Patterson v. Domino's Pizza, LLC

Opinion

Franchising, especially in the fast-food industry, has become a ubiquitous, lucrative, and thriving business model. This contractual arrangement benefits both parties. The franchisor, which sells the right to use its trademark and comprehensive business plan, can expand its enterprise while avoiding the risk and cost of running its own stores. The other party, the franchisee, independently owns, runs, and staffs the retail outlet that sells goods under the franchisor’s name. By following the standards used by all stores in the same chain, the self-motivated franchisee profits from the expertise, goodwill, and reputation of the franchisor.

In the present case, a male supervisor employed by a franchisee allegedly subjected a female subordinate to sexual harassment while they worked together at the franchisee’s pizza store. The victim, who is the plaintiff herein, sued the franchisor, along with the harasser and franchisee. The plaintiff claimed that because the franchisor was the “employer” of persons working for the franchisee, and because the franchisee was the “agent” of the franchisor, the latter could be held vicariously liable for the harasser’s alleged breach of statutory and tort law.

The trial court granted summary judgment for the franchisor on the ground the requisite employment and agency relationships did not exist. The Court of Appeal disagreed, and reversed the judgment of the trial court.

We granted review to address the novel question dividing the lower courts in this case: Does a franchisor stand in an employment or agency relationship *478with the franchisee and its employees for purposes of holding it vicariously liable for workplace injuries allegedly inflicted by one employee of a franchisee while supervising another employee of the franchisee? The answer lies in the inherent nature of the franchise relationship itself.

Over the past 50 years, the Courts of Appeal, using traditional “agency” terminology, have reached various results on whether a franchisor should be held liable for torts committed by a franchisee or its employees in the course of the franchisee’s business. In analyzing these questions, the appellate courts have focused on the degree to which a particular franchisor exercised general “control” over the “means and manner” of the franchisee’s operations.

Meanwhile, franchising has seen massive growth. A franchisor, which can have thousands of stores located far apart, imposes comprehensive and meticulous standards for marketing its trademarked brand and operating its franchises in a uniform way. To this extent, the franchisor controls the enterprise. However, the franchisee retains autonomy as a manager and employer. It is the franchisee who implements the operational standards on a day-to-day basis, hires and fires store employees, and regulates workplace behavior.

Analysis of the franchise relationship for vicarious liability purposes must accommodate these contemporary realities. The imposition and enforcement of a uniform marketing and operational plan cannot automatically saddle the franchisor with responsibility for employees of the franchisee who injure each other on the job. The contract-based operational division that otherwise exists between the franchisor and the franchisee would be violated by holding the franchisor accountable for misdeeds committed by employees who are under the direct supervision of the franchisee, and over whom the franchisor has no contractual or operational control. It follows that potential liability on the theories pled here requires that the franchisor exhibit the traditionally understood characteristics of an “employer” or “principal”; i.e., it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees. (See Vernon v. State of California (2004) 116 Cal.App.4th 114, 124 [10 Cal.Rptr.3d 121] (Vernon) [considering “the ‘totality of circumstances’ that reflect upon the nature of the work relationship of the parties”].)

Here, the franchisor prescribed standards and procedures involving pizza making and delivery, general store operations, and brand image. These standards were vigorously enforced through representatives of the franchisor who inspected franchised stores. However, there was considerable, essentially uncontradicted evidence that the franchisee made day-to-day decisions involving the hiring, supervision, and disciplining of his employees. Plaintiff *479herself testified that after the franchisee hired her, she followed his policy, and reported the alleged sexual harassment to him. The franchisee suspended the offender. Nothing contractually required or allowed the franchisor to intrude on this process.

Plaintiff highlights the franchisee’s testimony that a representative of the franchisor said the harasser should be fired. But, consistent with the trial court’s ruling below, any inference that this statement represented franchisor “control” over discipline for sexual harassment complaints cannot reasonably be drawn from the evidence. The uncontradicted evidence showed that the franchisee imposed discipline consistent with his own personnel policies, declined to follow the ad hoc advice of the franchisor’s representative, and neither expected nor sustained any sanction for doing so.

