7-Eleven prevails in employee misclassification lawsuit | Foley & Lardner srl
A Federal Court for the Central District of California in Haitayan v. 7-Eleven, Inc. ruled in favor of franchisor 7-Eleven and against four franchise owners who claimed to be employees under California law rather than independent contractors. Serge Haitayan and the three other complainants had all owned 7-Eleven franchise stores for at least 20 years. Each of them testified at different times that they had come to see themselves as employees of 7-Eleven instead of independent contractors or business owners due to the control 7-Eleven allegedly exercised over the operation. of their stores.
After a two-day trial in March 2021, the Court issued findings of fact and findings of law on September 8, 2021. The Court applied the multi-factor test established under SG Borello & Sons, Inc. v. Dep’t of Indus. Rels., 48 cal. 3d 341, 350 (1989). Mainly, because the plaintiffs brought this case in 2017, the court failed to apply the state’s most recent independent contractors law AB5 and its “ABC test” which most consider to be more favorable to plaintiffs seeking to establish a working relationship. This space had extensively covered the 2018 California Supreme Court decision in Dynamex Operations West, Inc. v. Los Angeles County Superior Court who established the ABC test and AB5 who codified it. Borello remains the standard in situations where an exception under AB5 or a later law, AB2257, applies.
BorelloThe multifactor test focuses on a main question of what control the alleged employer has law to exercise over the work in question as opposed to the degree of control it actually exercises. Beyond this question, Borello also applies secondary factors that a court must take into account. In 7 eleven, the Court applied these factors after a detailed account of the factual record.
The Court found that the Haitian claimants exercised sufficient control over the “manners and means” of the work in question to preclude the existence of an employer-employee relationship. The plaintiffs admitted during the trial that “they have complete control over when they work, how much they work and when they take vacations.” The plaintiffs also employed their own workers in their stores and had full authority over their hiring, firing, wages, discipline and timing. 7-Eleven has also given its franchisees control over the actual operation of their stores, including what products to offer, prices, inventory levels and promotions in which to participate.
Conversely, the plaintiffs argued that 7-Eleven monitored and supervised their work through weekly visits to stores by “field consultants” who could issue written notices of non-compliance with certain 7- policies. Eleven. 7-Eleven also asked the complainants for training. 7-Eleven could also end the franchise relationship, which the plaintiffs claim had demonstrated a working relationship.
Even with these allegations, the plaintiffs were unable to persuade the Court that these facts established the level of review necessary to prevail. The Court noted that franchisees did not have to be in their store for consultant field visits and could ignore other correspondence and messages they sent them. In addition, field consultants could only issue notices of non-compliance with 7-Eleven store standards under a limited number of prescribed circumstances. The complainants had also not received training for “decades” as it was not part of their regular relationship with 7-Eleven. Finally, the termination of a franchise can only occur in limited circumstances (i.e. a felony conviction of a franchisee, insolvency, etc.) and requires notice and the ability to remedy when possible.
The Court then went through Borello‘s eight secondary factors. These are: (a) whether the work in question is in fact a separate undertaking; b) whether the applicants have performed work under the direction of 7-Eleven (essentially duplication of the control factor); c) the competence necessary for the job; d) the source of the instruments, tools and location of the work; e) the duration 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.
- Is the work in question a separate enterprise? The applicants presented themselves to the public and for tax purposes as independent and independent business people. They could sell their franchise stores to third parties and also operate other (sometimes competing) businesses. These facts led the Court to conclude that this factor weighed against the employment because the applicants were operating separate businesses. For the reasons already explained, the Court concluded that the Plaintiffs were not under the control of 7-Eleven through its consultants in the field. This factor also weighed on employment.
- Is the work in question under the direction of the alleged employer? This factor essentially duplicated the primary controlling factor discussed above. Applicants had to undergo extensive training to become a 7-Eleven franchise owner, which indicates a requirement for specialist knowledge. The store owners’ decision-making about people, products, and pricing have all led to their success or failure. These facts indicated the ownership of an independent business and, therefore, against employment.
- Does the job require specialized skills? The plaintiffs had all the merchandise in their stores. 7-Eleven, however, leased the ownership of the stores to the applicants as well as all computer equipment and systems. These facts tended to indicate a working relationship in favor of the plaintiffs.
- What is the duration of the work? Franchise agreements often lasted 15 years and the applicants had each owned their respective stores for decades. This indicated a job, but a shorter duration would not make economic sense either. The applicants could not have recovered their investments. This factor was neutral on the question of employment.
- What is the payment method? While hourly payments characterize employment, payment by the task indicates independent contractor status. 7-Eleven has not guaranteed any payment to applicants. Their income came entirely from the performance of their stores. It weighed in favor of 7-Eleven and against a working relationship.
- What kind of business is the alleged employer in? The complainants described 7-Eleven as a convenience store operator. 7-Eleven presented evidence that it was in the business of franchising. The tribunal agreed with 7-Eleven and found that 7-Eleven locates and develops store locations, markets and sells franchises, formulates best practices for store operations, develops new products and provides support to its stores. franchisees. The complainants did not do any of these things. This supported the fact that the claimants were independent contractors and not employees.
- How do the parties perceive their relationship? The complainants presented themselves as independent businessmen even after filing their complaint. A complainant advised other franchisees to make their own decisions about promoting a product with mixed sales results. Another told franchisees that they were independent contractors, not store managers employed at will. Finally, the franchise contracts that the applicants signed explicitly stated that they were independent contractors. The complainants’ relatively recent “realization” that they were employees was not convincing. The Court found this factor in favor of 7-Eleven.
7 eleven is an important case for “commercial format” franchises which, like 7-Eleven, exercise the right to maintain and enforce their brand standards through specified products, methods and means for operating the franchises. The application of the Borello as opposed to the newer and arguably stricter ABC test, its overall importance decreases.