David J. Kaufmann Massachusetts Says Franchisees May Be Employees
In a potentially quite serious blow to franchising, the Supreme Judicial Court of Massachusetts recently held that Massachusetts' labor laws can be applied to the franchisor-franchisee relationship. Or, put more simply, that franchisees may be employees under Massachusetts law.
April 18, 2022 at 12:20 PM
10 minute read
In a potentially quite serious blow to franchising, on March 24, 2022 the Supreme Judicial Court of Massachusetts (SJC) held in Patel v. 7-Eleven, 489 Mass. 356, 183 N.E.3d 398 (March 24, 2022), that Massachusetts' labor laws can be applied to the franchisor-franchisee relationship. Or, put more simply, that franchisees may be employees under Massachusetts law.
The Patel decision arose from a reference from the U.S. Court of Appeals for the First Circuit, which certified the question to be determined by the SJC as follows: "Whether the three-prong test for independent contractor status set forth in the [Massachusetts independent contractor statute] applies to the relationship between a franchisor and its franchisee, where the franchisor must also comply with the FTC Franchise Rule. [8 F.4th 26 (1st Cir. 2021)]." In the federal lawsuit, 7-Eleven franchisees filed a class action claiming that 7-Eleven misclassified them as independent contractors rather than as employees in violation of the Massachusetts Independent Contractor Law and other labor laws. The U.S. District Court for the District of Massachusetts granted summary judgment to franchisor 7-Eleven (485 F. Supp. 3d 299 (D. Mass. 2020)) and the franchisees appealed. In considering the appeal, the U.S. Court of Appeals noted that the Massachusetts Supreme Judicial Court had yet to analyze the interactions between Massachusetts' Independent Contractor Law (ICL) and the FTC Franchise Rule (which 7-Eleven's suggested to the District Court preempted the ICL), leading the court to "… consider the most prudent approach to be to give the [Supreme Judicial Court] the first opportunity to weigh in on this issue."
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