Government Agencies: Franchise
- California Document Quality Network Portal
- Federal Trade Commission
- Minnesota CARDS (Commerce Actions & Regulatory Documents Search)
- New York
- North Dakota
- Rhode Island
- South Dakota
- Wisconsin E-Filing
Selected Government Agencies: Business Opportunities
- American Bar Association (ABA) Forum on Franchising
- International Franchise Association (IFA)
- North American Securities Administrators Association (NASAA)
The Contours of a Franchisor’s Vicarious Liability
In a ruling that reflects a clear understanding of the distinction between the roles of the franchisor and franchisee, the Appeals Court of Massachusetts recently held that Domino’s was not vicariously liable for the acts of its franchisee that resulted in the death of the franchisee’s delivery driver. LeClairRyan represented the franchisor in the case, Lind v. Domino’s Pizza, LLC, 87 Mass. App. Ct. 650 (July 29, 2015).
The facts of the case are tragic. Alex Morales, a customer, telephoned the store around 2:30 a.m. to order a pizza. Morales killed the delivery driver, Corey Lind, and was later convicted of murder in the first degree, armed robbery and kidnapping. Corey’s parents brought a wrongful death action against Domino’s. The trial court granted summary judgment in favor of Domino’s, and the plaintiffs appealed.
The Appeals Court held that franchisor-imposed controls imposed to protect the franchisor’s trademarks do not create an agency relationship between the franchisor and franchisee that would lead to vicarious liability. A franchisor is vicariously liable for the conduct of its franchisee only where the franchisor controls or has a right to control the specific policy or practice resulting in harm to the plaintiff. In this case, the court held that “the plaintiffs failed to establish a genuine issue of fact whether Domino’s either controlled or had the right to control the specific policy or practice that resulted in harm to Corey.”
The court noted that the franchise agreement states that franchisees are “not required to offer delivery service in areas which might present a danger to you or your employees.” The court also pointed out that the franchise agreement clearly stated that no agency relationship existed between the franchisor and the franchisee and that the franchisee was solely responsible for the day-to-day operation of the franchised store.
This holding is consistent with the holding of the Supreme Court of California in Patterson v. Domino’s Pizza, LLC, 60 Cal. 4th 474; 333 P.3d 723; 177 Cal. Rptr. 3d 539 (Cal. 2014). In that case, an employee of a Domino’s franchisee alleged that her supervisor had sexually harassed her. She sued the supervisor and the franchisee. She also sued the franchisor, claiming that the franchisee was the agent of the franchisor, which meant that the franchisor could be held vicariously liable for the alleged harassment by the franchisee’s employee. The California Supreme Court rejected this claim of vicarious liability, stating that:
“… 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.”
In the Patterson case, the California Supreme Court found that Domino’s simply lacked and did not exercise general control over relevant day-to-day aspects of the employment and workplace behavior of the franchisee’s employees.
The Wisconsin Supreme Court had reached the same conclusion ten years earlier in the case of Kerl v. Dennis Rasmussen, Inc., 682 N.W.2d 328 (Wis. 2004). In that case, the court held that “a franchisor may be held vicariously liable for the tortious conduct of its franchisee only if the franchisor has control or a right of control over the daily operation of the specific aspect of the franchisee’s business that is alleged to have caused the harm.”
In these cases, the courts understood the nature of the franchise relationship. The Supreme Court of California described this relationship well in the opening paragraph of its holding in Patterson v. Domino’s Pizza, LLC:
“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.”
The franchisee implements the franchisor’s operational standards on a day-to-day basis, hires and fires store employees and regulates workplace behavior.
These vicarious liability cases take a very different approach than the National Labor Relations Board (NLRB) has taken in its unfair labor practice cases against McDonald’s. The vicarious liability holdings reinforce the strength of franchising as a business model.