committed by employees of a Domino‘s franchisee. Such was the case despite
evidence of standard Domino‘s contracts and reference guides closely related to
those at issue here. (See Rainey v. Langen, supra, 998 A.2d 342, 350-351; Viado
v. Domino’s Pizza, LLC, supra,
217 P.3d 199, 209.) Patterson, like the Court of
Appeal opinion in the instant case, quotes language from an older decision that
reached the opposite result. (Parker v. Domino’s Pizza, Inc., supra, 629 So.2d
1026, 1029 [describing Domino‘s reference guide as ―a veritable bible for
overseeing a Domino‘s operation‖].)


34

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.

Consistent with the exclusive control vested in Sui Juris over its own

employees, neither the contract nor the MRG empowered Domino‘s to establish a

sexual harassment policy or training program for Sui Juris‘s employees. Nor was

there any procedure by which Sui Juris‘s employees could report such complaints

to Domino‘s. In fact, the topic did not appear in the franchise documents at all.

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

35

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.

What is clear is that 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

PULSE computer system for other employees to view.

No Domino‘s representative, including Lee, trained Sui Juris employees on

sexual harassment. Nothing in the record indicates that any Domino‘s

36

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.

37

Like the dissenting opinion, Patterson emphasizes evidence that Lee said

Poff should ―get rid‖ of Miranda. It is not clear when this statement was made.

For several reasons, however, no reasonable inference can be drawn that it was

intended or interpreted to mean that Poff had no choice in the matter, that

Domino‘s was in charge, or that consequences would ensue if Poff did not follow

Lee‘s advice.

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.

No reasonable inference can be drawn that Domino‘s, through Lee, retained

or assumed the traditional right of general control an ―employer‖ or ―principal‖

has over factors such as hiring, direction, supervision, discipline, discharge, and

relevant day-to-day aspects of the workplace behavior of the franchisee‘s

employees. Hence, there is no basis on which to find a triable issue of fact that an

employment or agency relationship existed between Domino‘s and Sui Juris and

its employees in order to support Patterson‘s claims against Domino‘s on vicarious

liability grounds.

38

III. CONCLUSION

Nothing we say herein is intended to minimize the seriousness of sexual

harassment in the workplace, particularly by a supervisor. (See State Dept., supra,

31 Cal.4th 1026, 1048.) Nor do we mean to imply that franchisors, including

those of immense size, can never be held accountable for sexual harassment at a

franchised location. A franchisor will be liable if it has retained or assumed the

right of general control over the relevant day-to-day operations at its franchised

locations that we have described, and cannot escape liability in such a case merely

because it failed or declined to establish a policy with regard to that particular

conduct. Our holding is limited to determining the circumstances under which an

employment or agency relationship exists as a prerequisite to pursuing statutory

and tort theories like those alleged against the franchisor here.

The judgment of the Court of Appeal is reversed.

BAXTER, J.



WE CONCUR:

CANTIL-SAKAUYE, C. J.
CHIN, J.
CORRIGAN, J.

39












DISSENTING OPINION BY WERDEGAR, J.

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))1 if Domino‘s did

something to become a joint employer with its franchisee Daniel Poff (doing

business as Sui Juris, LLC), of Poff‘s employees. Because the FEHA‘s statutory

definition of ―employer‖ is essentially tautological (§ 12940, subd. (j)(4)(A)

[― ‗employer’ means any person regularly employing one or more persons,‖ italics

added]), a court properly looks to the common law for guidance, bearing in mind

― ‗the spirit and letter of the law that it [is] interpreting‘ ‖ (Bradley v. Department

of Corrections & Rehabilitation (2008) 158 Cal.App.4th 1612, 1626–1627

(Bradley), quoting Metropolitan Water Dist. v. Superior Court (2004) 32 Cal.4th

491, 504).2


1

All further statutory references are to the Government Code.

