Franchisees Proclaim: Enough Is Enough!
On October 12, 2017, a 54 page class-action complaint was filed in the United States District Court for the Central District of California, Western Division, alleging that 7-Eleven, Inc. (SEI) is in violation of the Federal Labor Standards Act and California employment laws in connection with its administration of this convenience store system. The docket number is 2:17-CV-7454. The designated and proposed class representatives are five courageous California franchisees: Serge Haitayan, Jaspreet Dhillon, Manjit Purewal, Robert Elkins, and Maninder “Paul” Lobana. The complaint seeks money damages, restitution and other relief.
The attorneys handling the case on behalf of the franchisees are Marc Culp of Denton, Texas, who is no stranger to the 7-Eleven system, having been involved in the so-called OFFF Litigation, originally instituted in 1993; Timothy Williams and Stephanie Reynolds, of Pope, Berger, Williams and Reynolds, LLP in San Diego, California, who specialize in class action litigation in the employment arena; and Mandeep “Bobby” Rupal, an employment lawyer based in Chino Hills, California who presented an excellent seminar on employment law at the National Coalition convention this past July.
The central basis of the complaint is that while SEI promises to franchisees and represents to them that they are and will be independent contractors, they are in fact treated as employees. Over time, SEI has been gradually chipping away at the profits of franchisees, increasing their costs, exercising more and more control over what is supposed to be an independently operated convenience store, where franchisees control the manner and the means of the operation of the location.
In a press release issued by the National Coalition, the following aspects of control by SEI were cited:
- Taking away the opportunity of franchisees to possess and/or control monies generated from franchised stores;
- Directing franchisees to sell any good or service for less than the cost of acquiring and selling the same;
- Requiring franchisees to use equipment 7-Eleven specifies to operate franchise stores;
- Imposing a regressive royalty structure that penalizes franchisees for increasing sales; and
- Transferring responsibility for paying credit card processing fees directly to franchisees.
The complaint describes in great detail and at great length the many facets of control that SEI exercises over the day-to-day operation of franchised stores. The complaint alleges that SEI has been given the powers of an employer and all of the harshest, most overreaching rights of a commercial lender, landlord and personal property lessor. Emblematic of that control is SEI’s dominion over every dollar received into or paid out of the proceeds generated from every franchised store.
The complaint divides the various elements of the pervasive control exercised by SEI into Financial Controls, Work Controls, and Operational Controls.
- Financial Controls include those over fees and charges, money, accounting matters and SEI’s role as a discretionary secured lender.
- Work Controls include those over work without pay prior to purchasing the franchise, hours of operation, and the amount paid to the franchisees for their work.
- Operational Controls include those over products and services sold, sources used to acquire products and services sold, how products and services are sold, advertising, use of store premises, food service standards, information and ideas generated from store operations, maintenance of store premises and equipment, general business operations, management of store employees, and oversight to insure compliance.
The complaint further alleges that SEI franchisees meet the six factor economic realities test for determining an employment relationship. These include (a) the degree of the alleged employer’s right to control the manner in which the work is to be performed, (b) the alleged employee’s opportunity for profit or loss depending upon his or her managerial skill, (c) the alleged employee’s investment in equipment or materials required for his or her task, or his or her employment of helpers, (d) whether the service rendered requires a special skill, (e) the degree of permanence of the working relationship, and (f) whether the service rendered is an integral part of the alleged employer’s business. The complaint alleges in 18 separate paragraphs why SEI franchisees meet the economic realities test for determining an employment relationship.
The complaint also alleges that the franchisees have been misclassified as independent contractors under California Law and that SEI has violated California Law with respect to overtime for four of the named franchisee plaintiffs.
The complaint seeks a jury trial.
The claims made under the complaint include:
- Failure to pay overtime compensation in violation of the Federal Fair Labor Standards Act
- Failure to pay overtime compensation in violation of California law
- Failure to indemnify for expenses and losses in violation of California law
- Failure to provide and maintain uniforms and equipment in violation of California law
- Unfair business practices in violation of the California Business and Professions Code
- Unlawful business practices in violation of the California Business and Professions Code
In explaining why this lawsuit had to be filed, Jay Singh, Executive Vice Chairman of the National Coalition stated in the press release: “We need to hold 7-Eleven accountable. We love this brand and are saddened by the way they have been treating the people who are the very heart and soul of the company”.
The plaintiffs in the case have also offered to engage in mediation with SEI to see whether or not the differences of the parties can be resolved without engaging in protracted litigation. As of the time that this issue of Avanti went to press, no response had been received.
As your General Counsel it has been and will continue to be my responsibility to assist the litigants and their lawyers, and to keep the franchisees who are the members of the FOAs that form the National Coalition fully and timely informed of all developments in the case.