Mass. judges hesitant to apply employment laws to 7-Eleven franchisees

Seven & i Holdings Co’s Seven Eleven convenience store logo is pictured in Tokyo, Japan January 12, 2017. REUTERS/Kim Kyung-Hoon

(Reuters) – Judges on Massachusetts’ top court on Wednesday expressed doubts that 7-Eleven Inc franchisees should enjoy the same legal protections as rank-and-file workers, which trade groups say would eviscerate the franchise model.

The Massachusetts Supreme Judicial Court heard oral arguments in a bid by 7-Eleven franchisees to revive claims that they are actually glorified store managers and should be paid the minimum wage and receive other protections afforded to employees.

The 1st U.S. Circuit Court of Appeals in October asked the state court to decide whether Massachusetts’ three-pronged “ABC test” for classifying workers applies to franchise relationships at all.

In addition to the minimum wage, employees must be paid overtime and reimbursed for work-related expenses, among other costly legal requirements. Business groups say treating franchisees as employees would devastate franchise businesses and limit opportunities for small business owners.

Justice Scott Kafker on Wednesday told Shannon Liss-Riordan of Lichten & Liss-Riordan, who represents the plaintiffs, that he was concerned about extending legal protections to people who operate individual franchises, particularly when they own multiple stores and have their own employees.

“I’m very sympathetic to the little guy who is working in all these stores,” Kafker said. “But I have very little sympathy for your argument that would convert entrepreneurs into employees.”

Liss-Riordan told the seven-member court that merely applying the ABC test to franchisees did not mean they would be found to be employees. And not doing so would embolden companies to use the franchise model to evade legal requirements, she said.

“If 7-Eleven gets its way here … every industry in the commonwealth is going to start naming their employees ‘franchisees,'” Liss-Riordan said.

The plaintiffs, who first sued in 2017, claim they are 7-Eleven’s employees under state law because of the degree of control the company exercises over them, including requirements that franchisees remain open 24 hours a day and carry specific products.

The company countered that the worker classification law did not apply to franchisors at all because they are governed by a U.S. Federal Trade Commission rule regulating franchise relationships.

A federal judge last year agreed, saying the FTC rule effectively created a separate classification of worker apart from employees and independent contractors.

Norman Leon of DLA Piper, who represents 7-Eleven, said on Wednesday that because the FTC rule requires franchisors to exert some control over franchisees, they would always be deemed employers under Massachusetts’ exacting standard.

“No franchisor can pass the test, and no franchisors can exist financially if the test applies,” Leon said.

The case is Patel v. 7-Eleven Inc, Massachusetts Supreme Judicial Court, No. SJC-13166.

For the plaintiffs: Shannon Liss-Riordan of Lichten & Liss-Riordan

For 7-Eleven: Norman Leon of DLA Piper

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