In the 2005 case of Domino's Pizza, Inc. v. John McDonald, the U.S Supreme Court was asked to consider whether a franchise agreement constituted an employment contract under federal law. The dispute arose when John McDonald, a former Domino’s franchise owner in Hawaii, claimed that he had been unfairly terminated by the company and sought compensation for his losses. He argued that as per their franchising agreement he should be considered an employee of Domino's Pizza and therefore protected by federal labor laws against wrongful termination without cause or due process. Domino’s countered this argument stating that McDonald was not an employee but rather a business partner who shared in both profits and risks associated with running the pizza outlets. The court ultimately ruled in favor of Domino's Pizza holding that under common-law agency principles used to determine employer-employee relationships for purposes of applying federal statutes, franchisees are not employees but independent contractors operating their own businesses.

The dissenting opinion in the case of Domino's Pizza, Inc. v. John McDonald argued that the majority had misinterpreted and improperly applied the law regarding franchise agreements and vicarious liability. The dissent contended that a franchisor like Domino's should not be held liable for discriminatory practices by its independent franchisees unless it has significant control over their employment policies or is directly involved in discriminatory acts. They believed that holding franchisors responsible for actions they cannot reasonably control would have far-reaching implications on business relationships and could potentially discourage companies from entering into franchise agreements due to increased legal risks. Furthermore, they disagreed with the majority’s view about what constitutes “control” within a franchising relationship, arguing it was too broad an interpretation which deviated from established precedent.