Hits Against the Standard Franchise Model Continue

February 18, 2015Articles Law360

Reprinted with permission from Law360. (c) 2015 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.

The hits against the standard franchise model continue as another court calls into question the franchisor-franchisee relationship. In an interesting case of bad facts making bad law, the Federal District Court for the Southern District of West Virginia recently denied Hardee’s motion to dismiss a claim for negligence and deliberate workplace injury.1

The plaintiff is the estate of a former Hardee’s employee who suffered first- and second-degree burns after attempting to clean a broken fryer box manually. The plaintiff argued that the franchisor, Hardee’s, was (a) “in the business of operating and managing Hardee’s restaurants,” (b) that the fryer was broken for a significant amount of time, and (c) there were prior complaints about the problems associated with cleaning a broken fryer pump.

Using these facts, the plaintiff alleged that Hardee’s was responsible as an employer under state workers’ compensation law. While workers’ compensation laws generally immunize an employer for workplace injuries, the plaintiff argued that an exception under the law applied because the defendants acted with deliberate intent.

Hardee's argued that the plaintiff did not plead sufficient facts to show that it was an employer or that it knew of the unsafe working conditions. The court disagreed, stating that plaintiff’s allegation that Hardee’s was in the business of operating and managing Hardee’s restaurants and the long length of the broker fryer were adequate facts to survive a motion to dismiss the deliberate workplace injury claim. The court held that it was reasonable to infer from those facts that Hardee’s had “actual knowledge of alleged unsafe working conditions which were of long standing and much complained about at the Hardee’s franchise in question.”

The court also refused to dismiss the plaintiff’s alternative claim of negligence. In the court’s opinion, Hardee’s argument that it did not assert the degree of control required for liability was rebutted by plaintiff’s allegations that the franchisor provided training, supervision and inspections of the restaurant, including its equipment and cooking supplies. The court found that the plaintiff met the basic requirements of a negligence claim and it was reasonable to infer from the plaintiff’s factual allegations that the franchisor (1) did exercise sufficient control over the fryer and processes contributing to the employee’s injuries, (2) owed the plaintiff a duty to exercise reasonable care and (3) he was a foreseeable plaintiff.

For practitioners versed in the franchising or hospitality field, it is almost beyond comprehension to understand how a court could possibly conclude that a national fast-food franchise system may have actual knowledge of one broken piece of equipment in its nearly 1,500 franchised locations. Finding potential liability under such facts overestimates the level of control and supervision exercised by a franchisor.

Although franchisors typically provide certain initial management training and conduct periodic inspections to confirm franchisees are complying with system standards, the day-to-day operations are the responsibility of the local franchise owner and its management alone. Inferring more control by Hardee's based on these facts is once again an inconceivable expansion of the franchise model by the courts.

Unfortunately, this type of liability exposure is becoming common in recent years and franchisors are often finding themselves defending against the potential misdeeds of its franchisees. The issue made headline news this summer when the National Labor Relations Board Office of General Counsel authorized charges against a number of McDonald’s franchisees after it was determined that the franchisor, McDonald’s, was a “joint employer” of the franchisees’ employees. Then, late in December, the NLRB Office of General Counsel moved forward with its decision by issuing 13 complaints against McDonald’s and several of its franchisees for violating the rights of employees working for franchisees on the basis that McDonald’s and its franchisees are “joint employers.”

This Hardee's case shows that the “joint employer” argument is not limited to plaintiffs looking for deep pockets to sue for protection under state or federal labor or employment laws or even when raising claims under the American with Disabilities Act and Title VII of the Civil Rights Act. The district court’s refusal to dismiss the Hardee's case establishes that franchisee employees are now having some level of success attempting to hold franchisors accountable under state workers’ compensation law and general negligence theories.

For now, the plaintiff just won the first battle by surviving the Hardee's motion to dismiss but the case offers some important lessons regarding the necessity for a franchise system to take these claims seriously and to respond to complaints with sufficient and specific arguments.

In the Hardee’s case, the district court refused to address all the elements of the deliberate intent claim because it believed the defendants made only conclusory arguments. Instead of simply relying on the broad assertion that franchisors do not have control over daily operations, a defending franchisor must be prepared to establish facts showing specifically how (1) the franchisee maintains control over all employee training and supervision, daily maintenance and restaurant repairs and (2) the franchisor provides only ongoing quality control measures purely to assess the franchisee’s compliance with system standards to assure uniformity among franchisees to protect the franchise brand.

Providing evidence that rebutted the assertion that Hardee's could have actual knowledge of such an unsafe working condition in one of over 1,000 franchised restaurants may have helped its case. For example, a franchisor should be prepared to show that complaints regarding broken equipment end with the franchise owner and do not make their way up the chain to the franchisor.

In addition, the franchisor should be able to show whether (1) standard or routine franchisor inspections examine equipment and, if so, whether any previous inspections show the fryer was broken; (2) equipment repairs and replacements are typically reported to the franchisor and if it was reported in this case; and (3) any complaints were made by employees or personnel to the franchisor regarding unsafe working conditions at the particular franchise location in question.

It is common for training and operations manuals to provide certain employee safety standards but it would be highly unusual for a franchisor to exert the level of control assumed by the district court in this case. Spending extra time briefing the arguments at this phase of the case may have prevented it from moving forward.

Prior experience in the school of hard knocks tells us that no arguments can be taken for granted, and all must be carefully briefed. Whether that would have helped in a case where the court seemed determined to ignore the franchise business model is an open question.

1Hamrick v. Restaurant Management Group LLC, 2014 WL 4698489 (D.C. S.D. W.VA.).

Reprinted with permission from Law360. (c) 2015 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.