U.S.A: Appellate Court finds that franchisor could be vicariously liable for the acts of a franchisee’s manager.

Carl ZWISLER | USA | 2013-11-19


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A summary judgment is a judgment rendered by a court that no material issues of fact exist and that one party is entitled to judgment as a matter of law based on the parties’ pleadings. In the case at issue, a franchisee’s employee alleged suffering sexual harassment, assault, battery, and constructive wrongful termination at the hands of the franchisee’s business manager.

The employee, who was a minor, filed suit against the manager, the franchisee, and the franchisor on the grounds that both were her employers, and that they were vicariously liable for the manager’s actions under the doctrine of respondeat superior. Before the case was heard, the franchisee filed for protection under federal bankruptcy laws and was dismissed from the case.

The franchisor filed a motion seeking summary judgment in its favor on all counts, citing provisions of the franchise agreement which stated that the franchisee was an independent contractor and that the franchisee was solely responsible for all employment decisions.

The trial court granted summary judgment in the franchisor’s favor, finding that the franchise agreement between the parties provided that the franchisee was responsible for supervising and paying employees and that, because the franchisor had no role in in the franchisee’s employment decisions, it could not be held vicariously liable. The trial court further found that even if the franchisor was considered the employer, the employee could not prevail against the franchisor because the franchisor received no notice of the manager’s alleged misconduct, and had not ratified or condoned the manager’s behavior.

The Court of Appeal reversed, finding that vicarious liability may be imposed where a franchisor exerts a degree of control of over a franchisee’s local operations which rises above and beyond the level of control necessary to protect the franchisor’s trademark and the quality of the goods and services offered by the franchised location. The court rejected the franchisor’s argument that the ‘independent contractor’ language in the franchise agreement is dispositive on questions of control. Rather, the court looked to the ‘totality of the circumstances to determine who actually exercises the ultimate control.’

In finding that there was a question of fact regarding the degree of control asserted by the franchisor justifying the imposition of vicarious liability, the court noted that: (a) the franchisee had testified that the franchisor forced it to fire the manager who had allegedly engaged in the wrongdoing, and that the franchisee feared it would have lost its franchise if it did not comply with the franchisor’s demands; (b) the franchise agreement gave the franchisor the right to set the qualifications for the franchisee’s employees and their permissible ‘demeanor;’ (c) franchisees were required to use the franchisor’s computer programs to train employees, (d) the franchisor’s guidelines describe specific employment hiring requirements for all personnel involved in product delivery; (e) the franchisor had independent electronic access to the franchisee’s data; and (f) the franchisor designated the franchisee’s bookkeeping and recording methods.

The Court of Appeal also found that if the franchisor was considered an employer, it was strictly liable for the misconduct of a manager against an employee who was a minor.

Thus, the court found: (a) vicarious liability could be imposed on a franchisor based on a franchisees’ managers’ behavior, under the theory of respondeat superior; and (b) employers are strictly liable for the misconduct of managers against a minor employees. The case was remanded for a trial on the merits.



Carl Zwisler, IDI franchising Country Expert for U.S.A. and Janaki J. Parmar, Gray Plant Mooty

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