Massachusetts high court ruling puts extra scrutiny on state's independent contractor law
Three months ago the Massachusetts Supreme Judicial Court heard a case that had the potential to upend state labor laws. The big question — should the owners of some franchises be treated as employees of the parent company? The SJC has issued a ruling that's not going to make corporate executives too happy.
Reporter Shira Schoenberg from CommonWealth explains what was under consideration.
Shira Schoenberg, CommonWealth: The biggest issue really was whether a chain store that operates through franchises, something like 7-Eleven or Dunkin Donuts, whether the franchisees, the people who operate the stores, are subject to the state's independent contractor law. So, the question is really, is there any circumstance under which these people can be considered employees of the parent company, or are they always considered franchisees, business owners, and therefore not subject to the state's wage and hour laws?
Carrie Healy, NEPM: And the ruling was surprising to 7-Eleven owners, or no?
I think it was. The SJC decided that the independent contractor law does apply to franchisees, which really means that every company that operates through a franchise model will have to look at the specifics of its organization and of its agreements with its franchisees and make sure that it complies with the Massachusetts state law around independent contractors.
What that means practically is that it needs to be clear through these arrangements that the franchisees have a fair amount of independence and control over their own business, that they're not actually employees of the parent company, that the parent company is not exercising an inordinate amount of control over the franchisees.
With the ruling, the new framework will need to be considered in individual business circumstances. In fact, lawmakers at the Statehouse on Wednesday are holding a hearing on two versions of a ballot question regarding app-based drivers. So, how could last week's SJC ruling on 7-Eleven potentially impact the ballot question and maybe ride-hailing companies themselves?
It doesn't have any direct applicability. It's kind of a separate issue. You're talking about the ride-hailing drivers and the gig economy versus franchise arrangements. But, I think just looking at the overall, the broader picture, there is some implication.
First of all, the question is whether a certain segment of the economy should be carved out and should be left separate and outside of the independent contractor law, either franchises or gig economy workers. It also just raises the question of, how clear this law is, and whether there should be revisions and whether the Legislature needs to be more explicit in who's covered by this law and who isn't.
Are there going to be ramifications with this ruling further afield than just Massachusetts?
There really shouldn't be. Massachusetts has one of the broadest independent contractor laws in the country, only comparable, I think, to California. So in other states, when companies are looking at how they structure these agreements, it seems like in almost every case, the independent contractor law probably wouldn't apply just because it's so much more narrowly constructed in most other states.
With the ruling last week, the Supreme Judicial Court did not rule on one part of the issue. Is that question going to go back to federal judges to consider?
Yeah, they didn't actually decide on whether the 7-Eleven franchisees in this particular case are considered employees or independent contractors. They just set out the framework for considering the issue by saying the independent contractor law applies. And then it will be up to a federal judge in U.S. District Court to actually look at the specific facts of this case and decide whether these particular 7-Eleven franchisees have a case and whether they should actually be considered employees.
So, it's not settled and it's not over.
It is not at all over. It goes back to court.