Franchisor Victorious in Employment Misclassification Case

07 November 2022 Legal News: Distribution & Franchise Publication
Author(s): Peter Loh Carrie Hoffman

A federal court in Massachusetts granted summary judgment in favor of a franchisor in a long-running case against its franchisees. In Patel et al. v. 7-Eleven, Inc., five 7-Eleven store owners brought suit claiming 7-Eleven misclassified them as independent contractors in violation of the Massachusetts independent contractor law. The plaintiffs also sought certification of a class action.

The contractual relationship between the parties is that of a typical franchisor-franchisee. The plaintiff franchisees promised to pay 7-Eleven an initial franchise and other fees. In return, 7-Eleven granted the plaintiffs the right to operate 7-Eleven franchised stores. The franchisees also agreed to hold themselves out as independent contractors.

The Massachusetts Independent Contractor Law (ICL) is a version of the ABC test which initially gained notoriety in California. This page has written extensively about the ABC test. The ICL presumes an entity is an employer of a worker unless it can establish all of the following:

a)  the alleged worker is free from control and direction in connection with the performance of the service, both under his/her contract for the performance of the service and in fact;

b)  the service is performed outside the usual course of the business of the alleged employer; and

c)  the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the work performed.

7-Eleven argued at summary judgment the plaintiffs failed to meet the threshold issue prong “A” of the test presented. The plaintiffs did not provide services to 7-Eleven. Instead, 7-Eleven provided services to the plaintiff franchisees in the form of training and other support in return for their payment of fees.  Plaintiffs argued that 7-Eleven imposed requirements upon them including working full time in the store, wearing approved uniforms, and other alleged indicia of an employment relationship.

The Court agreed that the plaintiffs provided no services to 7-Eleven and that 7-Eleven did not pay them for anything. Moreover, merely because store revenue directly impacted 7-Eleven, mutual economic interest was not sufficient to establish that the plaintiffs performed services for 7-Eleven. On this basis, the Court granted 7-Eleven summary judgment on the plaintiffs’ claim of violation of the ICL.

Defendant franchisors rightfully view the ABC test (and its corollary statute’s like the ICL) as a difficult standard to meet in proving the lack of an employment relationship. Nonetheless, cases such as Patel v. 7-Eleven provide possible arguments to defeat such claims.

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