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The Franchise Memorandum

Federal Court in California Declines to Extend Patterson Ruling Outside of a Franchise Context

The United States District Court for the Central District of California declined to extend the test for imposing employer liability established by the California Supreme Court in Patterson v. Domino’s Pizza, LLC, S204546 (Cal. Aug. 28, 2014) (reported on in Issue 184 of The GPMemorandum) beyond the franchise context. Ambrose v. Avis Rent a Car Sys., Inc., 2014 U.S. Dist. LEXIS 170406 (S.D. Cal. Dec. 8, 2014). Ambrose had entered into an “independent operator” agreement to operate a Budget Rent a Car business. The court found that the agreement was indistinguishable from a franchise except that Ambrose paid no initial fees. Ambrose argued that because Budget had the right to control the manner and means by which she accomplished the results required by the agreement, she was Budget’s employee. Budget argued its arrangement with Ambrose was virtually identical to a franchise, and that the Patterson ruling should apply.

In Patterson, the California Supreme Court acknowledged the standard “right to control” tests used to impose employer liability did not work in the context of franchising, in which system-wide standards and controls are necessary to protect the brand and ensure the uniformity and quality of products and services offered. Rather, the court found a franchisor may be liable as an employer “only if it has retained or assumed a general right of control of factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisees’ employees.” In this case, Ambrose argued Budget exercised a level of control over its operations exceeding the level necessary to protect the brand by retaining ownership over the vehicles offered for rent by Ambrose, controlling rental rates and lease terms, establishing rental procedures, and dictating the rental facility’s hours of operation. As such, Ambrose sought summary judgment on its request for declaratory relief that Budget was its employer. Budget argued it was not Ambrose’s employer because it did not retain direct control over her hours of operation, employee appearance standards, work hours, or wage rates. Applying the “right to control” test, the court found that there was an issue of material fact as to whether Budget was Ambrose’s employer, and denied both parties’ motions for summary judgment.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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