Injury Suit Against Franchisor May Proceed, Court Rules; Link Seen to NLRB Decision

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By Stephen Lee

Sept. 23 — A recent decision against a fast-food franchisor is adding to business owners' fears—first roused by the National Labor Relations Board's August ruling on joint employers—that corporate parents could be held liable for their franchisees' misdeeds.

In this case a federal district court in West Virginia denied motions by the franchisors to dismiss a negligence claim and a deliberate-intent claim. Under West Virginia law, employer immunities under workers' compensation can be lost if it can be shown that the employer acted with deliberate intent. The case now moves to the discovery phase.

The plaintiff, the mother of a deceased Hardee's employee in West Virginia named Nathaniel Hamrick, alleged that Hamrick had suffered first- and second-degree burns in 2011 while trying to clean a hot fryer box without training and with inadequate gloves. As he lifted the box, it slipped out of his hands, spilling hot grease on his body, arms, hands and lower extremities.

Nathaniel Hamrick didn't die in the accident, Christopher Brinkley of Masters Law Firm LC, who represented Paula Hamrick, told Bloomberg BNA Sept. 23. Brinkley didn't comment on whether Nathaniel Hamrick's death was related to his injuries.

Paula Hamrick filed a negligence claim, arguing that the defendants—a class that included eight franchisors and franchisees, ranging from the small companies that operate the restaurant where Hamrick was injured, all the way up to Hardee's corporate parent—failed to uphold their legal duty to exercise reasonable care.

In response, the defendants who were franchisors countered that they didn't control the daily operations at the West Virginia restaurant.

Judge Denies Franchisors' Claims

But Judge Thomas E. Johnston of the U.S. District Court for the Southern District of West Virginia denied the franchisors' contention, writing in a Sept. 19 decision that they “operated and managed the Hardee's restaurant where Hamrick was injured and provided training, supervision, inspections, equipment, cooking supplies and procedures in furtherance of the operation of that restaurant.”

According to Johnston, “It is reasonable to infer from these allegations that the Franchisor Defendants had control over the equipment and procedures which contributed to Hamrick's injury and that their conduct created a risk of physical harm to Hamrick.”

Paula Hamrick also filed a deliberate intent claim, arguing that the defendants knowingly exposed her son to an unsafe working condition. The franchisor defendants moved to dismiss that claim as well, again on the grounds that they weren't Hamrick's employers, but again Paula Hamrick's claim was upheld because, according to Johnston, the franchisors “had actual knowledge of alleged unsafe working conditions which were of long standing and much complained about” at the West Virginia location.

Industry Lawyers See Ominous Signs

Baruch Fellner, an industry-side attorney with Gibson Dunn & Crutcher LLP, said the decision is consistent with the NLRB general counsel's July decision allowing a series of unfair labor practice complaints to proceed against McDonald's USA LLC.

In that decision, the NLRB's Richard Griffin found that McDonald's was jointly responsible for allegations that its franchisees had fired, threatened or otherwise punished workers who had fought for higher wages.

“Franchisees' pockets are extraordinarily small,” Fellner told Bloomberg BNA Sept. 23. “If, as is suggested by this decision, you can reach for purposes of traditional negligence and tort law into the pockets of franchisors, and you can create class actions, where you've got one accident here but that accident can be replicated across all franchisees—it's not going to be an easy lift, but it's going to be tried by the plaintiffs' bar. It's a whole new, enormous impact, and the ball got rolling by the NLRB's effort.”

Fellner further said the Hardee's decision “reflects the outer, absurd limits of potential franchisor liability.”

He called the notion that a franchisor could be held liable for an intentional tort—a necessary finding to circumvent the limits of workers' compensation—“truly extraordinary.”

“Whatever the facts may be with regard to the franchisor/franchisee relationship, it is inconceivable that they extend to the franchisor's alleged negligence with regard to a hot, dirty and broken restaurant fryer,” Fellner said. “That's the kind of day-to-day working condition that has to be beyond a franchisor's control.”

