Patel et al v. 7-ELEVEN, INC. et al
Judge Nathaniel M. Gorton: ORDER entered. MEMORANDUM AND ORDER: For the foregoing reasons, the motion of defendant 7-Eleven, Inc. for summary judgment (Docket No. 112 ) is ALLOWED. The motions of plaintiffs for summary judgment and class cer tification (Docket Nos. 117 , 118 ) are DENIED.The parties are directed to submit a joint status report on defendant's pending counter-claims against plaintiffs and third-party defendants on or before Thursday, September 24, 2020.So ordered. (Vieira, Leonardo)
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 1 of 25
United States District Court
District of Massachusetts
Dhananjay Patel, et al.,
7-Eleven, Inc., et al.,
Civil Action No.
MEMORANDUM & ORDER
This is a putative class action brought by Dhananjay Patel,
Safdar Hussain, Vatsal Chokshi, Dhaval Patel and Niral Patel
(collectively “plaintiffs”) on behalf of themselves and a
putative class of similarly situated individuals who operate
franchise stores of 7-Eleven, Inc. (“7-Eleven” or “defendant”)
in the Commonwealth of Massachusetts.
Plaintiffs allege that 7-Eleven (1) misclassifies its
franchisees as independent contractors instead of employees in
violation of the Massachusetts Independent Contractor Law, Mass.
Gen. L. c. 149, § 148B (Count I), (2) has violated the
Massachusetts Wage Act, Mass. Gen. L. c. 149, § 148 (Count II)
and (3) has violated the Massachusetts Minimum Wage Law, Mass.
Gen. L. c. 151, §§ 1, 7 (Count III). Plaintiffs initially made
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 2 of 25
similar claims against two 7-Eleven market managers, Mary
Cadigan and Andrew Brothers (“the individual defendants”) but
this Court dismissed those claims on July 20, 2018.
7-Eleven has counterclaimed, (1) seeking declaratory
judgment that the various franchise agreements are void
(Counterclaim I); (2) for breach of contract (Counterclaim II);
and (3) for contractual indemnity (Counterclaim III).
also filed a third-party complaint on the same grounds against
DPNEWTO1, Inc., DP Tremont Street, Inc., DP Milk Street, Inc.
and DP Jersey, Inc. (collectively, “third-party corporate
defendants”), each of which is a corporation through which a
named plaintiff contracted with 7-Eleven.
Pending before the Court are the parties’ cross motions for
summary judgment and plaintiffs’ motion for class certification.
7-Eleven is a Texas corporation with its principal place of
business in Texas.
For more than 50 years, 7-Eleven has sold
convenience store franchises.
In addition to its franchises, 7-
Eleven operates corporate stores, which are managed and staffed
by acknowledged 7-Eleven employees (“company operated 7Elevens”).
As of 2018, there were approximately 1,700 company
operated 7-Elevens and 7,200 franchisee-operated 7-Elevens in
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 3 of 25
the United States.
Approximately 160 of those franchisee-
operated 7-Elevens are in Massachusetts.
The named plaintiffs are residents of Massachusetts who
acquired 7-Eleven franchises and work as store managers and
clerks in Massachusetts.
Dharmesh and Dhaval Patel entered into
a franchise agreement for a 7-Eleven store located on Tremont
Street in Boston, Massachusetts in December, 2010.
St, Inc., of which Dhaval Patel is the president, is listed as
the franchisee of the Tremont Street 7-Eleven.
Dharmesh and Niral Patel entered into a franchise agreement
in December, 2010, for a 7-Eleven store located on Milk Street
DP Milk Street, Inc., of which Niral Patel is the
president, is the franchisee for the Milk Street 7-Eleven.
In December, 2012, DPNEWTO1, Inc. entered into a franchise
agreement with 7-Eleven, signed by Vatsal Chokshi.
entered into another franchise agreement with 7-Eleven on behalf
of DP Jersey, Inc. in March, 2011.
In May, 2007, Dhananjay Patel entered into a franchise
agreement with 7-Eleven and in December, 2016, Sadar Hussain
renewed a prior franchise agreement with 7-Eleven.
The Franchise Agreements
Each plaintiff, either on behalf of himself/herself or
through a third-party corporate defendant, signed a franchise
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agreement with 7-Eleven that contains substantially similar
terms (“the Franchise Agreement”).