2

We have followed the same approach in other contexts in which the

relevant statute or regulation has defined the employment relationship
tautologically, or not at all. (See, e.g., Martinez v. Combs (2010) 49 Cal.4th 35, 64


(footnote continued on next page)



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 (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. 3, citing Vernon, at p. 124.)

Fidelity to a multi-factored, totality of the circumstances test inevitably

means that ― ‗[t]he precise contours of an employment relationship can only be

established by a careful factual inquiry.‘ ‖ (Vernon, supra, 116 Cal.App.4th at

p. 125.) That a franchisor is not automatically the employer of its franchisee‘s

employees, irrespective of the details of the parties‘ relationship, necessarily

follows. So, too, does it follow that a franchisor may under the circumstances of

the parties‘ relationship in fact be an employer. The outcome depends on the

factual inquiry. For example, a franchisor, pursuing its legitimate interest in



(footnote continued from previous page)

[wage law]; Metropolitan Water Dist. v. Superior Court, supra, 32 Cal.4th at
pp. 500–501 [public retirement law]; S.G. Borello & Sons, Inc. v. Department of
Industrial Relations
(1989) 48 Cal.3d 341, 350 (Borello) [workers compensation];
Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 949–951 (Tieberg)
[unemployment insurance].)

2



ensuring that customers enjoy a similar experience in each franchised location,

may implement the franchise agreement in various ways, including ways short of

day-to-day oversight, to exercise control over employee selection, training,

personal appearance, interaction with customers, and compliance with in-store

procedures. This retention of control by the franchisor, enforced by regular

inspections and the threat that a noncompliant franchisee will be placed in default,

presents occasions for the franchisor to act as an employer by forcing the

termination of problematic employees. The majority finds that Domino‘s

successfully walked this tightrope between enforcing contractual standards and

becoming an employer by leaving to Poff all decisions about the discharge of his

employees, even when cause for discharge existed. Because the case has not been

tried, we will never know whether Domino‘s succeeded or not. Unlike the

majority, I would hold that plaintiff has raised a triable issue of fact.

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

Rene 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

3



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 time.‘ I never

said ‗no‘ intentionally to [Lee].‖ Poff could not ―recall specifically‖ whether Lee

―allude[d] to anything that would happen to [Poff] if [he] didn‘t fire Miranda,‖ but

it was hardly necessary for Lee to repeat the warning she had recently given Poff

that the failure to follow her wishes concerning the termination of a problematic

employee could lead to the loss of his franchise. Consistently with his statement

that he ―never said ‗no‘ ‖ to Lee, Poff confirmed that he ―never t[old] her over the

phone or to her face that [he] did not intend to fire Miranda.‖ A franchisee who

did not follow Lee‘s suggestions, Poff testified, was ―out of business very

quickly.‖ Ultimately, Miranda‘s failure to return to work made it unnecessary for

Poff to risk the loss of his franchise by refusing Lee‘s demand.

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.) 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; 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,

4



531; Malloy v. Fong (1951) 37 Cal.2d 356, 370) 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, 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), 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. In

concluding Domino‘s did not have the power to force Poff to discharge his

employees, the majority places too much emphasis on the terms of the franchise

agreement and not enough on the parties‘ real world interaction. The language of

the governing contract is only ―one factor to be considered in determining the

nature of the employment relationship‖ and ―is not controlling.‖ (Bradley, supra,

158 Cal.App.4th at p. 1628.) This is because our principal responsibility in FEHA

cases is not to give effect to private contracts intended to shift or avoid liability,

nor is it to promote the use of franchising as a business model or to avoid

―disrupt[ing] the franchise relationship.‖ (Maj. opn., ante, at p. 31.) Instead, our

5



duty is to vindicate the Legislature‘s ―fundamental public interest in a workplace

free from the pernicious influence of sexism.‖ (Rojo v. Kliger (1990) 52 Cal.3d

65, 90; see Harris v. City of Santa Monica (2013) 56 Cal.4th 203, 224 [same].)

