7-Eleven Fails To Rally Franchisees Against AB-5

By Jaspreet Dhillon, NCASEF Treasurer, President, FOA of Greater Los Angeles

Earlier this year, in Avanti’s March/ April 2020 issue, I talked about the status of California Bill AB-5, titled “Worker Status: Employees and Independent Contractors.” It is an incredibly important bill for 7-Eleven franchisees, because it directly affects the impending franchisee misclassification lawsuit filed by four franchisees against 7-Eleven, Inc. in 2017. California lawmakers passed the bill by overwhelming majorities in both houses in September 2019, and the Governor signed it into law the same month.

AB-5 uses the ABC test to determine if a worker is an employee or an independent contractor in the state of California. Under the ABC test, a worker is presumed to be an employee unless the hiring entity can prove that the worker:

A. Is free from the control and direction of the company in performing work, both practically and in the contractual agreement between the parties; and

B. Performs work that is outside the usual course of the company’s business; and

C. Is customarily engaged in an independently established trade occupation or business of the same nature as the work performed for the company.

Because AB-5 is such a far-ranging bill that affects so many freelance, gig, marketplace and peer-to-peer businesses, many employers have to make the determination about whether to classify a worker as a contractor or an employee, and to accept the consequences or the potential liability for making the wrong decision.

Exemptions to AB-5 are numerous, for many reasons. Specific identified occupations such as an insurance agent, lawyer, private investigator, accountant, direct salesperson, commercial fisherman and similar occupations are exempt, as are certain professional service providers, like specialists in marketing, HR, graphic design, photographers, barbers, cosmetologists, etc. Real estate licensees, people in business-to-business relationships, contractors and subcontractors in construction, referral agencies and service providers, and motor club services are exempt also. Unlike contractors, workers who are deemed employees are entitled to minimum wage and benefits including overtime, sick leave and expense reimbursement.

For the last several months, SEI has made repeated attempts to persuade franchisees to come out in support of adding franchising to the exemption list. AB-5 is the major amendment to the Labor Code that is going to affect our case, and 7-Eleven wants to head off any changes to their current system by working with anyone who will listen to add franchising to the list of exempt workers.

If franchising is added to the list of exemptions, SEI can keep doing what they are doing with franchisees, including making every contract more and more restrictive, and controlling every aspect of the day-to-day operation of the stores—our employees, our open account, our ordering, heck, even the thermostats in our stores. In short, they could continue treating us as glorified managers with no repercussions.

Without the exemption, we are fighting in court to get a ruling that SEI has broken the law of the state by misclassifying all of the California franchisees as independent contractors. If we win this case, SEI will be responsible for damages and fines.

As of this moment, the California legislature is out of session and will come back in January. AB-5 is now the law in the state of California. The Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles is in place. SEI tried to get franchising added to the list of exemptions using franchisee support and failed.

One baseless tactic that SEI used to apply leverage to franchisees is the threat of stopping franchising 7-Eleven stores in California. I say threat because SEI made the announcement, yet they are still selling franchised stores in the state. They are not selling corporate stores or BCPs, a punitive move against franchisees, yet they are selling franchised stores that carry a goodwill investment. In any case, it was a good threat to scare franchisees and grab media attention. They even created a new division to run California corporate stores. Could you imagine SEI being stuck running hundreds of Marathon stores in California? If they could be that successful without OPM (other people’s money), wouldn’t the entire system be corporate? Instead of spending money on lobbyists trying to get franchisees to support a change to the law, they need to change their relationship with us, and their agreement, if we are to be true independent contractors.

The court date to start the “trial” on our misclassification case is March 22, 2021. The attorney of record has filed for class action certification, and mediation has to be completed by December 28, 2020. We are hoping for a win in the case that could result in money paid back to all franchisees and a reworking of our relationship with SEI that is more fair to the franchisees.