Owners of 7-Eleven franchises can be considered employees in Massachusetts, the Supreme Judicial Court ruled in a decision issued Thursday, allowing them to be covered by state labor laws regarding wages, overtime, and other employment protections.
The decision overturns a ruling in US District Court that the Federal Trade Commission’s franchise rule conflicted with the state’s independent contractor statute to determine if workers are employees, and therefore the statute didn’t apply to 7-Eleven franchisees.
Following the high court’s decision, Massachusetts 7-Eleven franchise owners can now proceed with their case in district court and seek damages from the parent company for being misclassified.
The franchisees claim that, unlike a typical franchisor that simply charges a fee for store owners to license its brand, 7-Eleven exerts tight control over every aspect of the business. The company manages the books and takes half the revenues, paying the franchisee with what’s left over after the cost of doing business is deducted, said Shannon Liss-Riordan, the attorney representing the franchisees.
“The franchisees are really glorified store managers that have been made to pay tremendous amounts of money for the privilege of managing 7-Eleven stores,” she said. “And they don’t really get to call the shots. They’re not really running their own businesses. They’re just carrying out 7-Eleven-detailed plans the way a manager would.”
“7-Eleven franchisees have been treated like employees and therefore they should have the basic protections under the employment laws,” she said.
7-Eleven did not respond to a request for comment. The ruling opens the door for any franchise owners in Massachusetts, including for other companies such as Dunkin’ and McDonald’s, to argue that they are employees.
The state’s independent contractor statute applies a three-pronged “ABC test” to determine if workers are employees. If workers are not under the direct control of an employer, provide a service outside the company’s usual course of business, and have an independent business related to that service, the state’s employment laws do not apply to them, provided that they meet all three criteria.
The Supreme Judicial Court’s decision dismisses 7-Eleven’s contention that allowing the ABC test to be applied to franchisees “places the entire market for franchise relationships in the Commonwealth at risk,” noting that the statute “neither expressly includes nor expressly excludes franchisees from its reach.”
Many franchise owners are immigrants working 70 or 80 hours a week behind the counter, Liss-Riordan said, noting that they kept the stores open during the pandemic because 7-Eleven directed them to.
“They had to be out there,” she said. “They didn’t get to decide that they wanted to close their stores.”
Misclassifying workers has become a major issue in Massachusetts. Liss-Riordan has represented workers in numerous lawsuits over their independent contractor status, including gig-industry drivers, and Attorney General Maura Healey has filed a similar lawsuit against Uber and Lyft. Uber, Lyft, DoorDash, and Instacart are also behind a ballot initiative and related legislation that would preserve drivers’ status as independent contractors.