The California Supreme Court recently issued an important victory for franchisors, finding that a franchisor does not stand in an employment or agency relationship with the franchisee and its employees for purposes of holding the franchisor vicariously liable.

In Patterson v. Domino’s Pizza LLC (a copy of the order can be found here), the plaintiff—a former employee of a Domino’s franchise store—brought a claim for sexual harassment against franchisor Domino’s, along with the franchisee and her former supervisor. Domino’s filed for summary judgment, arguing that the internal day-to-day control required to form an employment or agency relationship was lacking in this franchisor-franchisee relationship. In opposition, the plaintiff noted that Domino’s imposed many standards and procedures on franchisees, and also asserted that Domino’s monitored the franchisee and appeared to have some control over the franchisee’s employment decisions. The trial court granted Domino’s motion for summary judgment, but the California Court of Appeal reversed, and the case was appealed to the California Supreme Court.

The Supreme Court concluded that 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 liable for the alleged sexual harassment. Under the franchise contract, Domino’s had no right or duty to control employment or personnel matters for the franchisee. Specifically, the Court found that the franchisee controlled employee training with respect to workplace behavior and sexual harassment by implementing his own sexual harassment policy and training programs for his employees. Importantly, the franchisee maintained authority to impose discipline for any violations of the sexual harassment policy. The Court concluded that no reasonable inference could be drawn that Domino’s retained the right of general control that an “employer” has over factors such as hiring, supervision, discipline, discharge, and day-to-day aspects of the workplace behavior of the franchisee’s employees.

This decision strengthens the franchise business model by making it more difficult for franchisee employees to successfully litigate employment matters against corporate franchisors. While franchisors commonly create training materials, marketing procedures, and other operational standards, the Domino’s ruling makes clear that these actions do not establish the day-to-day control required to be liable for employment disputes.

This important California state law decision comes at a time when the well-settled federal law on joint employment and franchisor-franchisee liability is being called into question with the National Labor Relations Board’s recent actions against McDonald’s. In contrast to the Domino’s decision, the Board’s General Counsel authorized unfair labor practices complaints on behalf of McDonald’s workers to move forward, treating the corporate franchisor McDonald’s as a “joint employer” with its franchisees.