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Coty v. U.s. Slicing Machine Co.

OPINION FILED MARCH 14, 1978.

GAIL POULOS COTY, PLAINTIFF-APPELLEE,

v.

U.S. SLICING MACHINE COMPANY, INC., DEFENDANT-APPELLANT. — (YANKEE DOODLE HOUSE, INC., DEFENDANT.) — GAIL POULOS COTY, PLAINTIFF-APPELLANT,

v.

YANKEE DOODLE HOUSE, INC., DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Kane County; the Hon. PAUL W. SCHNAKE, Judge, presiding. MR. PRESIDING JUSTICE SEIDENFELD DELIVERED THE OPINION OF THE COURT:

The plaintiff, then age 15, was injured while operating a meat slicing machine on the premises of her employer the Yankee Doodle Dandy restaurant, a fast-food franchisee, located in Elgin. As material here she sued the defendant franchisor, Yankee Doodle House, Inc., on the theory of negligence and willful and wanton misconduct and sued the defendant, U.S. Slicing Machine Company, Inc., the manufacturer of the machine, on the theory of strict liability in tort. The cases were tried together before a jury. At the close of the plaintiff's evidence the court directed a verdict in favor of the defendant franchisor, from which plaintiff appeals (76-408). In the case against the manufacturer the court directed a verdict in favor of the plaintiff on the defense of assumption of risk; and the jury found the manufacturer guilty and assessed damages against it in the amount of $100,000. The manufacturer appeals from the judgment entered on the verdict (76-407). We consolidate the appeals for opinion.

I.

(76-408)

We first conclude that the court properly directed a verdict for the franchisor. Plaintiff's theory of liability is that the franchisor was aware that minors operated the beef slicing machine, was aware of applicable prohibitory State and Federal child labor laws, and under the franchise agreement had the power to prevent such dangerous operations from being performed by minors; and therefore that its responsibility for its breach of duty should have been submitted to the jury. We cannot agree.

Under the franchise agreement numerous restrictions were imposed upon the franchisee relating to the general nature of the operation of the restaurant. The restrictions were principally geared towards protecting the Yankee Doodle trademark and the good will associated with it. It was required that the manager be trained by the franchisor; all the employees were required to wear distinctive uniforms; minimum hours and days of service were set down; and contributions to and participation in advertising programs were required. The franchisee also covenanted to comply with all "Federal, State, County and City laws, ordinances and regulations affecting directly the operation of said restaurant." The franchisor, however, did not retain any day-to-day supervisory control, could not hire or fire anyone, could not stop work in the restaurant immediately nor could it give any orders to any of the franchisee's employees. The agreement provided that if the franchisee breached any of the covenants of the agreement the franchisor could give a ten day written notice demanding cure of the breach; and if the franchisee failed to cure the breach, the franchisor's only remedy was to terminate the entire franchise agreement.

It further appears from the evidence that the operation of meat slicing machines by children under 18 years of age was forbidden by the Fair Labor Standards Act (29 U.S.C. § 201 et seq. (1970)) and regulations adopted thereunder (29 C.F.R. part 1500, subpart E). An executive of the franchisor testified that he was aware of the Federal rules in this area and that the franchisee was, apparently, not conforming to them.

We have not found any Illinois authority which deals with the question of the responsibility of the owner of a franchise trademark for the torts of its franchisee. Courts> in other jurisdictions have analyzed the issue on agency principles. None of the cases, however, deal with the specific question raised by this defendant, whether the franchisor may be held liable on other than agency principles for alleged negligent supervision of its franchisees. In Murphy v. Holiday Inns, Inc., 216 Va. 490, 219 S.E.2d 874 (1975), plaintiff had slipped and fallen at a Holiday Inn owned by the "Betsy-Len" corporation which was the franchisee. She sued the franchisor corporation for her injuries on the theory that the franchisor owned and operated the motel and that its agents and employees were negligent. The trial court granted summary judgment in favor of the franchisor as a matter of law finding that under the agreement between the parties there existed no principal-agent or master-servant relationship. The judgment was affirmed on appeal. Substantially in conformity with the facts in this case, the franchise agreement with Holiday Inn, the trademark owner, required that the franchisee construct its motel according to the franchisor's specifications, that it contribute to national advertising campaigns, that the manager, housekeeper and restaurant manager be trained by the franchisor, and, generally, that the franchisee conduct the enterprise under the "system" which included the trademark, architectural design, insignia, patterns, color schemes, styles, furnishings, equipment, advertising services and methods of operation.

