Impacts of the Massachusetts Supreme Court Ruling on 7-Eleven Franchises

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At the end of March, the Massachusetts Supreme Court issued its ruling in the case of Patel v. 7-Eleven, answering the question whether the state’s ‘ABC’ test for worker classification can apply to the relationship between franchisors and franchisees in the state.  Similar to California’s recent enactment of AB5, the IFA sees a significant risk for the business model under an ‘ABC’ test and filed an amicus brief detailing those issues (link to brief).  While the court’s conclusion that the franchise business model is subject to the state’s independent contractor test was disappointing, there were some key findings that should provide relief for franchisors doing business in the state.

The court concluded that there was no conflict between the federal FTC “Franchise Rule” and the state’s independent contractor test, or the three-pronged “ABC test.” This means that because franchisors can meet both the requirements of the Franchise Rule and the ABC test, they are subject to state labor laws. Although this outcome is challenging for the business model, the Court did announce some stated protections for franchising. The ruling states that simply sharing an economic benefit in a franchise relationship is not enough to create an employment relationship. The Court also held that controls that franchisors exert to protect their trademarks under the Lanham Act do not render franchisees employees under the ABC test. Finally, the Court cited with approval several cases in which franchisors satisfied the ABC test, which supports the conclusion that, under the principles laid out in these cases, franchisors should not be deemed the employers of their franchisees.

The International Franchise Association (IFA) filed a brief in support of the lower court’s decision acknowledging a conflict between Federal law and the FTC franchise rule and a state ABC test. The brief  made clear our support of the franchise business model and the long-standing merits of franchising as a business format, which “contributes significantly to the national and Massachusetts economies.” The brief highlights that the case had the potential to the end of franchising as we know it in the Commonwealth, but overall the ruling maintains some level of protection for the business model.

Franchising provides over 115,000 direct jobs in Massachusetts, supporting over 12,000 individual businesses. These local business owners live and work in the communities where they operate providing meaningful employment, with wages over 2-3% higher than non-franchised businesses, and greater opportunities for upward mobility for people of color, women, and veterans. IFA will continue to fight on behalf of our members and the countless opportunities they provide in the Commonwealth and around the nation.

From here, the case will be remanded to the First Circuit Court of Appeals, and most likely back down to the District Court to apply the Supreme Court’s decision based on the facts of the case.

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