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A Big Gulp or a narrow ruling? Massachusetts' high court considers 7-Eleven franchise fight

The Massachusetts Supreme Judicial Court hears arguments Wednesday in a case that has the potential to upend state labor laws. The big question: Should the owners of some franchises be treated as employees of the parent company?

Massachusetts had more than 12,000 franchised businesses as of last year, with a combined economic output of $12 billion, according to the International Franchise Association.

Reporter Shira Schoenberg has been covering the issue for Commonwealth magazine.

Shira Schoenberg, Commonwealth: What this case is about is you have five franchise owners who own individual 7-Eleven stores and they're suing 7-Eleven, the parent corporation, arguing that 7-Eleven is basically treating them not as owners, but as employees. So they say they should be considered as employees and get the wages and sick leave and overtime pay — basically, everything that would be due to them as employees, rather than as independent business owners.

Carrie Healy, NEPM: What do these owners have as an argument that says that they're really not franchisees, they're really just employees of a much larger corporation?

So their argument — and they are focused very specifically on how 7-Eleven operates stores — they say that they have to give up half of their store's profits to 7-Eleven, the parent company. And then the franchisee also has to pay all the expenses of running the business out of their share of the profits. So they're arguing that, essentially, they're acting like store clerks. They're essentially paying for their jobs because they're paying 7-Eleven half of their profits, but they also then have to pay for maintenance and all of the other business expenses out of their money.

In the court documents that have been filed for this hearing, retailers’ associations and other businesses are coming down firmly on the side of the corporation, 7-Eleven. What are they saying?

They're arguing that the franchise business model is just a very different model than what Massachusetts law envisioned when it set up this law to define what's an employee and what's an independent contractor. So they're saying that that law just can't apply to the franchise business model because it's its own entity. And the whole benefit of a franchise model is that the franchisee is an independent business owner, they're their own entrepreneur and they are responsible for the business expenses and they ... pay fees for the benefit of getting the brand and getting to use the operating model of the parent company.

And [those associations] are really warning that if this case is decided in favor of the franchisees, they're saying it could really upend the whole franchising business model in Massachusetts.

Which would make what parent corporations like Dunkin' and McDonald's responsible for all kinds of state wage and hour laws and make them pay overtime.

Exactly. They would have to pay their franchisees overtime. They would have to offer paid sick leave. They would have to pay for unemployment insurance — essentially everything that a business owner right now has to pay for their employees. And it's something that these franchises are just not set up to do, because that's not how they're operating.

If a ruling comes down from the Supreme Judicial Court that overturns the way 7-Eleven is looked at in terms of a franchise, will that have a reach not just across this state, but could there be a national spotlight thrown on to Massachusetts with a ruling?

So there could be. There's similar litigation in California, which has this independent contractor law similar to the one in Massachusetts. The difference is Massachusetts and California have a pretty unique independent contractor law, so the same law wouldn't necessarily apply in other states, so the same issues wouldn't necessarily come up in other states.

Certainly I think other states will be looking at this as they decide how their independent contractor laws might apply to franchises. But it's not exactly the same situation, just because Massachusetts' law is so much broader than the one that you have in other states, other than California.

Over the course of your reporting, what struck you in the arguments that the sides were making — anything stand out?

I think a big question is going to be, is 7-Eleven unique? Is it possible that there could be a narrow ruling that would affect the 159 7-Eleven stores in Massachusetts, but not the Dunkin' Donuts or McDonald's?

I think that there's a good chance that the SJC is going to try to do something that that is pretty narrowly tailored, because I can't imagine the justices want to really overturn this entire franchise business model. But it's definitely going to be interesting to see where they come down on which labor laws apply to — what really is — kind of a very unique business model.

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