For these reasons, we will reverse the Court of Appeal’s decision overturning the grant of summary judgment in the franchisor’s favor.

I. PROCEDURAL BACKGROUND

A. The Parties

In September 2008, a company named Sui Juris, LLC (Sui Juris or the franchisee), acquired an existing Domino’s pizza franchise in Southern California. The franchise agreement was signed for Sui Juris by its sole owner, Daniel Poff (Poff)- The other contracting party was Domino’s Pizza Franchising, LLC, which was related to both Domino’s Pizza, Inc., and Domino’s Pizza, LLC (collectively, Domino’s or the franchisor).

When operations began, Sui Juris retained, as its employees, the 17 or 18 people who already staffed the store. One of them was Renee Miranda (Miranda), an adult male who held the title of assistant manager.

In November 2008, a young woman named Taylor Patterson (Patterson) was hired to serve customers at the Sui Juris store. Her job soon ended under circumstances set forth in the pleadings, which we now describe.

B. The Complaint

In June 2009, Patterson filed this action against Miranda, Sui Juris, and Domino’s. She alleged the following facts: Miranda worked as a manager at the Sui Juris store. He sexually harassed her whenever they shared the same shift. He made lewd comments and gestures, and grabbed her breasts and buttocks. After Miranda refused to stop, Patterson reported the problem to her father and to Poff.

*480The complaint continued: Patterson’s father contacted the police. He also called Domino’s “corporate office,” and told someone in the human resources department about the sexual harassment his daughter had endured at the Sui Juris store. Patterson stayed away from work for one week, and then returned. She soon resigned. She perceived that her hours had been reduced because she had reported Miranda’s misconduct to others.

The complaint stated several causes of action. The first three counts invoked the California Fair Employment and Housing Act (FEHA), and alleged sexual harassment, failure to take reasonable steps to avoid harassment, and retaliation for reporting harassment. (See Gov. Code, § 12900 et seq.)1 Otherwise, the complaint asserted common law counts for intentional infliction of emotional distress, assault and battery, and constructive termination against public policy under FEHA. Compensatory and punitive damages were sought.

Critical here is Patterson’s portrayal of the legal relationship between Domino’s and the employees of Sui Juris. As to all causes of action, the complaint maintained that Domino’s was the “employer” of both Patterson and Miranda, and that they were the “employee[s]” of Domino’s. Each defendant was described as “the agent, employee, servant and joint venturer” of the other defendants. At all relevant times, defendants purportedly acted “within the course, scope and authority of such agency, employment and joint venture, and with the consent and permission of’ the other defendants. Also, it was alleged that the officers and/or managing agents of every defendant “ratified and approved” all actions of the other defendants.

C. Summary Judgment Motion

In November 2010, Domino’s sought summary judgment, or, alternatively, summary adjudication, against Patterson. Responding to allegations in the complaint, Domino’s argued that it was not an “employer” or “principal,” and could not be held vicariously liable for Miranda’s misconduct as a result. Domino’s acknowledged that it imposed and enforced broad standards for selling its trademarked pizza brand. That way, customers expected and received a similar experience each time they patronized any franchised store. Domino’s maintained, however, that Sui Juris was a separate business run by Poff, and that he selected, managed, and disciplined his employees. Hence, Domino’s claimed, the internal day-to-day control needed for an employment or agency relationship was lacking.

*481D. Evidence Supporting Summary Judgment

Domino’s submitted excerpts from its franchise agreement with Sui Juris. Domino’s also provided (1) a declaration by Joseph P. Devereaux (Devereaux), Domino’s director of franchise services, (2) excerpts from the deposition of Poff, who owned Sui Juris, and (3) excerpts from the deposition of Patterson, the plaintiff. We now review this evidence.

