Franchisor Liability: Kerl Adapts "Right to Control" Test for Franchise Situations

WDC Journal Edition: Winter 2004
By: Vicki Arrowood

At 3:51 p.m. on June 11, 1999, Harvey Pierce punched out of work early at his job at an Arby’s restaurant in Madison. Pierce told the supervisor on duty at the time that he had a meeting that he had to attend, and then left the premises. Pierce had been scheduled to work from 3:00 p.m. to 10:00 p.m. on June 11.

After Pierce left Arby’s, he walked by a fellow employee, Jordan DeWalt, who was waiting for a bus at a bus stop near the restaurant. DeWalt later testified that he did not notice anything unusual about Pierce as he walked by. Pierce merely told DeWalt to “keep the seat warm for me” as he walked by.

After Pierce left Arby’s he walked a half a mile to a Wal-Mart store. Pierce did not tell anyone that he was going to Wal-Mart. DeWalt testified that Pierce did not appear to be upset when he walked by the bus stop, nor did it appear that Pierce was attempting to conceal anything under his clothing.

About the same time that Pierce was punching out of work at Arby’s, Robin Kerl and her fiancé Benjamin Jones were finishing up their shifts at Wal-Mart. After getting off of work, Kerl and Jones did some shopping in the store. When Kerl and Jones exited Wal-Mart at approximately 4:30 p.m., they began walking over to where Jones had parked his car in the Wal-Mart parking lot. It is believed that as Kerl and Jones approached Jones’ car, Pierce came from behind some bushes near the parking lot and shot each of them in the head. Pierce then used the gun to kill himself. Jones died as a result of the shooting. Kerl survived, but sustained serious injuries.

The targets of Pierce’s murder-suicide mission were not unknown to Pierce. Pierce and Ms. Kerl had an on-again, off-again relationship that spanned almost a ten year time period. At times, Pierce and Kerl lived together. However, at the time of the shooting, Kerl had broken off her relationship with Pierce. Approximately one month prior to the shooting, Jones and Kerl got engaged.

Following the shooting, Ms. Kerl and Mr. Jones filed a lawsuit against Wal-Mart alleging negligent security and violation of Wisconsin’s safe-place statute. Early on in the litigation, Wal-Mart filed a motion for summary judgment and was dismissed from the case.

The plaintiffs also sued Dane County and the Dane County Sheriff’s Department alleging that they were negligent in their administration of the Huber Work Release program. At the time that Pierce was hired to work at Arby’s, he was an inmate at the Dane County Jail with Huber Work Release privileges. Pierce was still participating in the Huber Work Release program on the day that he shot both Ms. Kerl and Mr. Jones. Dane County and the Dane County Sheriff’s Department also filed a motion for summary judgment and were dismissed from the case.

In addition, the plaintiffs filed suit against Dennis Rasmussen, Inc. (“ DRI”), the owner of the franchise where Pierce worked at the time of the shooting, and Arby’s, Inc., the franchisor. The plaintiffs’ complaint alleged six causes of action against DRI, including: (1) negligent supervision; (2) negligent hiring; (3) negligent retention; (4) nuisance; (5) breach of third party beneficiary contract; and (6) punitive damages. The plaintiffs sought to impose liability on Arby’s based upon theories of respondeat superior and actual or constructive agency. The plaintiffs alleged that Arby’s failed to train or supervise the management DRI hired to operate its Arby’s franchise.

Like the other defendants that were named in the case, DRI and Arby’s filed motions for summary judgment. In their motion papers, DRI and Arby’s addressed both the merits of the plaintiffs’ claims against them, and also asked for a dismissal of the claims based upon public policy grounds.

In support of its motion for summary judgment, Arby’s relied upon a number of cases from other jurisdictions wherein the courts held that the liability of a franchisor in situations involving negligence on the premises of a franchise restaurant is limited to those franchisors who maintain control over the activity which negligence is charged.-1 Arby’s had to rely on out-of-state cases because the courts in Wisconsin had yet to rule on the issue of the liability of a franchisor for the acts of its franchisee. However, none of the non-Wisconsin cases involved a factual scenario in which an employee of a franchise leaves work and commits an act of violence away from the franchisee’s premises.

In a written decision, the trial court dismissed the plaintiff’s claim of negligent hiring against DRI. The plaintiffs did not oppose that portion of DRI’s summary judgment motion addressing the claims of nuisance and breach of third party beneficiary contract, so these claims were also dismissed. In addition, the trial court held that while Arby’s had control of or the right to control various DRI operations, Arby’s controlled matters more closely associated with quality and quantity standards affecting operation uniformity and appearance, and protecting Arby’s trademark. Arby’s did not control or have the right to control activities pertaining to Pierce’s employment with DRI. Therefore, Arby’s motion for summary judgment was granted.

The plaintiffs appealed, and both the Court of Appeals and the Wisconsin Supreme Court affirmed the trial court’s dismissal of Arby’s. In a unanimous decision, the Wisconsin Supreme Court concluded that the “marketing, quality, and operational standards commonly found in franchise agreements are insufficient to establish the close supervisory control or right of control necessary to demonstrate the existence of a master/servant relationship for all purposes as a general matter.”-2 According to the Court, “a franchisor may be held vicariously liable for the tortious conduct of its franchisee only if the franchisor has control or a right of control over the daily operation of the specific aspect of the franchisee’s business that is alleged to have caused the harm.”-3