The Supreme Court of Virginia in holding that the franchisor was not subject to liability asserted:

"Having carefully considered all of the regulatory provisions in the agreement, we are of opinion that they gave defendant no `control or right to control the methods or details of doing the work', * * * and, therefore, agree with the trial court that no principal-agent or master-servant relationship was created. * * * The regulatory provisions did not give defendant control over the day-to-day operation of Betsy-Len's motel. While defendant was empowered to regulate the architectural style of the buildings and the type and style of furnishings and equipment, defendant was given no power to control daily maintenance of the premises. Defendant was given no power to control Betsy-Len's current business expenditures, fix customer rates, or demand a share of the profits. Defendant was given no power to hire or fire Betsy-Len's employees, determine employee wages or working conditions, set standards for employee skills or productivity, supervise employee work routine, or discipline employees for nonfeasance or misfeasance. All such powers and other management controls and responsibilities customarily exercised by an owner and operator of an on-going business were retained by Betsy-Len." (219 S.E.2d 874, 877-78 (1975).)

See also McLaughlin v. Chicken Delight, Inc., 164 Conn. 317, 321 A.2d 456, 460 (1973).

The results in the cited cases involving franchise agreements appear to be consistent with the rationale of the cases principally cited by the parties which involve relationships of employers with independent contractors. In those cases if the evidence is sufficient to show that the employer of an independent contractor retains control over the "operative details" of doing any part of the work, he is subject to liability for negligence of the employees of the independent contractor on agency grounds, otherwise not; but if the employer retains some supervisory control over the manner in which the work is done, short of control over the "operative details", he will be subject to liability for negligence in the exercise of that control. (See, e.g., Weber v. Northern Illinois Gas Co., 10 Ill. App.3d 625, 638-39 (1973); Pasko v. Commonwealth Edison Co., 14 Ill. App.3d 481, 489 (1973); Foster v. Englewood Hospital Association, 19 Ill. App.3d 1055, 1065 (1974). See also Restatement (Second) of Torts § 414 (1965).) However, the mere reservation of "a general right to order the work stopped or resumed, to inspect its progress or to receive reports, to make suggestions or recommendations which need not necessarily be followed, or to prescribe alterations and deviations * * * does not mean that the contractor is controlled as to his methods of work, or as to operative detail." Weber v. Northern Illinois Gas Co., 10 Ill. App.3d 625, 639, citing the Restatement (Second) of Torts § 414 (1965). See, e.g., Ryan v. City of Chicago, 28 Ill. App.3d 743, 749 (1975); see also Nowicki v. Union Starch & Refining Co., 54 Ill.2d 93, 98-99 (1973).

• 1 The employer-independent contractor cases, upon which the litigants almost exclusively rely, are somewhat inapposite. The franchisee is not in any usual sense an independent contractor of an "employer." However, the general rationale of the cases, that a person who possesses a right to supervise the internal operations of another's enterprise, which includes a right to veto an unsafe procedure, may be liable for the negligent failure to do so, can be applied to the franchise cases. However, this right to interdict unsafe practices must consist of something more than a general right to make suggestions or recommendations or to order the work stopped or resumed. (See Weber v. Northern Ill. Gas Co., 10 Ill. App.3d 625, 639.) Here the franchisor did not retain the right to directly order children-employees away from the meat slicing machines nor could it have "stopped the work" because the franchisee refused to order such employees away from the hazard. (Cf. Pasko v. Commonwealth Edison Company (1973), 14 Ill. App.3d 481, 489.

• 2 The franchisor here, it is true, did retain a right to terminate the entire franchise agreement, but only after a 10-day notice for breach of any covenant. One of these covenants required faithful observance by the franchisee of all relevant laws, Federal, State and local, including the provision under the Fair Labor Standards Act that forbade operation of meat-slicing machines by children under 18 years of age as previously noted; and a Yankee Doodle executive admitted in the hearing before the court on the motion to dismiss the franchisor that he was aware of the Federal rules in this area and that the franchisee was, apparently, not conforming to them. The franchisor could, therefore, have requested or demanded that the franchisee stop employing children in the proscribed manner and if the franchisee failed to comply could have terminated the entire franchise agreement. This general ...


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