The Statement of Intent in each agreement explains that
“[f]ranchising is a method of distributing goods or services in
a consistent manner” and that the franchisee acknowledges the
importance of a uniform and high-quality presentation of the 7Eleven brand.
It further provides that 7-Eleven agrees to
assist [the franchisee] by providing a recognized
brand, merchandising advice and operational systems
. . . . [and to] contribute the value of the 7-Eleven
[trademark] and brand. . .
Section 2 of the Franchise Agreement provides that the
franchisee agrees “to hold [himself/herself] out to the public
as an independent contractor” as well as to exercise “complete
control” over the day-to-day operations of the store and all
In Section 4 of the Franchise Agreement, the franchisee
agrees to participate in various initial and ongoing training
programs and to train his or her store employees.
each testified that they do, in fact, train their store
Pursuant to Section 5, the franchisee agrees that he/she is
the sole owner of the store and will keep 7-Eleven’s proprietary
Section 5 also contains a
noncompetition clause that restricts franchisees from operating
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 5 of 25
competitive businesses within a 1/2 mile of a 7-Eleven during
the term of the Franchise Agreement.
testified that they have operated competitive businesses in
compliance with the noncompetition clause during the term of the
Section 7 outlines the license granted by 7-Eleven to the
franchisee (“the 7-Eleven License”).
grants “the right and license” and the franchisee agrees to
accept the “right and obligation” to operate a 7-Eleven store
using 7-Eleven’s intellectual property, trade secrets and
Section 10(a) explains the “7-Eleven Charge”, a fee 7Eleven collects in exchange for providing the 7-Eleven License.
7-Eleven Charge. You agree to pay us the 7-Eleven
Charge for the License, the Lease and our continuing
services. The 7-Eleven Charge is due and payable each
Collection Period with respect to the Receipts from
the Collection Period at the time the deposit of those
Receipts is due. . . . You may not withhold Receipts
or prevent payment of the 7-Eleven Charge to us on the
grounds of the alleged non-performance or breach of
any of our obligations to provide services to you or
any other obligations to you under this Agreement or
any related agreement.
Section 15 governs merchandising and inventory in 7-Eleven
7-Eleven requires that franchisees purchase a certain
percentage of recommended inventory from recommended vendors.
That inventory is subject to product packaging and display
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7-Eleven provides floor layouts (“planograms”)
that recommend, but do not require, that inventory be placed in
certain areas throughout the store.
Recommended inventory may,
however, be removed or altered with 7-Eleven’s consent, which
may not be unreasonably withheld.
Section 19 of the Franchise Agreement identifies various
additional covenants, including the franchisee’s obligation to
(1) maintain ethical standards; (2) work full time in the store
and supervise day-to-day operations; (3) operate the store 24hours a day unless prohibited by law or otherwise agreed to in
writing; (4) properly record all sales; (5) wear and cause
employees to wear apparel approved by 7-Eleven while working;
and (6) use the 7-Eleven payroll system.
Franchisees must pay all sales, inventory, payroll,
occupancy, business and income taxes related to their store
pursuant to Section 21.
Employees’ wages are to be paid from
the franchisees’ share of the revenue.
determine how many employees to hire, how much to pay them and
whether to pay them a salary or an hourly wage.
7-Eleven collects an “advertising fee” from franchisees and
arranges for advertisements in local, regional or national ad
campaigns pursuant to Section 22(a).
Franchisees may also, with
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the written consent of 7-Eleven, engage in local advertising if
such advertising “accurately portrays” 7-Eleven.
According to the Security System and Monitoring Amendment
to the Franchise Agreement, as described in the parties’
statements of fact, 7-Eleven installs 24/7 video surveillance in
7-Eleven stores for training purposes, investigation of
potential criminal conduct, fraud and personal injury.
7-Eleven does not pay franchisees a salary.
franchisees may withdraw weekly or monthly “draws” from the
store’s gross profit minus the 7-Eleven Charge and store
Franchisees are, however, required to ensure that
their stores maintain a minimum net worth.
Plaintiffs filed their statutory claims with the Office of
the Attorney General and received a right to sue letter, as
required by Mass. Gen. L. c. 149, § 50.
