Patel v. 7-Eleven, a case in Massachusetts, has been closely watched since the ABC test took hold of franchise relationships in employee misclassification cases across the country.
A putative class of 7-Eleven franchisees claimed they were employees who were misclassified by their franchisor as independent contractors. The trial court granted summary judgment to 7-Eleven, ruling that the independent contractor statute does not apply to franchise relationships because there was an inherent conflict between the statute and the FTC Franchise Rule.
On appeal, the U.S. Court of Appeals for the First Circuit certified a question of state law to the Massachusetts Supreme Court: whether the state’s three-prong “ABC” test for independent contractor status applies to franchises, where the franchisor must also comply with the FTC Franchise Rule. Reversing course from the trial court, the state Supreme Court ruled the ABC test applies to franchises where a franchisee is an “individual performing any service” for a franchisor and ruled the test did not conflict with the franchisor’s disclosure obligations under the FTC Franchise Rule.
The court observed the independent contractor statute did not exclude franchises. If franchisees were excluded by judicial ruling, employers could evade obligations under the wage statutes by calling an employment relationship a franchise. The court rejected the idea that franchises are impliedly excluded due to separate regulation under the FTC Rule.
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