California Supreme Court Says Franchisor Not Liable For Harassment By Franchisee's Employee

Although Domino's Pizza exercises some control over the conditions at its franchisees' pizza stores, it does not exercise enough control to qualify as the employer of those who work in the stores. So the California Supreme Court has ruled in a case alleging sexual harassment at a franchisee's store. Patterson v. Domino's Pizza, LLC, Case No. S204543 (Aug. 28, 2014).

In a 4-3 decision, the Court explained that its ruling turned on the common law principles of agency and respondeat superior. Those principles look to the degree of control exercised over the employee's performance of employment duties. To be an employer, the entity must have day-to-day authority over such matters as hiring, firing, direction, supervision and discipline. In the case before it, the agreement between Domino's and its franchisee left such matters in the hands of the franchisee. The fact that a Domino's representative had told the franchisee that the alleged harasser should be fired did not establish control over the discipline process.

The Court recognized that each case would have to be considered on its facts, and that there may be circumstances in which a franchisor has exercised sufficient control to render itself a joint employer with its franchisees. But, the mere existence of a franchise agreement specifying standards, procedures and requirements to ensure product quality and customer service, and to protect trade names, public reputation and commercial image will not be sufficient.

The opinion asserts that the result is consistent with the rulings in an "apparent majority" of decisions in other states. See, for example, Kennedy v. Western Sizzlin Corp. (Ala. 2003) 857 So.2d 71.

Are Franchisors Joint Employers With Their Franchisees

The recent announcement by the NLRB's Office of the General Counsel that it has authorized complaints against McDonald's USA for NLRA violations allegedly committed at franchised restaurants raises the general issue of potential franchisor liability for labor and employment violations by their franchisees. Reported decisions on the subject are scarce. In two cases decided over 45 years ago, the NLRB refused to find that a franchisor was a joint employer. Speedee 7-Eleven, 170 N.L.R.B. 1332 (1968) and S.G. Tilden, Inc., 172 N.L.R.B. 752 (1968). If any of the current complaints proceed to adjudication, the NLRB, and then the federal courts, will determine whether the NLRA's definition of employer includes franchisors.

The issue has arisen under other laws. For example, the California Supreme Court has under review a Court of Appeal decision holding that Domino's could be held liable for sexual harassment by one of its franchisee's employees. The case was argued in June 2014. For a discussion of the decision rejecting liability, see this blogpost.

Employees have also sought to hold franchisors liable for wage and hour violations by franchisees. For example, earlier this year, class action lawyers in California, New York and Michigan filed lawsuits claiming that McDonald's was responsible for wage and hour violations by its franchisees.

For a newspaper columnist's view on the issue, see the LA Times Michael Hiltzik's column "The NLRB-McDonald's ruling could be the beginning of a franchise war."

Workplace Surveillance and Investigations

Two articles in The New York Times today prompt consideration of the appropriate place for surveillance in the workplace. See "Unblinking Eyes Track Employees" and "American Apparel Ousts Its Founder, Dov Charney, Over Nude Photos".

Employers must strike the proper balance between an employee's privacy interest and the employer's interest in monitoring activity in the workplace. As a legal matter, so long as they give appropriate notice of their intentions and stay away from such intrinsically private places as restrooms, employers are free to monitor all conduct in the workplace. See, for example, TBG Ins. Services Corp. v. Superior Court, 96 Cal. App. 4th 443, 117 Cal. Rptr. 2d 155 (2002) (employer entitled to search employee's home computer because the employee had acknowledged the employer's policy allowing such access). For one of the restraints on the right to intrude, see Loder v. City of Glendale, 14 Cal. 4th 846, 59 Cal. Rptr. 2d 696, 927 P.2d 1200 (1997) (although applicants may be forced to submit to drug testing, existing employees may not in the absence of extenuating circumstances).

The "unblinking eyes" article discusses monitoring software that has helped businesses by identifying activities that make employees productive, but points out that, without some assurance of privacy, the surveillance may not be effective.

The article on the ouster of American Apparel's founder shows the importance of being able to investigate employee behavior, even at the highest levels of an organization. If there is not enough monitoring to ferret out harassing behavior, the entire organization may suffer irreparably.

