Arguments in 7-Eleven franchise case ‘almost incomprehensible’

IT TAKES A LOT to stump the justices of the Supreme Judicial Court, but a case that has ping-ponged between state and federal courts considering whether 7-Eleven franchisees are independent contractors or employees under Massachusetts law left them at times openly befuddled.

There must be some way to distinguish between the hands-off owner of a multi-million-dollar business and the hands-on manager of a small franchise, justices mused during arguments before the court on Monday, to stop large corporations from evading wage laws by falsely claiming someone acting as an employee is really an independent contractor. At the same time, the justices tried to avoid an interpretation of law so broad that it would place an unreasonable burden on businesses to pay wages and provide benefits to people who are effectively business owners themselves. 

“We’re dealing with something that has the potential to warp the employment laws,” Justice Scott Kafker said. “Meaning a manager who’s really an entrepreneur making a huge amount of money is entitled to wages.”

A group of 7-Eleven franchise owners filed a class action against the company in 2017, arguing that many of them are working crushing hours for less than minimum wage while paying fees to 7-Eleven. Because they are not considered employees, attorney Shannon Liss-Riordan told the court, 7-Eleven is pulling an “end run” around wage laws. 

The case has confounded the courts at several levels. Initially, a federal court concluded that franchisees can never be employees, only for the First Circuit to kick that question over to the Massachusetts Supreme Judicial Court on appeal. The state court ruled that there is no such conflict, only for the federal court to then get stuck on another question of Massachusetts law – whether the franchisees “perform a service” for 7-Eleven – and rule in favor of 7-Eleven again. The First Circuit sent the case back to the SJC for clarification on that point.

The state’s highest court on Monday spent nearly an hour trying to tease out what is meant by a threshold question before Massachusetts’ so-called “ABC test” defining independent contractor status. To actually reach the test to decide employment status, workers have to prove that they “perform any service” for the employer. But just owning a franchise – in this case a stand-alone store that is branded as 7-Eleven but not corporately managed – does not fit neatly into that definition. 

“How do we define services in a way that draws distinctions between the owner of the Hilton Hotel and the cute operator of that janitorial service where he’s converting his janitors into a franchise?” Justice Scott Kafker asked. “How do we make this language work to draw that distinction? Help us out, ’cause I can’t do it.”

The services analysis is just the starting point, said both Liss-Riordan and David Kravitz of the Massachusetts attorney general’s office. Performing any services means that the employer receives some revenue that is directly dependent on the work of the worker, they said. 

“This is almost incomprehensible,” Kafker said. “So I’m trying to understand. You define services in an incredibly broad way.” It seems to echo another case in which employees were being treated as non-employees, he said, and “I just don’t have a sense that this is the same thing, but I can’t put my fingers around it.”

Justice Dalila Wendlandt tried to figure out if the test proposed by the plaintiffs was a very high or very low bar. “How would any franchise survive in Massachusetts under the threshold inquiry?” she asked Kravitz. “Or are you saying that’s just such a modest inquiry that the ABC Test will solve for any franchise?”

Wendlandt also seemed skeptical of the test proposed by 7-Eleven’s attorney Norman Leon, who argued that the franchisees got no financial payment from the corporation – only land, the corporate brand name, the right to use equipment, and directions on how to run a store. In return, 7-Eleven receives a portion of the store revenue. 

With a slight laugh, Wendlandt asked if 7-Eleven would then be the employee in that relationship. “Even under your test, labor for promises of a fee, isn’t that what 7-Eleven is providing?” she asked. “So that can’t be the test.”

At stake is the core of the franchise model, said Leon. The 7-Eleven company boasts 13,000 stores in the US and Canada, the vast majority of which are franchises. 

The case has even drawn the attention of the US Chamber of Commerce, which argued in a brief that the decision could not only disrupt franchising, but complicate other types of routine business deals by categorizing them as employment agreements.

“I’m not prepared to believe that the Commonwealth is prepared to say that every franchise relationship is no longer a franchise relationship, but an employment relationship,” Leon told the court.