Thereafter they filed
this action in Massachusetts Superior Court for Middlesex County
and defendant promptly removed the case to this Court on
7-Eleven and the two other named defendants moved to
Plaintiffs opposed that motion and moved to remand the
case and to enjoin defendants from obtaining releases from
putative class members.
In July, 2018, this Court denied
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plaintiffs’ motion to remand, plaintiffs’ emergency motion for
injunctive relief and 7-Eleven’s motion to dismiss.
allowed the motion to dismiss of the two individual defendants.
Plaintiffs then moved to dismiss 7-Eleven’s counterclaims
and third-party complaint which the Court denied.
In March, 2020, both parties timely filed cross motions for
summary judgment and plaintiffs filed their motion for class
The deadline for all remaining discovery is
November 30, 2020, and trial is scheduled to commence in
7-Eleven’s Motion for Summary Judgment
The role of summary judgment is “to pierce the pleadings
and to assess the proof in order to see whether there is a
genuine need for trial.” Mesnick v. Gen. Elec. Co., 950 F.2d
816, 822 (1st Cir. 1991) (quoting Garside v. Osco Drug, Inc.,
895 F.2d 46, 50 (1st Cir. 1990)).
The burden is on the moving
party to show, through the pleadings, discovery and affidavits,
“that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a).
A fact is material if it “might affect the outcome of the
suit under the governing law . . . .” Anderson v. Liberty Lobby,
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 9 of 25
Inc., 477 U.S. 242, 248 (1986).
A genuine issue of material
fact exists where the evidence with respect to the material fact
in dispute “is such that a reasonable jury could return a
verdict for the nonmoving party.” Id.
If the moving party satisfies its burden, the burden shifts
to the non-moving party to set forth specific facts showing that
there is a genuine, triable issue. Celotex Corp. v. Catrett, 477
U.S. 317, 324 (1986).
The Court must view the entire record in
the light most favorable to the non-moving party and make all
reasonable inferences in that party's favor. O'Connor v.
Steeves, 994 F.2d 905, 907 (1st Cir. 1993).
Summary judgment is
appropriate if, after viewing the record in the non-moving
party's favor, the Court determines that no genuine issue of
material fact exists and that the moving party is entitled to
judgment as a matter of law. Celotex Corp., 477 U.S. at 322-23.
The Massachusetts Independent Contractor Law
(“the Massachusetts ICL”)
In Massachusetts, “an individual performing any service”
for another is presumed to be an employee. Mass. Gen. L. c. 149,
The purported employer may rebut that presumption by
establishing the three conjunctive elements of an independent
(1) the individual is free from control and direction
in connection with the performance of the service,
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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.
Id. at § 148B(a)(1)-(3) (“the ABC Test”).
Failure to satisfy
any prong of the ABC Test results in classification of the
individual as an employee. Sebago v. Bos. Cab Dispatch, Inc., 28
N.E.3d 1139, 1146 (Mass. 2015).
When the underlying facts are
undisputed, whether the defendant has carried its burden to
satisfy all three prongs is a question of law. See Athol Daily
News v. Bd. of Review of the Div. of Emp’t Training, 786 N.E.2d
365, 370 (Mass. 2003).
In interpreting the Massachusetts ICL, this Court finds
instructive an advisory document from the Attorney General’s
Fair Labor Division on M.G.L. c. 149, §148B, 2008/1,
https://www.mass.gov/doc/attorney-generals-advisory-on-theindependent-contractor-law/download (“AG Advisory”).
Massachusetts Supreme Judicial Court has recognized that the
Attorney General’s office is
charged with enforcing the wage and hour laws [and]
its interpretation of the protections provided
thereunder is entitled to substantial deference.
Sebago, 28 N.E.3d at 1149.
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 11 of 25
Arguments of the Parties
7-Eleven contends that the Massachusetts ICL is
inapplicable because (1) 7-Eleven provides services to its
franchisees, not the other way around, and (2) compliance with
another state law makes it impossible for 7-Eleven to satisfy
the first element of the Massachusetts ICL.