The Importance of Harassment Prevention Training

Sexual harassment claims continue to cost employers hundreds of thousands, if not millions, of dollars in settlements and verdicts. Even innocent-seeming repartee among fellow employees can pose big risks. Recently, an off-work incident at a manager's ranch led a school district to offer an employee $200,000 plus lifetime medical benefits in settlement of his claim. Proper training can teach supervisors and managers to spot troubling conduct early, and then take the necessary steps to prevent it from becoming a liability.

In California, such training is mandatory under Government Code section 12950.1. Employers with 50 or more employees must provide at least two hours of harassment prevention training to all supervisors every two years. Particulars of the training requirement are set out in the regulations of the Fair Employment and Housing Commission. The FEHC has also published a PowerPoint presentation that explains the regulations.

In addition to helping to reduce the threat of liability and ensuring compliance with California law, harassment training may have a substantial legal effect if the employer is the subject of a lawsuit. Under federal (Title VII) law, the employer can establish a complete defense to a harassment claim by showing (1) that it exercised reasonable care to prevent and correct promptly any sexually harassing behavior, and (2) that the employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer. This principle is known as the Faragher defense, after the case in which it was announced -- Faragher v. City of Boca Raton, 524 U.S. 775 (1998).

Although a complete defense is not available under California law, an employer may invoke the avoidable consequences doctrine to reduce the damages exposure in a harassment case. There are three elements: (1) the employer took reasonable steps to prevent and correct workplace sexual harassment; (2) the employee unreasonably failed to use the preventive and corrective measures that the employer provided; and (3) reasonable use of the employer's procedures would have prevented at least some of the harm that the employee suffered. See State Department of Health Services v. Superior Court, 31 Cal. 4th 1026 (2003).

The keys to effective harassment prevention training are:

1. Adopt a firmly worded policy that bars harassment in the workplace.
2. Establish a complaint process that encourages employees to take complaints of harassment to the human resources department, or to any supervisor whom they are comfortable talking to.
3. Teach supervisors how to recognize harassing conduct, and to report such conduct to the appropriate person in the human resources department.
4. Teach supervisors the importance of recognizing retaliatory conduct, and stopping it.
5. Use problems based on real world examples to encourage discussion about how to deal with complaints of harassment.

Partner Calvin House will be presenting an audio conference devoted to harassment prevention training on June 26, 2012, from 10:00 am to 12 noon. Participate in the conference from the comfort of your office. For a special 20 percent discount off the regular registration price, register online at http://www.lorman.com
with discount code F2716129, and priority code 15999. Or, call 866-352-9539.

How To Reduce Liability Risks When Discharging Employees

The best way to reduce the liability risks associated with firing employees is to make sure that you hire good employees. But, even employers who screen very carefully during the hiring process will find themselves from time to time with employees they do not wish to retain. Here are some important things to keep in mind when deciding to let somebody go:

1. Employment at will is a myth. Although California law provides that employment is at will in the absence of a contrary agreement (see Labor Code section 2922), the reality is that you cannot fire someone for no reason. Because of the way the burden of proof is allocated in a lawsuit, a discharged employee generally need only show that he or she was performing competently in order to put the burden on the employer to show a legitimate reason for the discharge. We explained this in more detail a couple of years ago in a post entitled Layoffs Mean Lawsuits. When you decide to discharge somebody, make sure that you can articulate a good reason for doing so.
2. Document the reason before you discharge the employee. You are at a trial where a former employee testifies that she was fired a week after she complained about sexual harassment. The vice president of the department where she worked testifies that she had to let her go because everybody agreed that she was the worst employee they had ever hired. Cross-examination goes like this. "Q: Can you show me a single piece of paper that ever criticized the employee's performance? A: No, we don't do things that way." Is there much doubt about how the jury will vote? 
3. Evaluate employees regularly and tell them how to improve. Another trial. Same type of retaliation claim. The director of human resources testifies that the employee was let go because she was ten minutes or more late for work five times in the first six months that she worked at the company. Cross-examination goes like this: "Q: Was the employee ever written up for being late? A: No. Q: After the employee started work, did you ever tell her that she could be fired for being late? A: No, it's in the policy posted on the employee bulletin board--five lates means you can be fired. Q: Did you ever go over the policy with her? A: No, that's her responsibility. Q: Did it matter to you that she was late the fifth time because her son came down with the flu? A: No. The policy is the policy." How much better the case would be for the company if (1) the policy were in an employee handbook that the employee acknowledged having reviewed in writing, (2) the first time she was late, the employee's supervisor sat down with her and explained the importance of the policy and asked whether there was a reason she could not get to work on time, (3) the second time she was late, there was further counseling and a note in her personnel file, (4) the third time, she received a written warning, and (5) the fourth time she got a written final warning that the next late would result in termination.
4. Consider a severance agreement. Instead of just letting the employee go, you could offer something extra in return for a release of all liability -- another few weeks of pay, a couple of months extension on medical benefits. With such an agreement, you have an ironclad defense to any lawsuit the employee might try to pursue. This will not work every time. Sometimes, offering a severance package will get the employee wondering whether he or she might have a valuable claim that is worth a lot more, leading him or her to consult an attorney and file a lawsuit.

