Franchisor Had no Duty to Protect Franchisee’s Employee From Sexual Harassment, Court Finds

Franchisors should review their franchise agreements and practices to ensure they do not retain or exercise control over the particular aspects of their franchisees’ employment practices in light of a recent decision reinforcing that a negligence plaintiff must allege a special duty to protect a franchisee’s employee or allege that a franchisor controlled the employment practices of its franchisee in order to state a negligence claim.

On September 3, 2019, U.S. District Court Judge John W. Broomes dismissed a negligence count against the franchisor Taco Bell Corporation (TBC) in N.T. v. Taco Bell Corporation et al., No. 6:19-cv-01028-JWB-KGG (D. Kan.) because the plaintiff failed to allege any facts showing that TBC owed the plaintiff a legal duty of care in connection with the plaintiff’s employment with a Taco Bell franchisee.

The plaintiff filed a lawsuit against the Taco Bell franchisee for sexual harassment and sex discrimination under Title VII, and also alleged violations of various state tort laws against the franchisee and alleged perpetrator. The plaintiff also asserted one negligence count against the franchisor TBC. The plaintiff alleged that a male co-worker repeatedly subjected her to sexual comments and sexually assaulted her, and after reporting these incidents to the manager, her manager failed to address her complaints.

Specifically, against TBC, the plaintiff alleged that TBC “requires the franchisees to follow certain operational policies and procedures.” The plaintiff further alleged that TBC “has been aware of the risk of sexual assault being committed in Taco Bell restaurants” previously, and “has failed [to] institute any policies and procedures its franchises are required to follow, which seek to prevent sexual assault in the workplace.” The plaintiff also alleged that TBC has duties to provide rules regarding the operation of franchises, to ensure that the franchises are safe working environments, and to disclose the known defects and risks of operating a Taco Bell restaurant. However, the Court rejected the plaintiff’s contention that TBC had a duty to the plaintiff and instead summarized that the plaintiff was attempting “to repackage [p]laintiff’s harassment and assault allegations as a claim for negligent design of a franchise … ”

The Court stated the claim failed for several reasons. The plaintiff failed to allege proof of a “special relationship” between the parties, explaining that “Kansas has never held that the sale of franchise rights to another, standing alone, creates a duty to protect the employees of the franchisee.”

The Court also found that the plaintiff failed to allege facts that TBC undertook a duty to the plaintiff. The complaint did not allege that:

1. TBC rendered services for the benefit of the franchisees relating to the enforcement of discrimination laws
2. That rendering these services increased the risk of franchisee employees such as the plaintiff being harassed or assaulted
3. That TBC assumed obligations of the owner/operators to manage, supervise or discipline employees of the franchisees or
4. That the plaintiff suffered harm because she relied upon TBC’s undertaking of any such services.

Finally, in rejecting a negligence claim, the Court adopted the “instrumentality” test often used to determine if a franchisor is vicariously liable for the conduct of its franchisee. Under the instrumentality test in Kansas, the franchisor is not liable unless it controls the “the daily operation of the specific aspect of the franchisee’s business that allegedly caused the harm.”

The court noted that the allegations in the complaint regarding the plaintiff’s mistreatment by the alleged perpetrator and manager were serious, however, the plaintiff failed to state a plausible claim against TBC because no facts were alleged that TBC retained control over the daily supervision, management and discipline of the franchisee's employees. Therefore, the plaintiff failed to allege that TBC had the type of control necessary for a franchisor to be liable in these circumstances.

Key Takeaways

While these decisions are often fact-specific, this decision is helpful for franchisors who routinely avoid control over franchisees’ employment practices. Franchisees should make independent decisions related to all human resource decisions including, for example, EEO training and policy issues, and employee complaint investigations. Franchisor controls should be limited to those required to encourage consistency in operations and maintain brand integrity.