When this task requires us to construe FEHA‘s definition of employer, we are

bound by the Legislature‘s command that ―[t]he provisions of [FEHA] shall be

construed liberally for the accomplishment of [its] purposes . . . .‖ (§ 12993,

subd. (a).) To emphasize contractual language intended to shield a franchisor

from employment-related claims over evidence the franchisor in practice retained

and exercised the power to terminate the franchisee‘s employees tends to

undermine FEHA‘s goals by permitting the franchisor, in effect, to opt out of the

statutory duties of a California employer.

For these reasons, I dissent.













WERDEGAR, J.

WE CONCUR:


LIU, J.
CHANEY, J.
*


* Associate Justice of the Court of Appeal, Second Appellate District, Division
One, assigned by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.

6



See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Patterson v. Domino‘s Pizza, LLC
__________________________________________________________________________________

Unpublished Opinion

Original Appeal
Original Proceeding
Review Granted
XXX 207 Cal.App.4th 385
Rehearing Granted

__________________________________________________________________________________

Opinion No.
S204543
Date Filed: August 28, 2014
__________________________________________________________________________________

Court:
Superior
County: Ventura
Judge: Barbara A. Lane

__________________________________________________________________________________

Counsel:

Alan Charles Dell‘Ario; Winer & McKenna, Alexis S. McKenna, Kelli D. Burritt and Kent F. Lowry, Jr.,
for Plaintiff and Appellant.

The deRubertis Law Firm, David M. deRubertis; Pine & Pine and Norman Pine for Consumer Attorneys of
California as Amicus Curiae on behalf of Plaintiff and Appellant.

Kolar & Associates, Elizabeth L. Kolar; Snell & Wilmer and Mary-Christine Sungalia for Defendants and
Respondents.

Seyfarth Shaw, David D. Kadue; Law Offices of Steven Drapkin and Steven Drapkin for Employers
Group, California Employment Law Council and California Chamber of Commerce as Amici Curiae on
behalf of Defendants and Respondents.

Reed Smith, Margaret M. Grignon and Tillman J. Breckenridge for Automobile Club of Southern
California as Amicus Curiae on behalf of Defendants and Respondents.

DLA Piper, Kim Lambert, Julia Brighton and John F. Verhey for International Franchise Association and
California Restaurant Association as Amici Curiae on behalf of Defendants and Respondents.

Manning & Kass, Ellrod, Ramirez, Trester and Steven J. Renick for Eleven Health Club Franchisees as
Amici Curiae on behalf of Defendants and Respondents.







Counsel who argued in Supreme Court (not intended for publication with opinion):

Alan Charles Dell‘Ario
1561 Third Street, Suite B
Napa, CA 94559
(707) 666-5351

Mary-Christine Sungalia
Snell & Wilmer
600 Anton Boulevard, Suite 1400
Costa Mesa, CA 92626
(714) 427-7000




2

Petition for review after the Court of Appeal reversed the summary judgment in a civil action. The court limited review to the question discussed in the Court of Appeal's opinion, namely, whether the defendant franchisor is entitled to summary judgment on plaintiff's claim that it is vicariously liable for tortious conduct by a supervising employee of a franchisee.

Opinion Information
Date:Citation:Docket Number:
Thu, 08/28/201460 Cal.4th 474, 333 P.3d 723, 177 Cal.Rptr.3d 539, 2014 WL 4236175 (Cal.), 124 Fair Empl.Prac.Cas. (BNA) 994, 79 Cal. Comp. Cases 1111, 14 Cal. Daily Op. Serv. 10,174, 2014 Daily Journal D.A.R. 12,005S204543

Opinion Authors
OpinionJustice Marvin R. Baxter
DissentJustice Kathryn M. Werdegar

Mar 24, 2015
Annotated by Matthew Rietfors

FACTS

In September 2008, the franchisee acquired an existing Domino’s pizza franchise and elected to retain all of its current employees. As part of the franchise agreement, the franchisee agreed to serve as the full-time on-site manager and supervisor of the store. The franchisor disclaimed any right or duty to operate the store or oversee workers. It also assumed no duties or responsibilities regarding the store’s employees.

