The California Supreme Court has rejected the idea, promoted by the Obama administration, that franchise companies are the “employers” of workers who are actually hired, fired and managed by independent store owners.  The state’s highest court reversed an appeals-court decision saying Domino's Pizza Domino's Pizza should face a jury over whether an employee at a franchise store suffered sexual harassment by a supervisor. While Domino’s pays close attention to how its franchisees run their stores, the court said, it can’t be considered an employer if it doesn’t control who works in them.  The decision follows the reasoning of appeals courts in many other states, but not that of Obama administration lawyers who want to hold franchise companiesMcDonald's McDonald's liable for labor practices at thousands of independently franchised stores. Last month, the general counsel of the National Labor Relations Board ruled that McDonald’s is a joint employer, meaning it could be liable for unfair labor practices against striking workers. The decision, if upheld, would be a boon to Democratic-leaning labor unions who want to use the threat of NLRB sanctions to help organize fast-food outlets.  The California Supreme Court decision involving a complaint filed under the state’s antidiscrimination law rejects such reasoning, saying decades of franchise law and business practice set up clear lines between franchisors and franchisees. While the common-law rule of respondeat superior holds employers responsible for the actions of their employees, it doesn’t follow that franchisors become “employers” simply because they instruct franchise operators how to run their businesses.  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 workplace behavior of the franchisee‘s employees Any other guiding principle would disrupt the franchise relationship plaintiff argues Dominos should have responsibility for preventing sexual harassment.  So sue me. (Photo credit: Wikipedia)  The decision drew a dissent from three judges who would have allowed a jury to decide whether Domino’s was an employer. There was evidence a local Domino’s franchising manager had urged the franchise operator to fire another employee who’d delivered non-Domino’s products in the company’s bags, the dissenters noted.  But the majority said Domino’s didn’t have any way to monitor complaints of sexual harassment among franchisee employees. While the dissenters argued public policy favored holding large corporations like Domino’s liable for harassment, Judge Marvin Baxter wrote, “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.”  The four-judge majority noted that California courts previously had refused to holdChevron liable for a fatal car crash involving a gas-station employee, nor could Southland Corp. be liable for claims involving 7-Eleven franchise employees. The appeals court that held Domino’s could face trial delivered a decision that was at odds with the law in a number of states including Alabama, Washington, New Jersey, Oklahoma, and Florida.  That’s not likely to deter the Obama administration, which is aggressively pursuing pro-union policies as it approaches difficult midterm elections, including seeking to eliminate the distinction between contract and direct employees. It has the full support of unions like the Service Employees International Union, which need a new source of income to replenish mismanaged and underfunded pension plans. But employers will sue to block the changes, and this ruling by the highest court in the most populous state in the union might provide some support.  A hat tip to James Ullman of Quarles & Brady, who brought this decision to my attention.
The California Supreme Court rejects claim that Domino's is responsible for harassment claims involving a supervisor at a franchisee's store.