Plaintiffs respond that (1) the Massachusetts ICL applies
because plaintiffs provide services that are integral to 7Eleven’s business model, (2) the Massachusetts ICL is not
preempted by federal regulations and (3) plaintiffs are entitled
to a presumption that they are employees which 7-Eleven has
failed to rebut.
Plaintiffs’ Objections to 7-Eleven’s Expert
As a preliminary matter, plaintiffs object to 7-Eleven’s
reliance upon the affidavit of 7-Eleven’s proffered expert
witness Francine Lafontaine (“Lafontaine”).
complain that Lafontaine’s testimony was not disclosed in
violation of Fed. R. Civ. P. 26.
7-Eleven responds that Fed. R.
Civ. P. 26 requires only that experts be disclosed 90 days
before trial, which is currently scheduled to commence in
Defendant further contends that it disclosed to
plaintiffs its intent to rely on expert testimony and suggested
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setting dates for expert discovery but plaintiffs rejected
expert testimony and discovery as unnecessary.
The Joint Submission of the parties filed on October 16,
2019, supports defendant’s position.
With respect to expert
discovery, the Joint Submission provides:
Defendant intends to use expert affidavits to support
their positions on summary judgment (or oppose
plaintiffs’ position) and to oppose class
certification. Plaintiffs do not believe an expert is
appropriate in this case, except perhaps on damages,
and intend to object to 7-Eleven’s use of an expert at
the merits stage of the case. Defendant proposed a
case schedule that included time for the parties to
conduct expert discovery. Plaintiffs rejected that
schedule as unnecessary. Accordingly, Defendant
intends to object to any future request by Plaintiff
for expert discovery, or to use expert testimony, as
waived. Defendant reserves its right to take expert
discovery should Plaintiffs be granted leave to submit
Defendant notified plaintiffs approximately six months
prior to filing its motion for summary judgment of its intent to
rely on expert testimony.
Despite that admonition, plaintiffs
insisted that there was no need to set a deadline for expert
The current scheduling order provides that “all
remaining discovery” shall be completed by November 30, 2020.
Neither that date, nor the default deadline of 90 days prior to
trial, has expired.
Even if defendant should have disclosed its expert prior to
filing its motion for summary judgment, its failure to do so was
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substantially justified given plaintiffs’ insistence that
disclosure deadlines were unnecessary. See Fed. R. Civ. P. 37
(“If a party fails to provide . . . a witness as required by
Rule 26(a) or (e), the party is not allowed to use that
. . . witness to supply evidence on a motion, at a hearing, or
at a trial, unless the failure was substantially justified or is
Such a failure is also harmless because, as
explained below, the Court will enter summary judgment in
defendants favor on a legal issue that does not benefit from the
proffered expert testimony.
Accordingly, plaintiffs’ objection
to defendant’s failure to disclose its expert is overruled.
Plaintiffs separately object to the relevance of
defendant’s proffered expert testimony.
Relying on Scantland v.
Jeffry Knight, Inc., 721 F.3d 1308, 1316 (11th Cir. 2013), they
contend that the question before the Court relates to the nature
and degree of the control defendant exercises over plaintiffs,
not why such control was exercised or whether such control is
necessary to the nature of the business.
objection is overruled.
In this district, the context of the
business, particularly where, as here, the business is heavily
regulated, is relevant. See Ruggiero v. Am. United Life Ins.
Co., 137 F. Supp. 3d 104, 114 (D. Mass. 2015).
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 14 of 25
Whether Plaintiffs Provide “Services” to 7-Eleven
The threshold inquiry under the Massachusetts ICL is
whether an individual provides “any services” to the purported
employer. Mass. Gen. L. c. 149, § 148B(a).
construed liberally to effectuate the remedial purpose of the
statute in “protect[ing] employees from being deprived of the
benefits enjoyed by employees through their misclassification.”
Somers v. Converged Access, Inc., 911 N.E.2d 739, 749 (Mass.
Whether a worker provides services to a purported
employer is, ordinarily, a question of fact on which plaintiff
bears the burden of proof. Nat’l Ass’n of Gov’t Emps. v. Lab.
Rel. Commission, 796 N.E.2d 856, 858 (Mass. App. Ct. 2003).
When the underlying facts are undisputed, however, the Court may
enter summary judgment. Id.