Three months later, in November 2008, the franchisee hired Plaintiff “on the spot” after interviewing her. When she showed up to work, the franchisee trained Plaintiff on the store’s “zero tolerance” sexual harassment policy and attendance policy, both of which he himself developed and enforced. Plaintiff also completed other employee training using franchisor materials on topics like time cards and the dress code.

Within the first few weeks of her employment, Plaintiff was allegedly sexually harassed by a manager at the store. She reported the harassment to the franchisee and her father, who reported the harassment to the police and the franchisor’s “corporate office.”

Plaintiff then stayed away from work for a week. In the meantime, the franchisee suspended the manager and began an investigation. The manager never returned to work, effectively “self-terminating” his employment under the franchisee’s attendance policy. The franchisee discussed the incident with an agent for the franchisor, who reportedly told him to “get rid of this guy” and made suggestions about retraining employees. Despite the agent’s input, the franchisee testified that he alone retained control over the disciplinary action and employee oversight. Nothing in the franchise contract allowed or required the franchisor to get involved in such matters.

When Plaintiff returned to work after a week, she perceived that her shifts had been reduced because of her report. As a result, she resigned. In July 2009, she brought a complaint against the manager, franchisee, and franchisor for damages arising out of her alleged harassment and constructive termination.

PROCEDURAL HISTORY

Plaintiff filed a complaint against her supervisor, the franchisee, and the franchisor in July 2009, alleging injuries from sexual harassment directly by the supervisor and vicariously by the franchisee and franchisor. The complaint named the franchisor as the employer of Plaintiff and stated causes of action under the common law and the California Fair Employment and Housing Act (FEHA), Cal. Gov. Code § 12900 et seq. Plaintiff sought compensatory and punitive damages for alleged sexual harassment, failure to take reasonable steps to avoid harassment, retaliation for reporting harassment, intentional infliction of emotional distress, assault and battery, and constructive termination against public policy under FEHA.

In November 2010, the franchisor filed a motion for summary judgment, arguing that it did not maintain enough control over the franchisee’s employment operations to be considered Plaintiff’s employer under FEHA and the common law. The trial court agreed and granted summary judgment for the franchisor. The appellate court reversed, holding that Plaintiff’s contentions raised a triable issue of fact because the franchisor retained a significant amount of general operational control over the store. The California Supreme Court granted review.

ISSUES

Generally, does a franchisor stand in an employment or agency relationship with a franchisee and its employees for the purposes of holding it vicariously liable for workplace injuries allegedly inflicted by one employee of the franchisee while supervising another employee of the franchisee?

More specifically, can a franchisor that contractually takes no part in franchisee hiring and personnel decisions be vicariously liable as an employer under the common law and California Fair Employment and Housing Act (FEHA) for alleged sexual harassment of a franchisee employee by a franchisee supervisory employee?

HOLDING

The Court reversed the appellate court’s finding that Plaintiff franchisee employee stated a triable issue of fact against the franchisor. It reinstated the district court’s finding of summary judgment for the franchisor.

The Court held that the franchisor had no responsibility or authority to manage the on-the-job behavior of the franchisee’s employees, including any acts that might involve sexual harassment. This is because the franchisor ceded – and the franchisee assumed, contractually and practically – all control over hiring, firing, work behavior training, and day-to-day management of store personnel.

ANALYSIS

The Court’s holding indicates that “a comprehensive operating system alone” does not constitute control for the purposes of employer-based vicarious liability. Franchisors, for legitimate business reasons, may retain substantial operating system (or “business-format”) control while playing no role in day-to-day franchisee employment decisions. The Court described the increasing popularity of “business-format” franchising relationships, noting that theoretically both parties benefit from such an arrangement. The franchisor grows while maintaining control over product quality and commercial image, and the franchisee uses the franchisor’s established reputation while maintaining control over day-to-day operations.

