Patel v. 7-Eleven, Inc., SJC-13166

CourtMassachusetts Supreme Judicial Court
Writing for the CourtWENDLANDT, J.
PartiesDHANANJAY PATEL[1] & others[2] v. 7-ELEVEN, INC., & others;[3] DP MILK STREET INC. & others, third-party defendants.[4]
Docket NumberSJC-13166
Decision Date24 March 2022

DHANANJAY PATEL[1] & others[2]
v.

7-ELEVEN, INC., & others;[3] DP MILK STREET INC. & others, third-party defendants.
[4]

No. SJC-13166

Supreme Judicial Court of Massachusetts, Suffolk

March 24, 2022


Heard: December 8, 2021.

Independent Contractor Act. Massachusetts Wage Act. Statute, Construction, Federal preemption. Federal Preemption. Regulation.

Certification of a question of law to the Supreme Judicial Court by the United States Court of Appeals for the First Circuit.

Shannon Liss-Riordan for the plaintiffs.

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Norman M. Leon, of Illinois (Matthew J. Iverson also present) for 7-Eleven, Inc.

The following submitted briefs for amici curiae:

Kevin P. Martin, William E. Evans, & Christopher J.C. Herbert for Chamber of Commerce of the United States of America & another.

Ian D. Roffman & Sara A. Lonks for Financial Services Institute, Inc.

Christopher A. Parlo, of New York, Sean P. Lynch, of New Jersey, & Mary Grace Parsons for Life Insurance Association of Massachusetts & others.

John R. Skelton & Katherine R. Moskop for Retailers Association of Massachusetts.

Benjamin B. Reed, of Virginia, & Nora H. Murphy, of Maryland, for International Franchise Association & another.

Maura Healey, Attorney General, Kate Watkins & Cynthia Mark, Assistant Attorneys General, & David C. Kravitz, Deputy State Solicitor, for Attorney General.

Ana Munoz, Joseph Michalakes, & Audrey Richardson for Massachusetts Employment Lawyers Association & another.

James Reilly DoIan, of Maryland, Joel Marcus & Matthew M. Hoffman, of the District of Columbia, & Bradley Grossman for Federal Trade Commission.

Present: Budd, C.J., Gaziano, Lowy, Cypher, Kafker, Wendlandt, & Georges, JJ.

WENDLANDT, J.

In this case, we answer the following certified question regarding G. L. c. 149, § 148B (independent contractor statute):[5]

"Whether the three-prong test for independent contractor status set forth in [the independent contractor statute]
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applies to the relationship between a franchisor and its franchisee, where the franchisor must also comply with the FTC Franchise Rule."[6]

We conclude that, where a franchisee is an "individual performing any service" for a franchisor, G. L. c. 149, § 148B, the three-prong test set forth in the independent contractor statute applies to the relationship between a franchisor and the individual and is not in conflict with the franchisor's disclosure obligations prescribed by the FTC Franchise Rule.[7]

1. Background.

We recite the facts as stated by the certifying court. The plaintiffs have entered into franchise agreements with the defendant, 7-Eleven, Inc. (7-Eleven), and operate 7-Eleven branded convenience stores in the Commonwealth. Pursuant to these agreements, the plaintiffs "are obligated to operate their convenience stores around the clock, stock

3

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." Patel v. 7-Eleven, Inc., 8 F.4th 26, 28 (1st Cir. 2021). The agreements classify the plaintiffs as independent contractors. Id. The plaintiffs do not receive a "regular salary"; "[i]nstead, each plaintiff may draw pay from [his or her] store's gross profits, after paying various fees required by the franchise agreement to 7-Eleven for the privilege of doing business with it." Id.

The plaintiffs filed a complaint in the Superior Court, alleging that they are, in fact, 7-Eleven employees and have been misclassified as independent contractors in violation of the independent contractor statute, as well as G. L. c. 149, § 148 (wage act), and G. L. c. 151, §§ 1, 7 (minimum wage law). The case was removed to the United States District Court for the District of Massachusetts. On cross motions for summary judgment, a Federal judge allowed summary judgment in favor of 7-Eleven; relying on Monell v. Boston Pads, LLC, 471 Mass. 566 (2015), he concluded that the independent contractor statute does not apply to franchisee-franchisor relationships because there is an "inherent conflict" between the independent contractor statute and the FTC Franchise Rule. Patel v. 7-Eleven, Inc., 485 F.Supp.3d 299, 309 (D. Mass. 2020).