Relying primarily on the report of its expert Lafontaine,
7-Eleven contends that it subscribes to the “business-format
franchise” model whereby it, the franchisor, provides services
to the franchisee.
7-Eleven emphasizes the language of the
Franchise Agreement which requires each franchisee to pay the 7Eleven Charge in exchange for a license to use 7-Eleven’s marks,
operating system, property and other “continuing services.”
Defendant summarizes the testimony of Lafontaine as asserting
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that the 7-Eleven franchise model conforms to that of a standard
Plaintiffs respond that the services inquiry is a low
threshold requiring only that an individual perform “any”
Plaintiffs point to, among other things, their
“obligation” to operate 7-Eleven convenience stores, work full
time in those stores, prepare and submit cash reports, deposit
receipts, pay taxes and maintain a reasonable and representative
quantity of recommended inventory.
Given the nature of 7-Eleven’s business-format franchise,
the competing allegations, the various contractual obligations
of both parties and the language of the Franchise Agreement,
genuine issues of material fact remain such that it is
inappropriate to enter summary judgment on the threshold
services question at this juncture.
The Court therefore
proceeds to defendant’s alternative argument as to why the
Massachusetts ICL does not apply on these facts.
Whether the Massachusetts ICL is Inapplicable
Assuming arguendo that plaintiffs provide services to 7Eleven, 7-Eleven contends that, because federal regulation makes
it impossible to satisfy the first prong of the ABC Test (“Prong
1”), the test does not apply.
Prong 1 requires 7-Eleven to
demonstrate that the plaintiffs are “free from control and
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direction in connection with the performance of the service.”
Mass. Gen. L. c. 149, § 148B(a)(1).
The inquiry is primarily
concerned with the actual relationship of the parties, although
contractual provisions governing the relationship are
instructive. AG Advisory, at 3; see also Ruggiero, 137 F. Supp.
3d at 113.
To meet its burden under Prong 1, a purported
employer must demonstrate that the worker is free from
supervision “as to the result to be accomplished” and as to the
“means and methods . . . utilized in the performance of the
work.” Athol Daily News, 786 N.E.2d at 371.
Prong 1 is not,
however, so narrow as to require that an individual be “entirely
free from direction and control from outside forces.” Id.
Plaintiffs offer a litany of examples of the control 7Eleven exercises over them both in reality and as provided for
in the Franchise Agreement.
For example, they submit that 7-
Eleven corporate market managers communicate with franchisees on
a daily basis and inspect their stores.
Franchisees are subject
to termination if they fail to meet 7-Eleven’s “exacting”
standards regarding cleanliness, inventory and hours of
Plaintiffs also note that 7-Eleven requires
franchisees to wear uniforms while working; utilize 7-Eleven
payroll systems; list 7-Eleven on certain business licenses; and
hold themselves out to the public as independent contractors.
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7-Eleven responds with counter-examples of the control
franchisees exercise over their own stores.
pursuant to Section 2 of the Franchise Agreement, plaintiffs
exercise “complete control” over the operation of the store and
all store employees.
Plaintiffs are responsible for hiring,
training and managing all store employees as well as determining
employee salaries and whether to pay salary or hourly wages.
Franchisees also pay all sales, inventory, payroll, occupancy,
business and income taxes related to their store.
7-Eleven nevertheless concedes that it does exercise some
level of control over its franchisees but argues that it is
bound to do so by federal regulation.
The Federal Trade
Commission (“FTC”) possesses the authority to promulgate
regulations prohibiting unfair or deceptive trade practices.
15 U.S.C. § 57a(a).
Pursuant to that authority, the FTC
promulgated a series of regulations collectively called the “FTC
Franchise Rule,” 16 C.F.R. § 436.1 et seq., with the intent
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. Re. 15,444, 15,445 (March 30, 2007). The FTC Franchise
Rule defines a franchise as
any continuing commercial relationship or arrangement,
whatever it may be called, in which the terms of the
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offer or contract specify, or the franchise seller
promises or represents, orally or in writing, that:
(1) The franchisee will obtain the right to operate a
business that is identified or associated with the
franchisor's trademark, or to offer, sell, or
distribute goods, services, or commodities that are
identified or associated with the franchisor's
(2) The 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
(3) As a condition of obtaining or commencing
operation of the franchise, the franchisee makes a
required payment or commits to make a required payment
to the franchisor or its affiliate.
