California Supreme Court Holds Fast Food Employee Cannot Sue Franchisor For Sexual Harassment Claims.

On August 28, 2014, the California Supreme Court ruled that Domino’s Pizza could not be held liable for sexual harassment claims by an employee of a franchisee. The highly anticipated decision came on the eve of Labor Day weekend, dealing a blow to franchisee employees seeking accountability and meaningful compensation from franchisors.

In Patterson v. Domino’s Pizza, LLC, plaintiff was Taylor Patterson was employed by a Domino’s franchisee in Ventura, California. Patterson claimed that her supervisor subjected her to sexual harassment while they worked together in the store. Patterson filed her claims under California’s Fair Employment and Housing Act (the “FEHA”) against the franchisee, her supervisor, and the franchisor.

The California Supreme Court addressed the question of whether the Domino’s franchise could be held vicariously liable for sexual harassment in one of its franchise stores. In a 4-3 decision, the Court found that Domino’s did not exercise sufficient control over the day-to-day operations to be held liable in a sexual harassment case.

Control was certainly the key driver in this case. The lower court granted summary judgment to Domino’s, because it did not exercise day-to-day control over the circumstances that caused the harm to Patterson. On appeal, the California Court of Appeal reversed, finding that material issues of fact existed as to whether Domino’s exercised enough control over the franchisee’s operations, including employee relations, so that it could be held liable either as an “employer” or vicariously liable under agency principles.

The California Supreme Court reversed the appeals court decision, finding that the company was not sufficiently involved in day-to-day hiring, firing and supervision to warrant liability for Patterson’s claims. Writing for the majority, Judge Baxter reasoned that the franchise agreement “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.”

While undoubtedly a huge victory for franchisors, the Court’s holding in Domino’s does leave franchisee employees a sliver of hope. The Court’s reasoning indicates that where a franchisor exercises more control and is more involved in the franchisee’s daily operations, it would be possible to hold the franchisor liable in these types of cases. Therefore, the factual circumstances of each franchisor-franchisee relationship will be crucial in determining whether joint liability is feasible.

The Domino’s decision comes on the heels of a decision from the US National Labor Relations Board (NLRB) allowing franchisors to be treated as joint employers in labor complaints. In July 2014, the NLRB Office of the General Counsel determined that McDonald’s could be considered a joint employer with its franchisees in cases involving the rights of employees involved in protests.

Since November 2012, 181 cases have been filed with the NLRB involving McDonald’s. The suits allege a variety of unfair labor practices, such as layoffs related to organizing activities. So far, the NLRB has determined that 43 of those cases have merit. If those cases are not resolved by the parties, the NLRB has indicated that it will issue formal complaints naming McDonald’s and its franchisees as joint employers.

Pulling the fast food giant into these cases as a joint employer is a huge step forward for workers and labor groups campaigning for higher wages and improved working conditions.

However, it is important to note that California’s Domino’s decision and the NLRB’s McDonald’s decision are unlikely to have any impact on each other, since they involve separate legal statutes and contexts. However, what these back-to-back and contradictory decisions indicate is that franchisor liability has become an important new battleground for low-wage workers seeking more broad-based change than can be achieved by targeting one franchisee at a time.