1. Franchise Relationship. According to both Devereaux and Poff, Domino’s and Sui Juris had distinct legal identities and corporate structures. Neither business held any ownership or partnership stake in the other, and they had no officers or directors in common. Domino’s had no access to Sui Juris’s bank accounts. Sui Juris filed its own tax returns. It also obtained all necessary business licenses and operating permits. While Sui Juris paid Domino’s a royalty fee and other miscellaneous costs, the two companies did not otherwise share profits or losses. Under the franchise contract, Sui Juris maintained property and liability insurance at its own expense.

2. Hiring. The franchise contract stated that Sui Juris was “solely responsible” for “recruiting [and] hiring” employees to operate its store. Those persons, the contract said, “shall be [Sui Juris’s] employees, and not [Domino’s] agents or employees.” Consistent with these terms, Poff testified that he received and retained applications directly from job candidates, and that he never sent or showed those documents to Domino’s. Poff also personally interviewed all applicants. Domino’s did not participate in any job interviews. Poff explained that he deliberately excluded Domino’s from the hiring process. The reason was that the decision was his alone to make, and that no input or oversight was required on Domino’s part.

Patterson’s employment with Sui Juris reflected the foregoing policy and practice. Patterson, like Poff, testified that in November 2008 she walked into the Sui Juris store, and asked for a job application. She was interviewed by Poff. In Patterson’s words, Poff hired her “on the spot.”

3. Training. Under the contract, Poff, as Sui Juris’s sole owner, promised to personally undergo training with Domino’s as a condition of opening and operating his store. Domino’s reserved the option of requesting supplemental training on Poff’s part at his own expense.

Otherwise, the contract removed from Domino’s any right or duty to “implement a training program for [Sui Juris’s] employees,” or to “instruct [them] about matters of safety and security in the Store or delivery service area.” Poff, in turn, agreed to be “solely responsible” for implementing programs to train his employees on the legal, safe, and proper performance of *482their jobs. Such was the case even if Poff obtained “advice or suggestions” from Domino’s on the matter. The contract precluded him from employing untrained or unqualified persons.

Poff testified that when he first opened the Sui Juris store, he received guidance over three days from Claudia Lee (Lee), an “area leader” for Domino’s. She “did nothing” to help him train his employees. Poff personally trained newly hired employees himself. However, Domino’s provided an orientation program for new employees on the store’s computer system, i.e., the “PULSE” system. Those programs covered pizza making, store operations, safety and security, and driving instructions. The PULSE training program was accompanied by a Domino’s handbook.2

Regarding sexual harassment training for his employees, Poff was “not sure” that Domino’s covered this topic in its PULSE programs. Poff answered “no” in his deposition when asked if “anybody from Domino’s . . . provide[d] sexual harassment training to [his] employees.”3

Instead, Poff implemented his own (i.e., “my”) sexual harassment policy. Poff explained that his policy involved “zero tolerance” and the “reasonable woman standard.” Store managers received such instruction during multiple meetings with Poff. He told them to contact him if an issue or question arose. Nonmanagerial employees received some sexual harassment information as well. Poff placed his policy on the PULSE system. In her deposition, Patterson gave this additional account: “When [Poff] had first hired me, [he said] that it was a big thing to him, sexual harassment; and that if it had happened, that he would want me to contact him right away.”

4. Supervision. The franchise contract required the Sui Juris store to “at all times be under the direct, on-premises supervision” of Poff. He agreed to function as a full-time “manager,” and not to engage in other business endeavors without first obtaining Domino’s written consent.

*483The contract stated that persons who worked in the store were Sui Juris’s employees “and not [Domino’s] agents or employees.” Some of the managerial tasks over which Poff assumed control included “scheduling for work, supervising[,] and paying” his employees. Domino’s disclaimed any right or duty to “operate the Store” or to “direct [Sui Juris’s] employees” in their jobs. Those functions were made Poff’s sole responsibility.

Patterson testified that she was supervised at work either by Poff or by one of his managers or assistant managers, including Miranda. Poff testified that Patterson and Miranda were on the payroll of Sui Juris.4

5. Alleged harassment and subsequent events. Testimony by Patterson described the following chain of events: Miranda began sexually harassing Patterson at work shortly after Poff hired her. Two weeks later, she complained to her father and to Poff. Patterson spoke to Poff about the matter on a second unspecified occasion. At that time, according to Patterson, Poff said he was “going to fire” Miranda. The police were called. Miranda was apparently arrested and taken into custody.

