The seemingly endless stream of litigation surrounding franchise giant 7-Eleven has once again taken on a new dimension. The franchise syndicate 7-Eleven sues the parent company on the grounds that the franchisor violates the franchise agreement by exercising excessive and unnecessary control over the smallest details of the operation of the company, reducing the franchisees to the status of mere employees. Many of the franchisee`s day-to-day operations are now monitored and regulated in the wake of the wage fraud scandal that swept the convenience store franchise industry. Franchisees around the world have been accused of paying their employees below the minimum wage or requiring employees to reimburse cash payments to the owner or franchisee. State regulators have threatened to redefine the legal relationship a franchisor has with its franchisees and impose more responsibilities and regulations on the company`s home offices. Major franchisors like 7-Eleven have met with regulators and agreed on conditions not to impose stifling regulations as companies try to solve their problems internally. A decision in favour of franchisees could have devastating effects not only on the future of franchisees in the Commonwealth, but also on the well-being of the state`s economy. There are currently 159 7-Eleven stores in Massachusetts. Franchises like Dunkin Donuts, Burger King and McDonald`s, to name a few, represent a total economic output of $12 billion. These companies and many other franchises can leave the state if they are forced to treat franchisees as employees.
If it is classified as such, the parent company would be obliged to pay them [the franchisees] sick leave, unemployment insurance and sick leave. In addition, it would be illegal for franchisees to pay franchise fees from their salary. Currently, franchisees act as independent businessmen and are responsible for payroll and other employer-related costs. Survey on the national exploitation of illegal immigrants by franchisees (slideshow). DISCLAIMER: Due to the generality of this update, the information contained in this document may not be applicable in all situations and should not be implemented without specific legal advice based on certain situations. Today, after a lengthy trial without a jury earlier this year, federal Judge Dale Fischer in California issued a decision finding that four 7-Eleven franchisees had been duly classified as independent contractors and were not employees under applicable California law. The decision does not confirm that all franchisees are independent contractors. On the contrary, Fischer J. pointed out that the facts in this case differ significantly from those concerning commercial cleaning franchisees. In addition, today`s decision does not include california`s infamous “ABC” test for determining the status of an independent contractor. Nevertheless, the decision shows that long-established franchisors such as 7-Eleven may prevail in such cases if the legal standard is a multifactorial test that focuses on whether the franchisor has properly avoided directing and controlling how the franchisee provides services.
Attorney representing 7-Eleven, Stephen Sussman of Duane Morris in Cherry Hill, New Jersey, declined to comment on the decision. Related: A new McDonald`s lawsuit could redefine franchising as we know Bumb also denied the defendants` motion to dismiss charges alleging that the company violated an implied commitment of good faith and fair trade and violated New Jersey`s Franchise Practices Act by adhering to inappropriate standards. The plaintiffs claim in their lawsuit that 7-Eleven`s request to purchase company maintenance contracts exposes them to the company`s mercy when unanswered maintenance calls cause food waste. 7-Eleven did not immediately respond to a request for comment. The FTC rule requires franchisors to exercise control over certain aspects of franchise transactions. State law considers the control of working conditions as a key factor in determining whether workers are employees and are entitled to minimum wage, overtime pay and other protections. The court first analyzed the main Borello factor, control, and said the evidence “forces the conclusion that the plaintiffs were independent contractors.” The court noted that the plaintiffs exercised their own judgment in determining, among other things: which products they would wear, how they would evaluate the products, how they would organize the store, which promotions they should participate in, who they should hire or fire, the schedule of employees, how often and when the plaintiffs would be present in their stores, and what prints they should remove from stores and when. The test used by the court in this 7-Eleven case was not the standard first formulated by the California Supreme Court in its 2018 decision in Dynamex or the state`s new Independent Contractors Act, AB5 (which has since been amended by AB2257), which codified Dynamex.
On the contrary, the lawsuit, filed in 2017, related to reimbursement under a section of the California Labor Code that used the so-called Borello test to determine the status of an independent contractor. This test is no longer applicable in California to determine the status of an independent contractor, unless the case concerns one of the exclusions set forth in AB5/AB2257. Therefore, this 7-Eleven decision may have limited value in California for industries that are not covered by any of these exclusions. For industries covered by Borello or subject to a comparable multifactorial test under federal or state laws, this decision should reassure franchisors working in the same way as 7-Eleven. These four factors were the degree of the alleged employer`s right to control how the work is performed; the worker`s investment in equipment or materials or the use of aids; the degree of sustainability of the employment relationship; and whether the service provided is an integral part of the activities of the alleged employer. A fifth factor – whether the service provided required particular skills – in relation to the conclusion that the candidates are employees. Finally, when asked whether the plaintiffs` ability to make a profit depended on their own capabilities and not on factors beyond their control, the Court concluded that the answer was “a close appeal” that would not be weighted either positively or negatively in the analysis. For the allegations of unsubscribing from foagla and other franchisees to stand in court, the jury must not only conclude that the Patels were unfairly disenfranchised, but also that they and other franchisees were systematically targeted by 7-Eleven as a broader unsubscribe effort. New franchisees` concerns for 7-Eleven (July 31, 2013) “This is a statement that is not unusual,” says Areaux. One of the most influential cases occurred in 2010, when a group of concierge franchisees successfully argued that their franchisor, Coverall, had wrongly classified them as independent franchisees and denied them benefits such as minimum wage, overtime pay, and workers` right to unemployment and compensation. Coverall had to pay $3 million and change its franchise structure.
Franchisee 7-Eleven Khan denies siphoning off funds (24. June 2013) The Supreme Court decision rejects 7-Eleven`s claim that allowing the ABC test on franchisees “endangers the entire franchise relationship market in the Commonwealth,” noting that the law “does not explicitly include or exclude franchisees from its scope.” Gerald Marks of Marks & Klein in Red Bank, N.J., who represents the plaintiffs, has made similar claims that 7-Eleven`s level of control over individual stores supports the conclusion that its franchisees are employees in another case in New Jersey and in a case filed in federal court in the Central District of California.
