7-ELEVEN Franchisees Allowed to Proceed With FLSA Suit

7-Eleven franchisees can proceed with their lawsuit against 7-Eleven, Inc. for allegations that the Japanese-owned convenience store giant violated the Fair Labor Standards Act.

(UnhappyFranchisee.Com)  According to a report in the New Jersey Law Journal, a Camden, N.J., federal judge ruled that franchisees can proceed with their claim that, because of 7-Eleven, Inc.’s  “pervasive control of its franchisees’ operations,” 7-Eleven franchisees are technically employees who have been denied compensation and overtime pay.

See Judge Renee Marie Bumb’s decision here:  Judge Bumb’s Opinion August 5, 2014

The article, written by Charles Toutant and published August 6, 2014 , states:

In a suit against 7-Eleven by four franchisees, U.S. District Judge Renee Bumb of the District of New Jersey found the plaintiffs made a sufficient showing that they are employees to survive the company’s motion to dismiss claims under the FLSA and the New Jersey Wage and Hour Act. The franchisees’ assertion that they are employees was also supported by their allegations concerning the permanency of their relationship with the company, their integral role in the company’s business and their economic dependence on the company, Bumb said.

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According to Bumb, the franchisees’ wage-and-hour claims were supported by allegations that 7-Eleven controls settings on the heat and air conditioning and the volume on the television in individual stores from corporate headquarters; that the company controls pricing, ordering and advertising of products; monitors franchisees’ conduct on video cameras; conducts all accounting itself; and forbids the plaintiffs from making cash withdrawals without company approval, the judge said.

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In declining to dismiss the FLSA claim in Nair v. 7-Eleven, Bumb noted that the U.S. Court of Appeals for the Third Circuit has defined “expansively” the question of who is an employee. Applying a six-part test from Martin v. Selker Bros., a Third Circuit case from 1991, Bumb found four of the factors weighed in favor of a finding that the franchisees are employees.

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Those four factors were the degree of the alleged employer’s right to control the manner in which the work is performed; the employee’s investment in equipment or materials, or his employment of helpers; the degree of permanence of the working relationship; and whether the service rendered is an integral part of the alleged employer’s business. A fifth factor—whether the service rendered required special skills—weighed against a finding that the plaintiffs are employees. Finally, on the question of whether the plaintiffs’ opportunity to make a profit depends on their own skill, rather than factors outside their control, the court found the answer was “a close call” that would not weigh either positively or negatively in the analysis.

7-Eleven franchisees have alleged that the franchisor engages in the “fraudulent misrepresentation” of its relationship with franchisees in order to deny them them minimum and overtime wages, medical, pension and other employment-related benefits.

It’s been widely reported on UnhappyFranchisee.Com that franchisees claim they have been harrassed and forced to turn over their stores to 7-Eleven without compensation for their years of hard work and the substantial goodwill they built up for their stores.

Judge Bumb’s decision is seen as an important win both for Red Bank, New Jersey-based Marks & Klein and the 7-Eleven franchise owners the firm represents.

According to the law journal:

Gerald Marks of Marks & Klein in Red Bank, N.J., who represents the plaintiffs, has raised similar claims that 7-Eleven’s level of control of individual stores supports a finding that its franchisees are employees in another New Jersey case and in one filed in federal court in the Central District of California. No dispositive rulings have been issued in those cases.

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“This franchisor is without doubt the worst example of franchising, because it totally strips away any sort of decisional power on the part of the franchisee. Other franchisors needn’t fear this type of attack because of the way 7-Eleven has imposed these rigid controls. You can see this is not a normal franchise situation,” he said.

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Marks claimed 7-Eleven is attempting to “churn” its franchisees, by wresting control of its most profitable stores and reselling the franchises, as a prelude to a public stock offering in the company. He said a finding that the plaintiffs are employees would not prevent them from claiming the equity in their businesses.

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The lawyer representing 7-Eleven, Stephen Sussman of Duane Morris in Cherry Hill, N.J., declined to comment on the ruling.

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