The Franchise Memorandum

The First Circuit Court of Appeals recently certified to the Massachusetts Supreme Court the question of whether franchisee plaintiffs in an ongoing case pass the threshold inquiry under the state’s three-prong employee classification test, which requires a finding that the putative employee is “performing any service.” Patel v. 7-Eleven, Inc., 2023 WL 5542778 (1st Cir. Aug. 29, 2023). In the long-running case, a putative class of 7-Eleven franchisees allege that they have been misclassified as independent contractors rather than employees under the Massachusetts Independent Contractor Law. At an earlier phase, the District Court granted 7-Eleven’s motion for summary judgment, resulting in an appeal and certification to the Massachusetts Supreme Court the question: “Whether the three-prong test for independent contractor status set forth in Mass. Gen. Laws ch. 149 § 148B applies to the relationship between a franchisor and its franchisee, where the franchisor must also comply with the FTC Franchise Rule.” After the Massachusetts Supreme Court held that it did apply to the franchise relationship, the federal district court held on remand that the three-prong Massachusetts Independent Contractor Law test did not apply because franchisees “are not paid for any services performed for 7-Eleven” and that it is franchisees who “pay franchise fees to 7-Eleven in exchange for a variety of services to support the franchisee.”

Upon a second appeal, the First Circuit has now certified the question: “Do Plaintiffs ‘perform[ ] any service’ for 7-Eleven, within the meaning of Mass. Gen. Laws ch. 149, § 148B, where, as here, they perform various contractual obligations under the Franchise Agreement and 7-Eleven receives a percentage of the franchise's gross profits?” 7-Eleven argued that franchisees pay it “for the rights and tools . . . needed to operate [their] own [franchises],” and it “does not pay Plaintiffs for the performance of any obligation.” Franchisees argued that their efforts reflect an employment relationship as the revenue flowing to 7-Eleven necessarily “fluctuates depending on how well each store performs from month to month.” Certifying the question, the First Circuit explained that it thought it “prudent to give the supreme court the first opportunity to provide the answer to this question of state law.”