Retaliation Claims Based On Co-Worker Harassment

Employers may not retaliate against employees who complain in good faith about conduct that they believe is unlawful. There are many cases where courts or juries have found conduct not harassing or discriminatory, but went on to find that an employee who complained about the conduct had been subjected to retaliation. Employers must be alert to this possibility so that they can take steps to limit liability for retaliation. There were previous posts to this blog about retaliation on 7/13/2008, 8/17/2008, 10/13/2008, 11/2/2008, 11/16/2008 and 2/1/2009.

One of the elements of a retaliation claim is proof that the employee was subjected to adverse employment action. When the employee has been fired, demoted or suspended, the element is easily proved. But, the federal and state courts have ruled that sufficiently severe and pervasive retaliatory harassment may also constitute adverse action. The concept involves two inquiries: (1) whether the conduct is sufficiently severe to constitute adverse action, and (2) whether the conduct may be imputed to the employer.

Ostracism (or a cold shoulder) is not enough to satisfy the severity element. Here are some examples of what may be enough:

• After he complained about harassment, a male employee's co-workers called him "snitch" and other offensive names, and told him he would be lucky if he did not get his ass beat after work. Kelley v. Conco Cos., 196 Cal.App.4th 191, 126 Cal.Rptr.3d 651 (2011).
• After she complained about harassment, a female employee was subjected to a steady stream of abuse, including false accusations of misconduct, taunting and false statements about how she was to conduct herself. Noviello v. City of Boston, 398 F.3d 76 (1st Cir. 2005).

For the employer to be responsible for retaliatory harassment, a supervisor or manager must either engage in the conduct or be aware of it and fail to take prompt and effective action.

In light of these principles, employers should take the following steps to limit the risk of liability for retaliatory harassment by co-workers:

1. Provide training to all employees at least annually on prevention of harassment in the workplace, including the requirement to refrain from retaliatory conduct.
2. When a complaint is received, separate the subject of the complaint from the complainant, and instruct the subject to have no contact with the complainant.
3. Monitor the complainant's work environment to assure that co-workers are not engaging in retaliatory harassment.

Office Romance

The Risks

Careerbuilder.com reports that 40 percent of respondents to a recent survey say that they have dated a co-worker. When employees get involved romantically, the employer can wind up getting sued, under several theories:

1. There is the case of the employee who will not take "no" for an answer. He or she pursues an object of affection at the workplace to the point where the object of affection is uncomfortable being at work. The object of affection now has a sexual harassment lawsuit. A Sav-On store manager convinced a Los Angeles Superior Court jury that she was the subject of such attention and of retaliation for resisting her male manager's advances, and recovered $3 million in damages, which was affirmed on appeal. See Clifford v. American Drug Stores, Inc., Case No. B158635, (Cal. Ct. App. Aug. 22, 2005).