16 C.F.R. § 436.1(h) (emphasis added).
After amending the FTC Franchise Rule in 2008, the FTC
published the FTC’s Franchise Rule Guide,
https://www.ftc.gov/system/files/documents/plain-language/bus70franchise-rule-compliance-guide.pdf, (“the Guide”) to assist
franchisors in complying with the amended FTC Franchise Rule.
The Guide provides that a business relationship “will not be
covered [by the FTC Franchise Rule] unless it meets the three
definitional elements [of a franchise].” The Guide, at 1.
The bolded language is in direct conflict with Prong 1 of
the Massachusetts ICL.
Where the FTC Franchise Rule defines a
franchisor as one who exerts a “significant degree of control
over the franchisee’s method of operation,” the Massachusetts
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ICL requires an individual to be classified as an employee
unless that individual is “free from control and direction in
connection with the performance of the service.”
The Massachusetts Supreme Judicial Court (“the SJC”)
addressed a similar tension in Monell v. Boston Pads, LLC, 31
N.E.3d 60 (Mass. 2015). In Monell, the SJC considered whether a
Massachusetts real estate statute could be squared with the
Massachusetts ICL. Id. at 67.
The real estate statute required
brokers to maintain a certain level of control and supervision
over sales agents. Id.
The mandated level of supervision and
control over agents made it “impossible” for brokers to satisfy
Prong 1 of the Massachusetts ICL. Id.
The SJC concluded that,
although there was no exception in the Massachusetts ICL for
real estate brokers, the inherent conflict rendered the
Massachusetts ICL inapplicable. Id. at 69-70.
It took no
position on whether some other framework might nonetheless
Monell suggests that
where a relationship as defined by regulation
expressly precludes the satisfaction of a prong of the
independent contractor statute, the independent
contractor statute will not govern.
Ruggiero, 137 F. Supp. 3d at 114.
7-Eleven contends that the
FTC Franchise Rule plainly requires a degree of control that
runs afoul of the Massachusetts ICL.
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 20 of 25
Plaintiffs’ first retort is that “courts in Massachusetts
and around the country have routinely applied [the ABC Test] to
As defendant aptly notes, however, each of the
cases relied upon by plaintiffs either predate Monell or apply
foreign law not subject to Monell.
Plaintiffs second rebuttal
is that 7-Eleven’s failure to address the second and third
prongs of the conjunctive ABC Test is fatal.
misapplies Monell which stands for the proposition that the
Massachusetts ICL is inapplicable if a competing statutory
scheme precludes satisfaction of any one prong. Monell, 31
N.E.3d at 69-70; see also Ruggiero, 137 F. Supp. 3d at 115.
Plaintiffs next contend that 7-Eleven’s argument rests on a
flawed interpretation of Prong 1 as requiring an individual to
be entirely free from control to qualify as an independent
Plaintiffs are correct that the “control” prong is
not to be interpreted so narrowly as to forbid any level of
control but allows for some direction and control. See Athol
Daily News, 786 N.E.2d at 370-71.
The FTC Franchise Rule,
however, requires more than just “some” control.
It requires a
franchisor to exercise “significant” control or else risk not
being in compliance with the FTC Franchise Rule. 16 C.F.R.
§ 436.1(h); see also The Guide, at 1.
In doing so, the rule
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 21 of 25
established a regulated classification status unique from that
of an employee or independent contractor.
The Guide describes the kinds of business arrangements and
relationships governed by the FTC Rule, by defining the level of
control or assistance a worker must be provided.
To be deemed
“significant” the control or assistance offered by the
franchisor must “relate to the franchisee’s overall method of
operation.” The Guide, at 2.
site approval for unestablished businesses;
site design or appearance requirements;
hours of operation;
promotional campaigns requiring franchisee
participation or financial contribution;
restrictions on customers; and
locale or area of operation.
The Guide, at 3.
Significant control includes:
Significant forms of assistance include,
formal sales, repair, or business training programs;
establishing accounting systems;
furnishing management, marketing, or personnel advice;
selecting site locations;
furnishing systemwide networks and website; and
furnishing a detailed operating manual.
The Guide, at 3.
