A federal court for the Central District of California in Haitayan v. 7-Eleven, Inc. has ruled in favor of franchisor 7-Eleven and against four franchise owners who claimed they were employees under California law rather than independent contractors. Serge Haitayan and the three other plaintiffs all had been 7-Eleven franchise storeowners for at least 20 years. Each of them at different times testified that they came to view themselves as 7-Eleven employees instead of independent contractors or business owners due to the amount of control 7-Eleven allegedly exhibited over the operation of their stores.
After a two-day bench trial in March 2021, the Court issued findings of fact and conclusions of law on September 8, 2021. The Court applied the multi-factor test established under S.G. Borello & Sons, Inc. v. Dep’t of Indus. Rels., 48 Cal. 3d 341, 350 (1989). Importantly, because the plaintiffs brought this case in 2017, the Court did not apply the state’s most recent independent contractor law AB5 and its “ABC Test” that most consider more favorable to plaintiffs seeking to establish an employment relationship. This space had extensively covered the California Supreme Court’s 2018 decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County that established the ABC Test and AB5 that codified it. Borello remains the standard in situations where an exception under AB5 or a later statute, AB2257, applies.
Borello’s multi-factor test centers on a primary question of how much control the alleged employer has the right to exercise over the work at issue as opposed to how much control it actually does exercise. Beyond this question, Borello also applies secondary factors for a court to consider. In 7-Eleven, the Court applied these factors after a thorough recounting of the factual record.
The Court concluded the Haitayan Plaintiffs exhibited a sufficient amount of control over the “manner and means” of the work at issue to preclude the existence of an employer-employee relationship. Plaintiffs admitted during the trial that “they have complete control over when they work, how much they work, and when they take vacations.” Plaintiffs also employed their own workers in their stores and had complete authority over their hiring, firing, wages, discipline, and scheduling. 7-Eleven also granted its franchise owners control over the actual operation of their stores including which products to carry, pricing, inventory levels, and promotions in which to participate.
Conversely, Plaintiffs argued that 7-Eleven monitored and supervised their work through once-a-week visits to the stores from “field consultants” who could issue written notices of failure to follow certain 7-Eleven policies. 7-Eleven also required Plaintiffs to attend training. 7-Eleven could also terminate the franchise relationship, which Plaintiffs had alleged demonstrated an employment relationship.
Even with these allegations, Plaintiffs were unable to persuade the Court that these facts established the level of control necessary to prevail. The Court noted that franchise owners did not have to be present in their store for the field consultants’ visits and could ignore the other correspondence and messages they sent to them. Further, the field consultants could only issue notices of failure to abide by 7-Eleven store standards in a limited number of prescribed circumstances. Plaintiffs also had not attended training in “decades” as it was not a regular part of their relationship with 7-Eleven. Lastly, termination of a franchise could only occur in limited circumstances (i.e. a franchisee’s felony conviction, insolvency, etc.) and required notice and opportunity to cure when possible.
The Court then moved through Borello’s eight secondary factors. They are: a) whether the work at issue is actually a distinct business; b) whether Plaintiffs performed work at the direction of 7-Eleven (essentially duplication of the control factor); c) the skill necessary for the work; d) the source of the instrumentalities, tools, and location of the work; e) length of time in performance of the work; f) method of payment; g) the business of the alleged employer; and h) the parties’ respective beliefs about their relationship. The Court’s application of the factors follows below.
7-Eleven is an important case for “business format” franchises whom, like 7-Eleven, exercise the right to maintain and enforce their brand standards through specified products, methods, and means for the operation of the franchises. The application of the Borello factors as opposed to the more recent and arguably more stringent ABC Test does lessen its overall significance.