Poff testified that, in actuality, he “suspended” Miranda “pending an investigation” into Patterson’s sexual harassment complaint. The results were inconclusive, because Poff lacked the resources to satisfactorily complete the task. The problem solved itself, Poff explained, when Miranda failed to show up for work. He “self-terminated,” in Poff’s view.5

Patterson testified that shortly after the foregoing events occurred, she quit her job. There was one week in which she was scheduled to work only three days, rather than four days. Patterson admitted, however, that she was never told she would always work a minimum of four days a week.

E. Evidence in Opposition to Summary Judgment

Patterson disputed Domino’s claim that it did not control Sui Juris’s day-to-day operations, including employment matters. Hence, she asked the trial court to find a triable issue of fact in this regard. For support, Patterson relied primarily on the franchise documents and the role of Domino’s area leaders.

*4841. The contract. Patterson submitted the full franchise contract. It contained relevant provisions not included in Domino’s materials, as follows:

Sui Juris agreed to sell Domino’s products at a specific site for a 10-year term, and to pay a royalty fee (calculated as a percentage of weekly sales) in exchange for the right to use the “Domino’s System” and related trademarks. The bulk of the contract concerned the following topics: site construction; store refurbishing; equipment and furnishings; menus and pricing; advertising and promotions; reports and audits; computer systems and data access; trademark use and infringement; company inspections; contract termination; posttermination rights and procedures; and contract interpretation and enforcement. The contract also required compliance with a separate managers reference guide (the MRG), which we describe below.

The contract described the parties as “independent contractors,” regardless of any training or support on Domino’s part. Domino’s was not liable under the contract for “any damages to any person or property arising directly or indirectly out of the operation of the Store.” The parties agreed that they had no “principal and agent” relationship. Domino’s disclaimed “any relationship with [Sui Juris’s] employees,” and assumed “no rights, duties, or responsibilities” as to their employment. Other provisions made clear that Sui Juris had no authority “to act for or on [Domino’s] behalf.”

2. The MRG. Patterson submitted one section of the MRG. Most provisions were not employment related.6 That said, managers and employees new to their jobs were to be trained with programs provided or approved by Domino’s. Timecards and reports were expected. Domino’s delivery drivers needed to meet minimum age and experience standards. Also, because employees were required to wear uniforms, the MRG set forth detailed clothing and accessory guidelines. Various grooming and hygiene standards were designed to promote neatness and sanitation. Employees could not possess or consume alcohol or illicit drugs while working or on store premises. Tobacco use was limited.7

*4853. Poff’s deposition. Patterson supplemented Domino’s evidence by providing additional excerpts from Poff’s deposition. Poff implied that he had little choice but to follow the advice of his area leader, Lee. He felt he always had to say “yes” to her, and he did not recall ever “intentionally” rejecting her suggestions. Poff assumed that a franchisee who did not “play ball” with the area leader might be “in jeopardy,” “in trouble,” or “out of business.” Poff acknowledged, however, that area leaders like Lee simply “tried to be helpful” in monitoring implementation of the standards set forth in the contract and the MRG.

Poff testified that he did not see Lee often because her service area was large.* **8 Other Domino’s inspectors visited the store four times during the year Poff owned it. He recalled two occasions on which Domino’s had used unidentified (“mystery”) callers to assess operations.

Poff acknowledged that he adopted his own personnel policies. One of them was the sexual harassment policy. Others concerned attendance. For example, “if an employee did not show up and did not call after three times, . . . they had voluntarily . . . self-terminated from employment.”

Poff confirmed that Miranda was an assistant manager who supervised other employees. At some unspecified point after Patterson told Poff about Miranda’s sexual advances, Poff relayed the information to Lee. According to Poff, Lee mentioned that Patterson’s father had called Domino’s and complained about Miranda’s alleged acts of sexual harassment.

