Our colleagues Adam Abrahms, Steven Swirsky, and Martin Stanberry at Epstein Becker Green have a Management Memo blog post that will be of interest to many of our readers: “NLRB Issues 13 Complaints Alleging McDonald’s and Franchisees Are Joint-Employers.”

Following is an excerpt:

While the General Counsel’s actions are alarming, particularly for businesses that rely upon a franchise model, the issuance of these complaints comes as little surprise because, as we reported in July of this year, the General Counsel had previously announced the decision to take this action and pursue claims of joint-employer liability. What is somewhat surprising about the announcement is its timing because the Board has not yet issued its decision in Browning-Ferris, 32-RC-109684, where the Board invited interested parties to opine in amici briefs on the benefits and drawbacks of the current standard relied upon by the Board to determine if two employers are a joint-employer and to propose a new standard and factors the Board should consider in such cases. Similar to its recent repudiation of Register Guard, the Board may use Browning-Ferris to moot the thirty years of joint-employer case law that followed TLI, Inc. 271 NLRB 798 (1984).

On the Wage & Hour Defense Blog, coauthor Steven Swirsky comments:

The National Labor Relations Board continues to focus on the changes in the nature of the employer-employee relationship, and the question of what entity or entities are responsible to a company’s employees for compliance with the range of federal, state, and local employment laws, including wage payment and overtime laws.

The Board’s General Counsel has now taken another big step in his effort to broaden the definition of “employer,” issuing a series of 13 complaints alleging that McDonald’s shares responsibility for franchisees’ employees. At the same time, the Board is poised to answer the question of whether the long standing test that the NLRB has relied on for more than 30 years to determine joint employer status should be replaced with a broader definition, and if so what it should be.

Read the full original post here.

By Amy Messigian

On October 11, 2012, the California Supreme Court granted review of Patterson v. Domino’s Pizza to address the circumstances in which a defendant franchisor may be held vicariously liable for tortious conduct by a supervising employee of a franchisee.

Like many fast food chains, Domino’s Pizza (“Domino’s”) is a franchising operation in which individual franchisees operate storefronts under the Domino’s name.

In Patterson, the plaintiff, a sixteen-year-old employee of a Sui Juris, a Domino’s Pizza franchisee (“Sui Juris”), alleged that she was sexually harassed and assaulted at work by an assistant manager of the store.  She filed a lawsuit against various Domino’s-related entities, including Sui Juris and Domino’s, as well as the assistant manager, alleging causes of action under the California Fair Employment and Housing Act, along with assault, battery and intentional infliction of emotional distress.  She claimed that Domino’s was vicariously liable for the supervisor’s actions.

Although Sui Juris’ owner testified that he received employment direction from Domino’s and that his operation was monitored by Domino’s inspectors, the trial court granted summary judgment for Domino’s on the grounds that Sui Juris was an independent contract and was not an agent of Domino’s. Particularly, it noted that the franchise agreement between Domino’s and Sui Juris provided that the latter was responsible for supervising and paying store employees. On this basis, the trial court concluded that Domino’s had no role in Sui Juris’ employment decisions.

The plaintiff appealed and the California Court of Appeal reversed the trial court. The appellate court stated that the nature of the franchise relationship will determine whether a franchisor is vicariously liable for injuries to a franchisee’s employee and that while a franchise agreement is relevant, it is not the exclusive evidence of the relationship between a franchisor and a franchisee.

[T]he franchisor may be subject to vicarious liability where it assumes substantial control over the franchisee’s local operation, its management-employee relations or employee discipline.

Here, the court determined that Domino’s exercised significant control over Sui Juris’ employees through the franchise agreement, which allows Domino’s to set employee qualifications and standards for their demeanor and appearance. The court also determined that Domino’s asserted control over other areas of the business, such as store hours, pricing, advertising, equipment usage, recordkeeping and Sui Juris’ insurance policies, which required naming Domino’s as an additional insured. Most importantly, the court concluded the Domino’s had instructed Sui Juris to terminate the assistant manager as well as another employee of the store for violating company policy, and that Sui Juris had acted based on these instructions. Accordingly, the court reversed the order of summary judgment.

Domino’s has appealed to the California Supreme Court, which will determine whether a franchisee’s employee may bring an action against the franchisor for harassment or other wrongful acts alleged to have been committed by another employee of the franchisee. The line drawn by the Court will be of interest to any retail establishments operating under franchise agreements. If the appellate court’s decision is affirmed, franchisors that establish employment standards or communicate opinions regarding hiring or firing decisions to their franchisees may risk vicarious liability in actions brought by the franchisee’s employees, even if they do not facilitate operations of the franchisee on a daily or continual basis.