The rule announced by the court in Kerl is a departure from previous cases wherein vicarious liability “is imposed only where the principal has control or the right to control the physical conduct of the agent such that a master/servant relationship can be said to exist.”-4 The Wisconsin Supreme Court determined that a new standard needed to be developed in the franchising context, noting that if the operational standards that appear in most franchise agreements for the protection of the franchisor’s trademark “were broadly construed as capable of meeting the ‘control or right to control’ test that is generally used to determine respondeat superior liability, then franchisors would almost always be exposed to vicarious liability for the torts of their franchisees.”-5 The court found no justification for such a broad rule of franchisor vicarious liability, and developed what it called “a more precisely focused test.”-6

In applying this “more precisely focused test,” the Court held that “although the license agreement between Arby’s and DRI imposed many quality and operational standards on the franchise, Arby’s did not have control or the right to control DRI’s supervision of its employees.”-7 Therefore, summary judgment dismissing the plaintiffs’ vicarious liability claims against Arby’s was properly granted.-8

Although the plaintiffs devoted a considerable portion of their appellate briefs to a discussion of the “facts” of the case in an attempt to create an issue of fact that would preclude the granting of summary judgment, neither the Court of Appeals nor the Wisconsin Supreme Court agreed with the plaintiffs’ argument on this issue. Instead, the Wisconsin Supreme Court summarized the facts surrounding the shooting in a single paragraph.-9 The remainder of the Court’s opinion focuses on the terms of the license agreement between Arby’s and DRI, the Arby’s Operating Standards Manual, which its franchisees are required to adhere to, and whether the language contained in these documents supported the plaintiffs’ claim that Arby’s could be held vicariously liable for the acts of its franchisee.

Because the issue before it was a matter of first impression, the Court’s decision contains a discussion of not only vicarious liability, but also franchising and franchisor vicarious liability. The Court noted that the “[u]se of franchise models has mushroomed in recent years” so that it now represents “over 40 percent of all U.S. retail sales.”-10 According to the Court, this expansive growth in franchising has produced changes in the law governing these business relationships and has been the subject of case law in other jurisdictions.-11

In ruling as it did, the Court noted that the “clear trend in the case law in other jurisdictions is that the quality and operational standards and inspection rights contained in a franchise agreement do not establish a franchisor’s control or right of control over the franchisee sufficient to ground a claim for vicarious liability as a general matter for all purposes.”-12 Further examining that trend, the court explained: “These courts adapted the traditional master/servant ‘control or right to control’ test to the franchise context by narrowing its focus: the franchisor must control or have the right to control the daily conduct or operation of the particular ‘instrumentality’ or aspect of the franchisee’s business that is alleged to have caused the harm” before the franchisor will be held vicariously liable for the franchisee’s tortious conduct.-13 According to the court, “[t]he quality and operational standards typically found in franchise agreements do not establish the sort of close supervisory control or right to control necessary to support imposing vicarious liability on a franchisor for the torts of the franchisee for all or general purposes.”-14

Applying these principles to the facts of the case, the Court concluded that Arby’s did not have control or the right to control the day-to-day operations of the specific aspect of DRI’s business that is alleged to have caused the plaintiffs’ harm, i.e., DRI’s supervision of its employees.-15 In reviewing the licensing agreement between DRI and Arby’s, the court noted that the document contained a provision that disclaimed any agency relationship.-16 Other provisions in the agreement were consistent with the quality and operational standards commonly contained in franchise agreements to achieve product and marketing uniformity and to protect the franchisor’s trademark. These provisions were not sufficient to establish a master/servant relationship, nor did they establish that Arby’s controlled or had the right to control DRI’s hiring and supervision of its employees, “which is the aspect of DRI’s business that is alleged to have caused the plaintiffs’ harm.”-17

The Court also found the provisions in the licensing agreement which related to the specific issue of personnel to be “broad and general” and required that DRI, and not Arby’s, “hire, train, maintain and properly supervise sufficient, qualified and courteous personnel for the efficient operation of the Licensed Business.” The agreement also stated that someone in charge of the restaurant is required to complete a management training seminar conducted by Arby’s. Finally, the Court noted that the operating standards manual provided guidelines for hiring, training, and supervising employees in accordance with applicable labor laws and to achieve an efficient, courteous and satisfied work force.-18

The Court concluded that under the licensing agreement, DRI had sole control over the hiring and supervision of its employees. Arby’s could not step in and take over the management of DRI’s employees. According to the Court, Arby’s right to terminate the relationship because of an uncured violation of the agreement is not the equivalent of a right to control the daily operations of the restaurant or actively manage DRI’s work force.-19 Accordingly, Arby’s could not be held liable for DRI’s alleged negligent supervision of Pierce.-20

The case has now been remanded back to the circuit court for a trial on the remaining negligence claims against DRI. One issue that will again be raised before the trial court is the application of public policy so as to preclude the imposition of liability on DRI in this case, which although it was raised in the trial court and the appellate courts, was never addressed.

The new principles enunciated by the court in the Kerl case properly address the changing nature of business relationships in Wisconsin by focusing on the “right to control” daily operations and employee conduct. This decision should assist businesses in creating franchising contracts so as to allocate responsibility for employee conduct, and in understanding who bears what burden when misconduct does occur. Moreover, it should assist businesses in avoiding litigation costs by properly drafting those contracts.

Vicki L. Arrowood is an attorney at Emile Banks & Associates, LLC, where she represents insurance companies on defense matters, with an emphasis on coverage issues and appellate practice. She is a 1986 graduate of Marquette University Law School.

iRisner v. McDonald’s Corp. 18 S.W.2d 903, 906 (Tex. Ct. App. 2000).
iiKerl v. Dennis Rasmussen, Inc.
, 2004 WI 86, ¶7, ___ Wis.2d ___, 682 N.W.2d 328.
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