Not Consistent With Franchise Model?

David Sarvadi, an attorney at Keller & Heckman LLP, also saw a link between Thompson's decision and the NLRB ruling.

“The franchise model is that you, as a franchisee go to the person who's got this idea about a product or a store, and yes, you do have to get from them instructions on how to make the product,” Sarvadi said Sept. 23. “You might get support on purchasing raw materials to be used, whether it be bread or food ingredients. But that's a far cry from having day-to-day operational control that the judge implies in West Virginia. And the same argument, it seems to me, stands to reason with the NLRB position.”

Under the Occupational Safety and Health Administration's multiemployer worksite policy, the agency rarely, if ever, cited an employer that doesn't have employees on the worksite where the violation occurred, Sarvadi said.

More recently, however, the agency has argued that, where an employer has some control over its subcontractors, it must exercise reasonable diligence to ensure that the subcontractors are addressing hazards on the job site, including regular on-site inspections and corrective actions when hazards are observed, Sarvadi said.

In those cases, the general contractor had a presence on the worksite at least some of the time, he said. The Occupational Safety and Health Review Commission has said that employers are responsible for those violations that they can reasonably detect or prevent.

Roping franchisors into lawsuits and enforcement actions could also energize national unions by bringing corporate parents to the collective bargaining table, Fellner said.

“Now the negotiation is not between the union and the eight waiters who work at Hardee's, but the union is now in a position to leverage its influence with the entire franchisor chain,” Fellner said. “That is your holy grail of organization.”

Pushback From Employer Advocates

Public interest representatives have disputed the arguments advanced by Fellner and Sarvadi, claiming that franchisors in fact exercise a great deal of control over franchisees.

“They micromanage a lot of activities when it suits them,” Adam Finkel, the former head of OSHA's health standards division, told Bloomberg BNA in August, responding to the NLRB's McDonald's decision. “Apparently now they're saying, ‘We can't possibly know whether the deep fryer is ungrounded or unsafe,' and I don't think that jibes with the degree of oversight they have.”

Others in the public interest sphere have hailed OSHA's and the NLRB's attempts to reach into the corporate suite, calling it a long-overdue crackdown on negligent big businesses.

Case Remains in Federal Court

In his order, Thompson denied Paula Hamrick's motion to remand the case back to the Circuit Court of Nicholas County, W.Va., where the complaint was initially filed in 2013. In January, the defendants successfully had the case removed to federal court, on the grounds that none of the individuals or corporations in the defendant class were citizens of, or based in, West Virginia.

Hamrick argued that the defendants hadn't made a compelling case in pleading diversity, but the judge found that the defendants had met their burden for pleading removal jurisdiction.

The litigation is ongoing. The next deadline is for discovery requests, which must be completed by Nov. 21.

Christopher L. Brinkley and Marvin W. Masters of Masters Law Firm LC represented the plaintiff.

Denielle-Jacqueline Marie Stritch and Larry J. Rector of Steptoe & Johnson PLLC represented Restaurant Management Group LLC; Restaurant Management Group of West Virginia LLC; CKE Restaurants Inc.; Hardee's Restaurants LLC; and Hardee's Food Systems LLC.

Ronda L. Harvey of Bowles Rice McDavid Graff & Love LLP represented Frymaster LLC.; Manitowoc Foodservice Companies LLC; and Manitowoc Co.

To contact the reporter on this story: Stephen Lee in Washington at stephenlee@bna.com

To contact the editor responsible for this story: Jim Stimson at jstimson@bna.com

The opinion by the U.S. District Court for the Southern District of West Virginia in Hamrick v. Rest. Mgmt. Grp. LLC is available at http://www.bloomberglaw.com/public/document/Hamrick_et_al_v_Restaurant_Management_Group_LLC_et_al_Docket_No_2.