Patel v. 7-Eleven, Inc.

• Decision Date: 09 August 2021
• Docket Number: No. 20-1999,20-1999
• Parties: Dhananjay PATEL, Safdar Hussain, Vatsal Chokshi, Dhaval Patel, and Niral Patel, on behalf of themselves and all others similarly situated, Plaintiffs, Appellants, v. 7-ELEVEN, INC., Defendant, Third-Party Plaintiff, Appellee, Mary Carrigan; Andrew Brothers, Defendants, DP Milk Street Inc. ; DP Jersey Inc.; DP Tremont Street Inc.; DPNEWT01, Third-Party Defendants.
• Court: U.S. Court of Appeals — First Circuit

8 F.4th 26

Dhananjay PATEL, Safdar Hussain, Vatsal Chokshi, Dhaval Patel, and Niral Patel, on behalf of themselves and all others similarly situated, Plaintiffs, Appellants,

v.7-ELEVEN, INC., Defendant, Third-Party Plaintiff, Appellee,Mary Carrigan; Andrew Brothers, Defendants,DP Milk Street Inc. ; DP Jersey Inc.; DP Tremont Street Inc.; DPNEWT01, Third-Party Defendants.

No. 20-1999

United States Court of Appeals, First Circuit.

August 9, 2021

Shannon Liss-Riordan, with whom Michelle Cassorla, Tara Boghosian, and Lichten & Liss-Riordan, P.C. were on brief, for the appellants, Dhananjay Patel, Safdar Hussain, Vatsal Chokshi, Dhaval Patel, and Niral Patel.

Norman M. Leon, with whom Matthew J. Iverson, Jennifer C. Brown, Jamie Kurtz, and DLA Piper LLP were on brief, for appellee 7-Eleven.

Before Thompson, Selya, and Hawkins,^* Circuit Judges.

PER CURIAM.

The plaintiffs are a putative class of franchisees who sued 7-Eleven for violations of Massachusetts wage laws. For reasons we explain below, the outcome of this appeal hinges on a question of Massachusetts law, upon which the Massachusetts courts have not spoken. Therefore, we certify a question to the Massachusetts Supreme Judicial Court ("SJC") pursuant to Massachusetts Supreme Judicial Court Rule 1:03. See Fortin v. Titcomb, 671 F.3d 63, 66 (1st Cir. 2012). Some context for this question and the question itself follow.

BACKGROUND

We begin with a basic recitation of the facts from the summary judgment record, sharing only enough so that all may understand our decision to certify this question to the SJC. The plaintiffs own 7-Eleven franchises and accordingly operate 7-Eleven branded convenience stores in Massachusetts. Per the terms of their franchise agreements, the plaintiffs are obligated to operate their convenience stores around the clock, stock inventory sold by 7-Eleven's preferred vendors, utilize the 7-Eleven payroll system to pay store staff, and adhere to a host of other guidelines within the franchise agreement. The plaintiffs, as franchisees, are classified by the franchise agreement as independent contractors and do not receive a regular salary. Instead, each plaintiff may draw pay from their store's gross profits, after paying various fees required by the franchise agreement to 7-Eleven for the privilege of doing business with it. Finding this arrangement to be suboptimal, the plaintiffs sued 7-Eleven, alleging it misclassified them as independent contractors, rather than employees, in violation of the Massachusetts Independent Contractor Law ("ICL"), Mass. Gen. Laws ch. 149, § 148B, the Massachusetts Wage Act, Mass. Gen. Laws ch. 149, § 148, and the Massachusetts Minimum Wage Law, Mass. Gen. Laws ch. 151, §§ 1, 7.

The Massachusetts ICL presumes "an individual performing any service" to be an employee, and therefore protected by relevant wage and hour laws, unless that individual's alleged employer can demonstrate that:

(1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and (2) the service is performed outside the usual course of the business of the employer; and, (3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

Mass. Gen. Laws ch. 149, § 148B(a). At the federal level, the Federal Trade Commission has promulgated a collection of applicable regulations, known together as the "FTC Franchise Rule," 16 C.F.R. § 436.1, et seq., in order "to prevent deceptive and unfair practices in the sale of franchises and business opportunities and to correct consumers' misimpressions about franchise and business opportunity offerings." 72 Fed. Reg. 15444-01 (Mar. 30, 2007). As relevant here, the FTC Franchise Rule defines a franchise, in part, as a commercial relationship where the parties agree that, among other things, "[t]he franchisor will exert or has authority to exert a significant degree of control over the franchisee's method of operation, or provide significant assistance in the franchisee's method of operation." 16 C.F.R. § 436.1(h).

Considering the text of each of the above-cited provisions, there appears to be a conflict between the Massachusetts ICL and the "exert[ing] ... control" prong of the FTC Franchise Rule. It appears difficult, if not impossible, for a franchisor to satisfy the FTC Franchise Rule's requirement that the franchisor "exert or ha[ve] authority to exert a significant degree of control over the franchisee's method of operation" and simultaneously rebut the Massachusetts ICL's employee presumption by demonstrating that each franchisee is "free from control and direction in connection with the performance of the service." We are mindful, of course, that a franchisor may not exert any degree of control and instead may "provide significant assistance in the franchisee's method of operation."¹ See 16 C.F.R. § 436.1(h). Such a franchising model may or may not...