In discussing the matter with Poff, Lee reportedly said, “You’ve got [to] get rid of this guy.” Poff answered “no” in his deposition when asked whether Lee told him “what was going to happen to you if you didn’t fire Miranda.” Nor could he recall any specific implication in her remark. When asked whether he told Lee that he did not intend to fire Miranda, Poff said “no.” The matter became a “nonissue” when Miranda “self-terminat[ed].”

Poff further testified that shortly after he first spoke with Lee about Patterson’s complaint, Lee made a brief visit to the Sui Juris store. Lee expressed ongoing interest in the Patterson case. According to Poff, Lee asked whether he had training procedures and materials in place, and whether he would retrain his staff. Lee “made suggestions” in this regard. Poff *486testified that he was under pressure in running the business and meeting Domino’s expectations at that time.

4. Lee’s deposition. Patterson submitted excerpts from Lee’s deposition. Lee testified that, in November 2008, when the alleged harassment occurred, she monitored 101 Domino’s franchises for compliance with operational and marketing standards. When sales were low, she recommended changes in pricing and staffing levels. “But,” Lee explained, “that’s the franchisee’s decision.”

Lee described other tasks she performed, all of which prevented harm to Domino’s brand and to its customers and employees. Lee would train franchisees when their doors first opened or when a new product was launched. Lee testified that, while managers employed by the franchisees sometimes attended these sessions, the franchisees were responsible for training their employees. During regular store inspections, Lee would coach franchisees and employees on problems she saw with pizza making, food safety, product packaging, store cleanliness, employee hygiene, customer orders, consumer complaints, and delivery procedures. Sometimes, franchisees were asked to temporarily close stores that had imminent safety hazards, like poor refrigeration or fire damage. Other times, Lee recommended that Domino’s send a notice of default when stores did not follow procedures that were contractually required.

Regarding employees, if one of them was rude in Lee’s presence, she would ask the franchisee to correct the problem. Lee testified that she was not involved in the hiring process. Nor was it her job to fire employees or demand that they be fired. On rare occasions, Lee encountered an employee whose performance was so deficient that it was hurting Domino’s brand or endangering the franchise. Lee, at most, “recommended” or “suggested” to the franchisee that such employee might not be the right person for the job.9

5. Devereaux’s deposition. Patterson provided excerpts from Devereaux’s deposition to supplement his declaration, which Domino’s had included in its *487moving papers. Devereaux testified as follows: Domino’s had 9,000 stores worldwide, only 500 of which were company owned. Domino’s human resources department offered no guidance to franchisees on handling personnel issues. If a franchisee asked Domino’s for such advice, the company would recommend that the franchisee resolve the situation himself or retain counsel to do so. A similar response was expected of any area leader asked to answer a sexual harassment question posed by a franchisee. Devereaux suggested that area leaders were neither compelled nor trained to handle such matters.

Devereaux indicated that Domino’s had no procedure for processing sexual harassment complaints by employees of a franchisee. He testified that Domino’s had a “1-800” telephone number for customer complaints about products and services. Devereaux understood that Patterson’s father had called the customer complaint line to report the alleged sexual harassment of his daughter.10

Devereaux recalled one instance in which the franchisee himself (not an employee of the franchisee) had been personally accused of sexual harassment. That case was resolved when the franchisee was placed in default and required to undergo sexual harassment training. Devereaux could not rule out the possibility that a franchisee might undergo sexual harassment training if someone working in his store was accused of such misconduct.

F. Lower Court Rulings* 11

After a hearing, the trial court issued a lengthy statement of decision granting summary judgment for Domino’s on all counts. The court determined that Domino’s did not control day-to-day operations or employment practices such that Sui Juris was an agent of Domino’s, or that Miranda was an employee of Domino’s. In the court’s view, Domino’s operating standards protected brand identity and integrity, and excluded hiring, firing, and other personnel matters. The court found no significance in Lee’s statement that *488Poff should fire Miranda, because it was an offhand remark that Poff ignored. The trial court concluded, as a matter of law, that Domino’s was not vicariously liable on any claim alleged in the complaint. Patterson’s action against Domino’s was dismissed.