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The plaintiffs appealed. Explaining that "there appears to be a conflict between the [independent contractor statute] and the 'exert[ing] . . . control' prong of the FTC Franchise Rule," the certifying court certified the aforementioned question. Patel, 8 F.4th at 28.

2. Discussion.

We begin with an overview of the two relevant laws -- the independent contractor statute and the FTC Franchise Rule -- to guide our analysis.

a. Independent contractor statute.

The independent contractor statute "establishes a standard to determine whether an individual performing services for another shall be deemed an employee or an independent contractor for purposes of our wage statutes," G. L. c. 149 and G. L. c. 151. Somers v. Converged Access, Inc., 454 Mass. 582, 589 (2009). Proper classification is important to the determination of the protections afforded to an individual under the wage statutes. Classification as an "employee" generally entitles an individual to, inter alia, timely payment of wages earned, and holiday and vacation payments due, G. L. c. 149, § 148; a minimum wage, G. L. c. 151, § 1; overtime pay, G. L. c. 151, § IB; and a private cause of action to enforce these rights, along with the ability to recover the costs of litigation, attorney's fees, and liquidated damages (in the form of treble damages for lost wages and other benefits) for violations of the wage statutes, G. L. c. 149,

5

§ 150, and G. L. c. 151, § IB. Individuals who are not classified as "employees" do not enjoy these statutory protections. Thus, we have recognized that "[a] legislative purpose behind the independent contractor statute is to protect employees from being deprived of the benefits enjoyed by employees through their misclassification as independent contractors." Somers, supra at 592.

Employers who misclassify employees as independent contractors enjoy what might be viewed as a windfall. Misclassification permits an employer to avoid its statutory obligations to its workforce. Misclassification further allows employers to shift certain financial burdens to the Commonwealth and the Federal government.[8] In addition, misclassification "gives an employer ... an unfair competitive advantage over employers who correctly classify their employees and bear the concomitant financial burden."[9] Somers, 454 Mass. at 593. See

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S. Leberstein & C. Ruckelshaus, National Employment Law Project, Independent Contractor vs. Employee: Why Independent Contractor Misclassification Matters and What We Can Do to Stop It, at 1 (May 2016) ("Whether companies treat their workers as employees or independent contractors has profound implications for workers' pay and benefits, for employers, and for public revenues").

The independent contractor statute aims to curb this unwarranted windfall. It evinces the Legislature's broad, remedial intent "to protect workers by classifying them as employees, and thereby grant them the benefits and rights of employment, where the circumstances indicate that they are, in fact, employees." Depianti v. Jan-Pro Franchising Int'l, Inc., 465 Mass. 607, 620 (2013), quoting Taylor v. Eastern Connection Operating, Inc., 465 Mass. 191, 198 (2013) . See Sebago v. Boston Cab Dispatch, Inc., 471 Mass. 321, 327 (2015). To that end, the statute does not cabin "employees" to those individuals under the control and direction of a putative employer, as provided under the common law. See Chambers v. RDA Logistics, Inc., 476 Mass. 95, 104 (2016) ("In enacting the [independent

7

contractor] statute, the Legislature intended to provide greater protection than did the common-law 'right to control' test that previously governed misclassification claims"); Advisory 2008/1, Attorney General's fair labor and business division, at 2 (Advisory 2008/1) (tracking evolution of employee classification tests from common-law control and direction test to independent contractor statute).

Instead, the statute evidences the Legislature's intent to cast a wider net. It sets forth a presumption that "an individual performing any service" for a putative employer "shall be" considered an "employee" for purposes of the wage statutes. G. L. c. 149, § 148B. See Sebago, 471 Mass. at 327. Once the individual has shown the performance of services for the putative employer, the alleged employer may rebut the presumption by establishing each of the following three prongs (known as the "ABC test") by a preponderance of the evidence:

"(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."
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G. L. c. 149, § 148B (a). See Somers, 454 Mass. at 589. If any one of these criteria is not shown, the statute directs that the individual is an employee for purposes of our wage statutes and entitled to the protections set forth therein. See Sebago, supra at 327.

Employers who misclassify their employees do so at their peril. See G. L. c. 149, § 148B (d) (providing criminal and civil remedies for violations of wage statutes); G. L. c. 149, § 27C (authorizing various penalties, including fines, imprisonment, and civil penalties). An individual who successfully shows that he or she has been misclassified "shall be awarded treble damages, as liquidated damages, for any lost wages and other benefits and shall also be awarded the costs of the...

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