Recent Court of Appeal Case Reiterates the Importance of Understanding the Dangers of Exercising Too Much Control Over Independent Contractors

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Earlier this month, the California Court of Appeal found a franchisor liable for the sexual harassment by the employee of a franchisee. In Patterson v. Domino’s Pizza, LLC, the Court of Appeal held Domino’s Pizza liable for sexual harassment that occurred at one of its franchised locations.

Sui Juris, LLC, is the franchisee of a Domino’s pizza restaurant. An employee of Sui Juris alleged that her manager at the pizza restaurant sexually harassed and assaulted her on the job. She claimed that Domino’s, the franchisor of the pizza chain, was subject to vicarious liability because of its extensive control over Sui Juris, the franchisee.

Domino’s sued the manager accused of harassment (seeking indemnification) and filed a motion for summary judgment seeking dismissal of the action against it. Domino’s essentially claimed that Sui Juris was an independent contractor and that Domino’s was not involved in the training, supervision, or hiring of any employees. Testimony by the owner of Sui Juris contradicts Domino’s position. The Sui Juris owner testified in deposition that the regional Domino’s representative regularly told him who he should fire – including specifically telling him to terminate the employment of the accused manager. The owner of Sui Juris testified that he had no choice other than to follow the directives from Domino’s. The trial court granted summary judgment in favor of Domino’s and the plaintiff appealed.

The Court of Appeal analyzed the amount of control Domino’s exercised over Sui Juris. In doing so, the Court of Appeal determined that a trier of fact must consider the evidence to decide whether Domino’s exerted so much control over Sui Juris that Sui Juris became no longer an independent contractor and instead became liable as what essentially amounts to being a co-employer. The Court of Appeal overturned the granting of summary judgment and the case will go back to the trial court.

Domino’s argued that its franchise agreement which defines Sui Juris as an independent contractor shielded it from liability. The Court of Appeal rejected this position. Under California law, the analysis to determine liability (and whether an independent contractor relationship exists) requires a close look at several factors beyond the written contract including:

  • How much control does the entity have over the independent contractor’s operation of its business?
  • How much access to the independent contractor’s financial information does the entity have?
  • What type of insurance relationship exists between the two entities?
  • What type of performance guidelines does the entity set for the independent contractor and its employees?
  • How is the entity involved in day-to-day operations of the independent contractor?

California courts will use these and other factors to look to what is referred to as “the totality of the circumstances” to determine who actually exercises the ultimate control over the business and the employees. If the courts find that the level of control is inconsistent with an independent contractor relationship, then there may be liability for claims by employees of the contractor.

Beyond instances of franchisor/franchisee relationships, the Domino’s Pizza case provides a reminder that companies should consider the extent of control they exercise over independent contractors. By exercising too much control, a company can in some instances become liable for damages to employees of the independent contractor. Companies should exercise caution when utilizing independent contractors who then hire employees to conduct work. Key to avoiding liability is ensuring that the independent contractor is truly independent.

If you have questions regarding your company’s relationship with independent contractors and potential liability to their employees, or any other issue related to employment law, please contact one of our attorneys:

Daniel F. Pyne III
Richard M. Noack
Ernest M. Malaspina
Karen Reinhold
Erik P. Khoobyarian
Shirley Jackson

 

Published In: Civil Procedure Updates, Civil Remedies Updates, Civil Rights Updates, Franchise Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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