On appeal, the court applied the same basic principles as did the trial court, but reached the opposite result. According to the Court of Appeal, reasonable inferences could be drawn from the franchise contract and the MRG that Sui Juris lacked managerial independence. The court listed many of the standards and procedures imposed by Domino’s, and noted that they concerned far more than food preparation. The Court of Appeal also found evidence that Domino’s meddled in Sui Juris’s employment decisions. On this score, the court emphasized Poff’s testimony about following Lee’s instructions, particularly her reference to firing Miranda. Hence, faced with Domino’s contrary evidence (which it never described), the Court of Appeal found a triable issue of fact on Domino’s role as an “employer” or “principal” for vicarious liability purposes. The judgment that had been entered in Domino’s favor was reversed.

We granted Domino’s petition for review. The issue was limited to determining a franchisor’s potential vicarious liability for wrongful acts committed by one employee of a franchisee while supervising another employee of the franchisee.

II. DISCUSSION12

A. Special Features of the Franchise Relationship

Companies can market goods and services in more than one way. In an integrated method of distribution, the company uses its own employees and other assets to operate chain or branch stores. In doing so, it reaps the full benefits (e.g., maximizing profits) and bears the full burdens (e.g., investing capital and risking liability) of running a business. (Killion, Franchisor Vicarious Liability — The Proverbial Assault on the Citadel (2005) 24 Franchise L.J. 162, 165 (Citadel); see Shelley & Morton, “Control” in Franchising and the Common Law (2000) 19 Franchise L.J. 119, 121 (Control) [noting huge cost of company-owned stores].)

Franchising is different. (See Beck v. Arthur Murray, Inc. (1966) 245 Cal.App.2d 976, 981 [54 Cal.Rptr. 328].) It is a distribution method that has *489existed in this country in one form or another for over 150 years. (Note, Resolving the Catch 22: Franchisor Vicarious Liability for Employee Sexual Harassment Claims Against Franchisees (2007) 40 Ind. L.Rev. 611, 614-615 (Catch 22) [describing “product distribution” franchises that began in the mid-1800’s when farm and sewing machine manufacturers sold goods to dealers who resold them to the public].)

However, it was not until the 1950’s that a form of franchising called the “business format” model began to emerge. (Catch 22, supra, 40 Ind. L.Rev. 611, 615-616.) This model (which we describe below) is used heavily, but not exclusively, in the fast-food industry. The rise of business format franchising has been attributed to the post-World War II growth in population, personal income, retail spending, and automobile use. (Killion, The Modern Myth of the Vulnerable Franchisee: The Case for a More Balanced View of the Franchisor-Franchisee Relationship (2008) 28 Franchise L.J. 23, 24 (Modem Myth).)

Today, the economic effects of franchising are profound. Annually, this sector of the economy, including the fast-food industry, employs millions of people, carries payrolls in the billions of dollars, and generates trillions of dollars in total sales.13

Under the business format model, the franchisee pays royalties and fees for the right to sell products or services under the franchisor’s name and trademark. In the process, the franchisee also acquires a business plan, which the franchisor has crafted for all of its stores. (Catch 22, supra, 40 Ind. L.Rev. 611, 615-616.) This business plan requires the franchisee to follow a system of standards and procedures. A long list of marketing, production, operational, and administrative areas is typically involved. (See Control, supra, 19 Franchise L.J. 119, 121.) The franchisor’s system can take the form of printed *490manuals, training programs, advertising services, and managerial support, among other things. (Catch 22, supra, 40 Ind. L.Rev. 611, 616.)14

