Final Exam Legal Environment of Business 2003 Question 6: Pizza Hut case: Is either franchisor or franchisee liable for sexual harassment? If so, what type of sexual harassment occurred? Please fully explain your answer. In this case, the franchisee is liable for the hostile work environment sexual harassment type. However, the franchisor should not be held liable unless it can be proven that it has central control over the day-to-day employment decisions of the subsidiary. I will assume that the franchisee is independently owned and the franchisor has no control over its labor relations and no control over it financial.

In cases such as this, a critical component in determining liability is which entity made the employment decision of the person making the claim. Factors that are considered in determining the existence of an illegal hostile work environment include: the conduct's frequency, the conduct's severity, any physical threat or humiliation (as opposed to merely offensive remarks), and the conduct's unreasonable interference with the employee's work performance. Situations that can be considered as hostile work environment sexual harassment is where the employee's work environment is made intimidating, hostile, or offensive due to unwelcome sexual conduct and that conduct unreasonably interferes with the employee's work performance. This case states that the waitress was harassed by the two male customers prior to the November 6 th event and informed her manager that she did not like waiting on them, but did not explain why. Although she did not volunteer her reason why she did not want to wait on the customers, a responsible manager would have questioned the waitress to find out her reason. A responsible manager would also have assigned someone else to wait on the customers and / or request that the customers leave the premises.

The physical nature of the conduct in this case, although limited to one incident, was severe enough to create an illegal hostile work environment. The Equal Employment Opportunity Commission (EEOC) issued regulations that state employers are responsible for the harassing conduct of non-employees and have a responsibility to prevent and take action when they know or should have known about the harassment. In this case, the waitress informed her manager that one of the customers had pulled her hair and requested that the manager find someone else to serve them. The manager denied her request and instructed her wait on them and stated "You were hired to be a waitress." When the waitress returned to the customer's table she was physically sexually assaulted by one of the customers. The manager clearly knew about the problems and had the authority to take action to avoid what was an abusive and potentially dangerous situation, but failed to do so. When the manager took no corrective action, the franchisee was then liable for the harassing conduct by the customers because a management-level employee knew about the harassment and did nothing about it..