The Court noted that its ruling does not improperly immunize franchisors from the significant public interest of deterring sexual harassment. Where franchisors do not directly control the workforce, they cannot appropriately respond to penalty-based incentives. Rather, franchisees, as owner-operators who assume a personal and financial stake in running the business, hold the incentive to hire good workers and oversee their performance every day.

Franchisors may still be vicariously liable if they exert some control over franchisee personnel. The Court, noting that no California decision had dealt with a modern business-format franchise relationship that allocated control along such a fine contractual line, asked if the franchisor possessed effective control over the relevant aspect of the business: employment matters. Even though the franchisor controlled some elements of franchise operations, like food safety training, it did not possess the “right to control the means and manner” of how employees treated each other at work. Cislaw v. Southland Corp. (1992) 4 Cal. App. 4th 1284, 1288 (emphasis in original). The franchisor thus could not be considered an “employer” because it did not possess “a comprehensive and immediate level of ‘day-to-day’ authority” over hiring, firing, or supervision of employees. Vernon v. State of California (2004) 116 Cal. App. 4th 114, 127-28.

The Court highlighted a number of factors that supported this conclusion. First, the franchisee agreed to act as an independent contractor who assumed sole control over all hiring, training, and management of employees. Second, the franchisee implemented his own sexual harassment policy and communicated it directly to all employees, including the plaintiff. No franchisor agent ever reviewed or contributed to the policy. Plaintiff reported her complaint directly to the franchisee, who began an investigation without franchisor input. Third, the franchisee alone had authority to discipline employees under the policy. The franchisor had no mechanism for reporting or monitoring sexual harassment complaints from franchisees. Finally, the franchisee actually did discipline the alleged harasser under the policy, suspending him and continuing the investigation before the alleged harasser self-terminated his employment. No evidence showed that the franchisor ever required or consented to the discipline. Though the franchisor’s agent suggested the franchisee “get rid of” the alleged harasser, the franchisee acted with the understanding that the decision was entirely his to make. The franchisor made no threats or insinuations about consequences that would ensue if the franchisee did not follow the agent’s suggestion.

As a result of the above factors, the Court held that the franchisor could not be considered an employer for vicarious liability purposes. The Court clarified that a franchisor could only become potentially liable for actions of the franchisee’s employees if it retained or assumed a general right of control over workplace factors such as hiring, firing, discipline, and relevant day-to-day aspects of workplace behavior. General “business-format” control is not enough on its own to indicate control over employment matters. Without an employer-employee relationship, Plaintiff could not state a triable issue of fact of franchisor vicarious liability.

The dissent agreed with the majority on the law, but disagreed on the application of the law to the facts. It argued that the franchisor did possess control over employment matters because franchisor agents advised and pressured the franchisee to terminate certain employees, including Plaintiff’s alleged harasser. For the dissent, this revealed power to terminate an employee, which is strong evidence of “necessary control” over employees, and thus the existence of an employment relationship. Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, 531.

The Court’s majority opinion did not necessarily disagree with this argument, but simply found as a factual matter that the franchisor here did not exert influence on the termination of employees. The dissent and majority thus agree that the operative test for franchisor vicarious liability for tortious workplace conduct is whether the franchisor retains control over hiring, firing, discipline, and day-to-day aspects of workplace behavior. For the Court’s majority, franchisor “suggestions” alone are not enough to establish control, and thus not enough to expose franchisors to vicarious liability as employers under FEHA.

TAGS

Fair Employment and Housing Act, FEHA, franchisee, franchisor, franchisor liability, vicarious liability, employment, employment termination, employment law, sexual harassment, franchise, franchise law, principal-agent, employer, employee

Matt Rietfors, SLS Class of 2015