The business format arrangement allows the franchisor to raise capital and grow its business, while shifting the burden of running local stores to the franchisee. (Citadel, supra, 24 Franchise L.J. 162, 165.) The systemwide standards and controls provide a means of protecting the trademarked brand at great distances. (King, Limiting the Vicarious Liability of Franchisors for the Torts of Their Franchisees (2005) 62 Wash. & Lee L.Rev. 417, 423 (Vicarious Liability).) The goal- — -which benefits both parties to the contract — is to build and keep customer trust by ensuring consistency and uniformity in the quality of goods and services, the dress of franchise employees, and the design of the stores themselves. (Blair & Lafontaine, Understanding the Economics of Franchising and the Laws That Regulate It (2006) 26 Franchise L.J. 55, 59-60; Control, supra, 19 Franchise L.J. 119, 121.)15

The franchisee is often an entrepreneurial individual who is willing to invest his time and money, and to assume the risk of loss, in order to own and profit from his own business. (Modern Myth, supra, 28 Franchise L.J. 23, 28.) In the typical arrangement, the franchisee decides who will work as his employees, and controls day-to-day operations in his store. (Inadvertent Employer, supra, 27 Franchise L.J. 224.) The franchise arrangement puts the franchisee in a better position than other small business owners. (Catch 22, supra, 40 Ind. L.Rev. 611, 617.) It gives him access to resources he otherwise *491would not have, including the uniform operating system itself. (Control, supra, 19 Franchise L.J. 119, 121.)16

B. Analysis of the Arguments and the Law

Patterson’s allegations against Domino’s under FEHA center on the provision making it unlawful “[f]or an employer, . . . because of . . . sex, . . . to harass an employee.” (§ 12940, subd. (j)(1), italics added; see id., subds. (h) [an “employer” cannot retaliate against any person who has complained about unlawful sexual harassment] & (k) [an “employer” must take all reasonable steps necessary to prevent unlawful sexual harassment]; see also id., subd. (j)(1), (4)(A) [an “employer” includes “any person regularly employing one or more persons”].) Also, “under the FEHA, an employer is strictly liable for all acts of sexual harassment by a supervisor.” (State Dept. of Health Services v. Superior Court (2003) 31 Cal.4th 1026, 1042 [6 Cal.Rptr.3d 441, 79 P.3d 556], italics added & omitted (State Dept.); see id. at p. 1041, fn. 3 [harassment must occur while supervisor was acting in such capacity and cannot be unconnected with employment].) Broadly speaking, FEHA seeks to prevent workplace sexual harassment through the employer’s adoption, use, and enforcement of sexual harassment policies. (State Dept., supra, at pp. 1034 [employers are “the first line of defense against sexual harassment in the workplace”], 1044 [an employer is not liable for sexual harassment damages the employee reasonably could have avoided by using policies already in place].)

Likewise, the venerable respondeat superior rule provides that “an employer may be held vicariously liable for torts committed by an employee within the scope of employment.” (Mary M. v. City of Los Angeles (1991) 54 Cal.3d 202, 208 [285 Cal.Rptr. 99, 814 P.2d 1341], italics added.) The doctrine contravenes the general rule of tort liability based on fault. (Ibid.) Under certain circumstances, the employer may be subject to this form of vicarious liability even for an employee’s willful, malicious, and criminal conduct. (Lisa M. v. Henry Mayo Newhall Memorial Hospital (1995) 12 Cal.4th 291, 296-299 [48 Cal.Rptr.2d 510, 907 P.2d 358].) Three policy justifications for the respondeat superior doctrine have been cited— prevention, compensation, and risk allocation. They do not always apply. (See id. at pp. 304-305 [concluding that such aims would not necessarily be served by holding hospital vicariously liable for sexual assault by a technician against a patient during ultrasound test]; cf. Farmers Ins. Group v. County of Santa Clara (1995) 11 Cal.4th 992, 1003-1019, 47 Cal.Rptr.2d 478, *492906 P.2d 440 [public entity need not indemnify employee under Government Claims Act (Gov. Code, § 810 et seq.) in § 825 et seq. because his liability under FEHA for sexual harassment of coworkers was outside scope of employment].)

We know of no decision by a California court addressing a franchisor’s statutory or common law liability under FEHA for sexual harassment claims made by one employee of a franchisee against another employee (or supervisor) of the franchisee. Nor has this court decided whether a franchisor may be considered an “employer” who is vicariously liable for torts committed by someone working for the franchisee.