The FTC Franchise Rule also provides that to qualify as a
franchise, a franchisee must
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 22 of 25
obtain the right to operate a business that is
identified or associated with the franchisor's
trademark, or to offer, sell, or distribute goods,
services, or commodities that are identified or
associated with the franchisor's trademark.
16 C.F.R. § 436.1(h)(1).
Federal trademark law, in turn,
mandates that a trademark licensee must maintain control over
the use of its trademark or risk constructive abandonment. See
15 U.S.C. § 1127.
Revealing the inherent conflict between the FTC Franchise
Rule and the Massachusetts ICL, the list of control and
assistance identifiers in the Guide is nearly identical to the
litany of control measures that plaintiffs proffer in support of
their mis-classification argument.
Although the FTC Franchise
Rule does not compel an individual to exercise the control
measures listed in the Guide or grant a license to utilize its
trademark, it defines the relationship resulting from those
measures as a franchise.
It cannot be the case, as plaintiffs suggest, that, in
qualifying as a franchisee pursuant to the FTC’s definition, an
individual necessarily becomes an employee.
In effect, such a
ruling by this Court would eviscerate the franchise business
model, rendering those who are regulated by the FTC Franchise
Rule criminally liable for failing to classify their franchisees
as employees. See Monell, 31 N.E.3d at 69 (citing Mass. Gen. L.
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 23 of 25
c. 149, § 148B(d) (mis-classification of employees subject
employer to criminal penalties)).
Not only is such a conclusion
unsupported by Massachusetts law but it also implicates a
legislative decision beyond the purview of this Court.
Where there is a conflict between the Massachusetts ICL and
a regulatory scheme, the specific trumps the general. Monell, 31
N.E.3d at 69 (“The judge’s reliance on the familiar canon of
construction providing that a specific statute . . . controls
over the provisions of a general statute, such as the
independent contract statute, however, is appropriate here.”).
The franchise-specific regulatory regime of the FTC governs over
the general independent contractor test in Massachusetts. See
Monell, 31 N.E.3d at 69.
Accordingly, the Massachusetts ICL
does not apply to 7-Eleven in these circumstances.
The SJC recognized in Monell, that its holding was limited
insofar as it determined that the plaintiffs could not recover
under the Massachusetts ICL but took no position as to whether
they were, in fact, employees pursuant to some other
unidentified common law or statutory test. Monell, 31 N.E.3d at
The SJC acknowledged as much because the real estate
statute, although in conflict with the Massachusetts ICL,
nonetheless contemplates a real estate salesperson as being
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 24 of 25
“either . . . an employee or . . . an independent contractor” of
a broker. Mass. Gen. L. c. 112, § 87RR.
The FTC Franchise Rule does not contain such explicit
It does, however, leave open the possibility that a
franchisee may be subject to several classifications. 16 C.F.R.
§ 436.1(h) (“[A]ny continuing commercial relationship or
arrangement, whatever it may be called . . .” (emphasis
The Court need not resolve such ambiguity on these
facts, however, because plaintiffs seek employee classification
based only on the Massachusetts ICL.
Despite the suggestive
language in both Monell and the FTC Franchise Rule, plaintiffs
proffer no alternative test for classification status or even
suggest an alternative exists.
Consequently, summary judgment
in favor of defendant is appropriate on all counts.
Having so concluded, plaintiffs’ motions for summary
judgment on 7-Eleven’s liability for mis-classification and
class certification will be denied.
and third-party claims for (1) declaratory judgment that the
various franchise agreements are void; (2) breach of contract;
and (3) contractual indemnity are not the subject of any summary
judgment motion and, therefore, remain pending.
Case 1:17-cv-11414-NMG Document 169 Filed 09/10/20 Page 25 of 25
For the foregoing reasons, the motion of defendant 7Eleven, Inc. for summary judgment (Docket No. 112) is ALLOWED.
The motions of plaintiffs for summary judgment and class
certification (Docket Nos. 117, 118) are DENIED.
The parties are directed to submit a joint status report on
defendant’s pending counter-claims against plaintiffs and thirdparty defendants on or before Thursday, September 24, 2020.
/s/ Nathaniel M. Gorton ___
Nathaniel M. Gorton
United States District Judge
Dated September 10, 2020
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