7-Eleven sued by franchisees

The seemingly unending stream of litigation surrounding the franchise giant 7-Eleven has yet again taken on a new dimension. The 7-Eleven franchisee union is suing the parent company alleging the franchisor is violating the franchise agreement by exercising excessive and unnecessary control over the minutest details of operating the business that franchisees are reduced to the status of mere employees. Many of the day to day operations of the franchisee are now monitored and regulated in the aftermath of the wage fraud scandal that is sweeping through the convenience store franchise industry. Franchisees around the world have been accused of paying employees below minimum wages or have required employees to kick back cash payments to the owner/franchisee. Government regulators have threatened to redefine the legal relationship that a franchisor has with their franchisees and force more responsibilities and regulations on the corporate home offices. Large franchisors, like 7-Eleven, have met with regulators and have agreed to terms to hold off on stifling regulations while the companies try to work out their problems internally.

Rather than subject the industry to excessive regulations, franchisors have come to an agreement with government regulators to “self-police” franchisee owners to make sure the wage fraud abuses come to an end. Franchisees have been forced to install camera systems and other invasive controls over their hiring, management, and employee payroll systems so that they can be monitored by the home office. The controls have become so invasive that 7-Eleven franchisee associates have banded together and filed a class-action lawsuit against their parent company, charging the company with violating the franchise agreement that promised the franchisee independent contractor status. The New Jersey lawsuit accuses the franchisor of fraudulent business practices and the misclassification of employees as independent contractors.

The lawsuit lists many areas of a franchisees daily activities that the 7-Eleven home office controls such as regulating vendor supplies, requiring that employees wear “logo-branded” uniforms and obeying company-generated advertising and promotional campaigns. Many of these items fall within normal franchise agreement requirements. What is unusual, and the cause for franchisee concern, is that the franchisee is no longer able to withdraw money from his/her company without corporate approval, franchisee payroll is no longer processed locally and is now done through the company’s internal payroll system, and all bookkeeping and accounting is done by the corporate home office. The lawsuit alleges that the changes that address the employee wage fraud scandal were not originally contained within the franchise agreement made at arm’s length between the franchise and franchisors and reduce the franchisee to employee status.

Another area that the lawsuit addresses is that even though the franchisees are now being treated as virtual employees, they are being denied the benefits that true employees enjoy such as social security tax withholdings, and unemployment and health insurance, and worker’s compensation insurance. In addition to not being eligible for employee-related fringe benefits, the franchisees, many of which are operating at a loss, are restricted from participating in outside employment to make ends meet. With the existing franchise agreement, franchisees continue to be held responsible for meeting minimum wage and income tax withholding requirement as well as processing all of the paperwork necessary when employing immigrant workers, a demographic that makes up a large portion of the 7-Eleven workforce.