2. There is the case of two employees in what at least appears to be a consensual relationship. Eventually, the relationship sours, and one romantic partner makes life miserable at work for the other partner. This is a particular problem when one partner has a higher position at the workplace, as there may be a viable claim of coercion. In one such case, a Los Angeles Superior Court jury awarded a secretary at Northrop Corporation $500,000 in compensatory damages and $250,000 in punitive damages. The case settled for $1.3 million after plaintiff filed a motion for her attorney fees. Darrow v. Northrop Corp., Case No. BC067428 (L.A. Superior Ct. Aug 1, 1997). In another such case, a federal court jury awarded a security guard $827, 500 in compensatory damages and $4,137,500 in punitive damages (which the court reduced to $300,000). Paterson v. California Dept. of General Services, Case No. 05-CV-00827 (E.D. Cal. Apr. 10, 2008).

3. There is the case of a high-level manager who flaunts his or her romantic relationships with subordinates in the workplace. Even if the subordinates who are romantically involved with the manager do not complain, other employees may have claims that they felt demeaned by the conduct. The California Supreme Court recognized the validity of such a claim in Miller v. Department of Corrections, 36 Cal.4th 446, 115 P.3d 77 (2005).

What To Do

To reduce sexual harassment liability risk associated with two employees' being involved in an office romance, some employers have such employees sign relationship agreement, or love contract. Through the agreement, the employees acknowledge that they are in a voluntary and mutual consensual romantic relationship and that no harassment has taken place. The efficacy of such agreements has not yet been validated by any court decision. For an example of what such an agreement might look like, click here.

Whether or not an employer chooses to implement a love contract procedure, it must make sure that it follows accepted anti-harassment procedures. That means (1) have a strong anti-harassment policy written into the employee handbook and posted prominently in the workplace, (2) provide anti-harassment training for all your employees, (3) ensure that the policy includes an effective complaint procedure that all managers and supervisors have been trained in, (4) if a complaint is received, make sure that it is investigated immediately, (5) if an investigation reveals a violation of policy, take prompt and effective action to deal with the wrongdoing.

If an employer acts promptly and effectively when first notified of a harassment situation, it may reduce or eliminate its liability. For a case where an employer escaped liability for an employee dating relationship that went sour, see Forrest v. Brinker International Payroll Company, LP, Case No. 07-1714 (1st Cir. Dec. 19, 2007).

Turn Off/On/Down/Up Those Radios

One employee's favorite type of music is the bane of another's existence. The radio talk show host one employee finds brilliant, another employee finds ignorant and tasteless. Managers and supervisors are often called upon to referee disputes over music and radios in the workplace. What many may not know is that such disputes can lead to litigation.

Litigated Cases

In a recent case, a federal appellate court ruled that a female employee should be allowed to present a sexual harassment case to a jury that depended in part on being subjected to sexually explicit language on radio programs that her male colleagues listened to. Although she was often told that she could play her own music or change the station, when she did so, the other employees would soon change the radio back to the offensive program. Even though the language from the radio programs was not directed at the employee, it affected her work environment to the point that she was distracted and had to remove herself from her usual workspace. Reeves v. C.H. Robinson Worldwide, Inc., Case No. 07-10270 (11th Cir. 4/28/2008).

From time to time employees in union environments may challenge employers who try to limit radio use in the workplace. In one such dispute heard by a federal labor impasse panel, a unit of the Navy proposed that radios be banned at all times throughout the workplace. It claimed that radios could create shock hazards and employees might trip on electrical cords. Employees distracted by listening to radios might not hear important messages broadcast over the intercom and warning alarms. Finally, disputes between employees might erupt over programs selected and volume levels set. The union claimed that there had been a 20-year history of allowing radio before the ban, and that radio listening during personal time could help reduce stress.

The impasse panel found no evidence of safety problems, and ruled: "Employees will be permitted to listen to battery-operated radios with no or single earphone before starting work and during break and lunch periods. Radios are to be used in a courteous manner and played at a low volume." See Case No. 94 FSIP 029.

What You Should Do

The best way to avoid liability for radio disputes in the workplace is to ban use of radios or music players. In the absence of a collective bargaining issue like the one presented to the federal impasse panel, there is no legal impediment to implementing a total ban.

Those employers who permit radio or music player use in the workplace must adopt policies that prohibit listening to programs that offend fellow employees because of protected characteristics, such as race, sex, sexual orientation, religion, and so on.