Independent Contractor … Reality Or Fantasy?

Rarely does a week go by that I do not hear from a franchisee, “Can they do that? I’m an independent contractor!”

Typically the answer is a resounding yes, they can, despite the legal definition of an “independent contractor” and the language in paragraph 2 of your store agreement, which states, in part: “You agree: a) to hold yourself out to the public as an independent contractor; b) to control the manner and means of the operation of your Store; and c) to exercise complete control over and responsibility for all labor relations and the conduct of your agents and employees.”

Independent Contractor status has been forever defined as a relationship in which the contractor is hired or contracted to perform a task that can be performed in any manner the contractor deems appropriate. The contractor’s obligation is to timely deliver the final product or service without interference by anyone. In our case, the ultimate job is to maximize sales and profits.

So far, so good. But if that is the case, why are you under the heavy thumb of your franchisor, who directs your every step in the management of your business—from what you buy, who you buy from, to what you sell, and how you maintain your store? As every franchisor, SEI has a simple goal: quality and consistency of products and services that most often trump the right of a franchisee to exercise his or her own discretion in the operation of a franchised business, for better or worse.

The courts of every state have consistently upheld a franchisor’s right to promote a uniform method of operating a franchised business because that is the very definition of a franchise.

As stated in paragraph 1 of your store agreement: “You recognize that a uniform presentation of a high quality 7-Eleven image is critical to the customer’s perception of the 7-Eleven System, and that you agree to contribute to that perception by operating your store in compliance with this Agreement and the 7-Eleven System.”

So what’s in it for SEI or any other franchise system that creates, or at least attempts to create, an independent contractor relationship with its franchisees? Undoubtedly, the purpose is to avoid liability for the acts of its franchisees, while at the same time directly or indirectly playing a major role in every aspect of the franchisee’s business.

For SEI, this legal relationship usually works well in a court of law. Generally, if there is a slip and fall in your store or a customer is slugged by one of your clerks, SEI will be named along with the franchisee as a defendant. Invariably, SEI will arrive at the courthouse, armed with what is known by lawyer-types as a motion for summary judgment. This motion asks that the lawsuit be dismissed against SEI because you are an independent contractor and, moreover, SEI has nothing to do with the operation of your business and therefore has no liability to a person injured in your store.

This tactic by SEI generally works well and it is usually released from any liability. But not always. This past June, a customer slipped and fell inside a Queens, New York, 7-Eleven store because Slurpee was allegedly leaking on the floor. There was also a question of a mat placed over a cracked tile, but essentially SEI was sued along with the franchisee for personal injury, prompting SEI to make the motion declaring the franchisee to be an independent contractor and therefore solely responsible for any monetary damages to the customer.

The motion was denied, an unusual decision. In refusing to dismiss the lawsuit against SEI, the court relied upon that part of paragraph 8, which gives SEI the right, at its option, to remove or replace any of the 7-Eleven equipment which it leases to the franchisee, or add new equipment and to replace certain equipment if damaged. The court went on to cite other contract provisions that precludes the franchisee from adding or discontinuing the use of any store equipment without obtaining written consent, and which gives SEI the right to enter the store to conduct inspections.

Based upon the above language, the court refused to let SEI off the hook at that phase of the lawsuit and left the question of SEI’s liability to be determined by a judge or jury. It held:

“Whether 7-Eleven maintained the right to direct and control the manner and degree to which its franchisees could respond to the Slurpee machines oozing discharge, and the use of the mat which covered the broken floor over which the mat was placed are issues which the trier of the fact must resolve.”

How ironic that the very language in the agreement that SEI heavy-handedly uses to threaten material breaches if so much as a small display rack is placed in the store without consent, was used as a kick in its legal derriere in this case.

I call this poetic justice.