Against this backdrop, the parties debate here, as they did in the courts below, the significance of certain Court of Appeal cases that have considered whether a franchisee was the “agent” of the franchisor for purposes of compensating a nonemployee for actionable harm caused by the franchisee. According to Patterson, the agency principles set forth in these decisions support her claim that, because business format franchisors wield detailed control over their franchisees’ general operations, liability for personal harm sustained in the course of a franchisee’s business should be borne by the franchisor. On the other hand, Domino’s suggests that too literal an application of the traditional “agency” approach ignores the realities of modern franchising, which impose a meaningful division of autonomous authority between franchisor and franchisee. Domino’s claims the critical factor is whether the franchisor had day-to-day control over the specific “instrumentality” that caused the alleged harm — here, sexual harassment of one employee of the franchisee by another. We now review the relevant law.

One early California decision addressing the allocation of legal liability between franchisor and franchisee is Nichols v. Arthur Murray, Inc. (1967) 248 Cal.App.2d 610 [56 Cal.Rptr. 728] (Nichols). In Nichols, the plaintiff was a customer who had signed contracts with the franchisee, a dance studio, and had paid in advance for lessons she never received. The Court of Appeal found sufficient evidence to support the trial court’s ruling that the franchisor was responsible for the contractual obligations incurred by its franchisee. Relying heavily on much older decisions of this court, none of which concerned franchising, the Nichols court observed that “[a]n undisclosed principal is liable for the contractual obligations incurred by his agent in the course of the agency . . . .” (Id. at p. 612, citing Shamlian v. Wells (1925) 197 Cal. 716, 721 [242 P. 483] and Geary St. etc. R. R. Co. v. Rolph (1922) 189 Cal. 59, 64 [207 P. 539]; see Hulsman v. Ireland (1928) 205 Cal. 345, 352 [270 P. 948].)

The Court of Appeal in Nichols identified the “right to control” as a significant factor in defining an agency relationship. (Nichols, supra, 248 *493Cal.App.2d 610, 613.) No express definition of “control” was given. However, the Nichols court cited various cases of this court (ibid.) for the basic proposition that an agency relationship exists where the principal dictates, not just the desired result of the enterprise, but also “the manner and means” by which such result is achieved (City of Los Angeles v. Vaughn (1961) 55 Cal.2d 198, 201 [10 Cal.Rptr. 457, 358 P.2d 913]; see Malloy v. Fong (1951) 37 Cal.2d 356, 370 [232 P.2d 241]; Burlingham v. Gray (1943) 22 Cal.2d 87, 94, 99-100 [137 P.2d 9]; Robinson v. George (1940) 16 Cal.2d 238, 243-244 [105 P.2d 914]).

Analyzing the record before it, the Court of Appeal in Nichols rejected the franchisor’s claim that the parties’ contract was narrowly tailored to protect the trade name under which the business operated. (See Nichols, supra, 248 Cal.App.2d 610, 613.) Nor were the controls retained by the franchisor necessarily limited to protecting its trade name, professional methods, customer goodwill, or commercial image. (Id. at p. 615.) Rather, much like the trial court there, the appellate court in Nichols concluded that the franchisor retained complete control over most areas of the business, and deprived the franchisee of any independence in managing the “ ‘day to day details of [its] operation.’ ” (Id. at p. 614; see id. at pp. 615-617.)

In particular, the franchisor retained the right to control the employment of all persons working in any capacity for the franchisee; to decide matters related to studio location, decoration, and advertisement; to set minimum tuition rates and select the institution handling student financing; to make student refunds and charge those amounts to the franchisee; to settle and pay all claims against the franchisor arising out of the operation of the business; to reimburse itself for the payment of any refunds, claims, or related litigation costs from a fund consisting of weekly payments by the franchisee; to invest the proceeds from this fund and pay the franchisee only such portion of the income as the franchisor saw fit; to dictate the manner in which unused danc