The Franchise Memorandum

The U.S. Court of Appeals for the Ninth Circuit vacated a judgment on the pleadings that had dismissed a claim by 7-Eleven franchisees that they had been misclassified as independent contractors rather than employees for purposes of federal and state labor laws. Haitayan v. 7- Eleven, Inc., 2019 WL 968927 (9th Cir. Feb. 27, 2019). In the same opinion, the Ninth Circuit vacated and remanded the lower court’s denial in a related case of the franchisees’ request for a preliminary injunction preventing 7-Eleven from refusing to renew their franchise agreements unless they released their labor law claims.

In vacating the judgment on the pleadings, the Ninth Circuit found that the district court incorrectly considered the persuasiveness of the franchisees’ factual allegations, when it should only have analyzed the plausibility of their legal claims. It further observed that the lower court had failed to consider the franchisees’ allegations regarding the actual control that 7-Eleven exerted over their businesses, and instead focused solely on the terms of the franchise agreements at issue. In vacating the lower court’s refusal to preliminarily enjoin nonrenewal of the franchisees’ agreements unless they signed a release, the Ninth Circuit found that the lower court had failed to consider California law that a wage and hour claim could not be waived by contract, and had failed to appropriately weigh the likelihood of irreparable harm, the balance of the equities, and the public interest in having the injunction entered.