Franchisors Liable for Criminal Acts at Franchised Stores

In a pair of recent decisions, California courts ruled that franchisors may be vicariously liable for criminal acts occurring at their franchisees’ stores.

In the first case, a California appellate court found that Domino’s Pizza could be vicariously liable for sexual harassment and assault inflicted on one of its franchisee’s employees by another employee. As the court noted, provisions in the relevant franchise agreement substantially limited the franchisee’s independence. For instance, Domino’s determined store hours, imposed advertising, signage and decor standards, handled customer complaints, and strictly regulated pricing. Furthermore, the Domino’s Manager’s Reference Guide set forth employment hiring requirements and detailed standards for employee behavior. Such requirements, the court ruled, raised reasonable questions regarding whether the franchisee was, in fact, an independent contractor, and remanded the case back to the trial court.

In a similar decision, a California appellate court found that the franchisor of Denny’s restaurants, as well as several affiliate corporate entities, could be liable for a criminal battery occurring at a franchised restaurant under a theory of “ostensible agency.” In order to recover on a theory of “ostensible agency” in California, the plaintiff must show that: (1) the plaintiff dealt with the alleged agent with a reasonable belief in the agent’s authority; (2) such belief was generated by some act or failure to act by the agent; and (3) the plaintiff was not itself guilty of negligence.

While the relevant franchise agreement specified that the franchisee was an independent contractor, the agreement did give the franchisor some control over the franchisee’s business practices. The court noted that there was no signage or other indication that the restaurant was operated by a franchisee, and that many Denny’s restaurants were, in fact, corporate-operated. Furthermore, the injured customer testified that he had seen advertisements identifying Denny’s as a restaurant where “a patron could enjoy a good meal in a friendly, safe, and secure environment.” The court therefore found that the elements of “ostensible agency” had been satisfied.

Patterson v. Domino’s Pizza, LLC, Cal. Ct. App., No. B235099, June 27, 2012.

Ford v. Palmden Restaurants, LLC, Cal. Ct. App., No. E053195, July 31, 2012.

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