On March 24, 2022, the Massachusetts Supreme Judicial Court (SJC) handed down a key ruling that could have a significant impact on franchising across the state. In Patel v. 7-Eleven, Inc., the SJC was asked whether the three-prong test for independent contractor status set forth in Massachusetts’ state-law independent contractor statute applies to the relationship between a franchisor and its franchisee, where the franchisor must also comply with the Federal Trade Commission’s (FTC) Franchise Rule. The SJC held that the independent contractor statue applies to the franchisor-franchisee relationship and is not in conflict with the franchisor’s disclosure obligations set forth in the FTC Franchise Rule. Therefore, the SCJ determined, a franchisee providing services to a franchisor under the terms of a franchise agreement may, in fact, be classified as an “employee” of the franchisor under state wage-and-hour law.
Massachusetts and FTC Rules
The court’s reference to the “independent contractor statute” refers to Massachusetts G. L. c. 149, § 148B. Under this law, “an individual performing any service” for a putative employer “shall be” considered an “employee” for purposes of the wage statutes. An employer may rebut the presumption by satisfying all elements of the well-known “ABC test.” That is, an employer, by a preponderance of the evidence, must demonstrate:
[A] the individual is free from control and direction in connection with the performance of the service, both under...
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