United States Court of Appeals For the First Circuit
No. 20-1999
DHANANJAY PATEL, SAFDAR HUSSAIN, VATSAL CHOKSHI, DHAVAL PATEL, and NIRAL PATEL, on behalf of themselves and all others similarly situated,
Plaintiffs, Appellants,
v.
7-ELEVEN, INC.,
Defendant, Third-Party Plaintiff, Appellee,
MARY CARRIGAN; ANDREW BROTHERS,
Defendants,
DP MILK STREET INC.; DP JERSEY INC.; DP TREMONT STREET INC.; DPNEWT01,
Third-Party Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Thompson, Selya, and Hawkins,* Circuit Judges.
Shannon Liss-Riordan, with whom Michelle Cassorla, Tara
* Of the Court of Appeals for the Ninth Circuit, sitting by designation. Boghosian, and Lichten & Liss-Riordan, P.C. were on brief, for the appellants, Dhananjay Patel, Safdar Hussain, Vatsal Chokshi, Dhaval Patel, and Niral Patel. Norman M. Leon, with whom Matthew J. Iverson, Jennifer C. Brown, Jamie Kurtz, and DLA Piper LLP were on brief, for appellee 7-Eleven.
August 9, 2021 PER CURIAM. The plaintiffs are a putative class of
franchisees who sued 7-Eleven for violations of Massachusetts wage
laws. For reasons we explain below, the outcome of this appeal
hinges on a question of Massachusetts law, upon which the
Massachusetts courts have not spoken. Therefore, we certify a
question to the Massachusetts Supreme Judicial Court ("SJC")
pursuant to Massachusetts Supreme Judicial Court Rule 1:03. See
Fortin v. Titcomb, 671 F.3d 63, 66 (1st Cir. 2012). Some context
for this question and the question itself follow.
BACKGROUND
We begin with a basic recitation of the facts from the
summary judgment record, sharing only enough so that all may
understand our decision to certify this question to the SJC. The
plaintiffs own 7-Eleven franchises and accordingly operate 7-
Eleven branded convenience stores in Massachusetts. Per the terms
of their franchise agreements, the plaintiffs are obligated to
operate their convenience stores around the clock, stock inventory
sold by 7-Eleven's preferred vendors, utilize the 7-Eleven payroll
system to pay store staff, and adhere to a host of other guidelines
within the franchise agreement. The plaintiffs, as franchisees,
are classified by the franchise agreement as independent
contractors and do not receive a regular salary. Instead, each
plaintiff may draw pay from their store's gross profits, after
paying various fees required by the franchise agreement to 7-
- 3 - Eleven for the privilege of doing business with it. Finding this
arrangement to be suboptimal, the plaintiffs sued 7-Eleven,
alleging it misclassified them as independent contractors, rather
than employees, in violation of the Massachusetts Independent
Contractor Law ("ICL"), Mass. Gen. Laws ch. 149, § 148B, the
Massachusetts Wage Act, Mass. Gen. Laws ch. 149, § 148, and the
Massachusetts Minimum Wage Law, Mass. Gen. Laws ch. 151, §§ 1, 7.
The Massachusetts ICL presumes "an individual performing
any service" to be an employee, and therefore protected by relevant
wage and hour laws, unless that individual's alleged employer can
demonstrate that:
(1) the individual is free from control and direction in connection with the performance of the service, 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.
Mass. Gen. Laws ch. 149, § 148B(a). At the federal level, the
Federal Trade Commission has promulgated a collection of
applicable regulations, known together as the "FTC Franchise
Rule," 16 C.F.R. § 436.1, et seq., in order "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. Reg. 15444-
- 4 - 01 (Mar. 30, 2007). As relevant here, the FTC Franchise Rule
defines a franchise, in part, as a commercial relationship where
the parties agree that, among other things, "[t]he 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 operation." 16 C.F.R.
§ 436.1(h).
Considering the text of each of the above-cited
provisions, there appears to be a conflict between the
Massachusetts ICL and the "exert[ing] . . . control" prong of the
FTC Franchise Rule. It appears difficult, if not impossible, for
a franchisor to satisfy the FTC Franchise Rule's requirement that
the franchisor "exert or ha[ve] authority to exert a significant
degree of control over the franchisee's method of operation" and
simultaneously rebut the Massachusetts ICL's employee presumption
by demonstrating that each franchisee is "free from control and
direction in connection with the performance of the service." We
are mindful, of course, that a franchisor may not exert any degree
of control and instead may "provide significant assistance in the
franchisee's method of operation."1 See 16 C.F.R. § 436.1(h).
17-Eleven appears, at least for the purposes of the instant summary judgment motion, to operate under the "exert[ing] . . . control" business model.
- 5 - Such a franchising model may or may not implicate any of the
concerns at issue in this case.
7-Eleven argues (and the district court so held) that
the conflict between the ICL and the FTC Franchise Rule make it
impossible for 7-Eleven to satisfy federal law and demonstrate
that, due to this conflict, the ICL does not apply and its
franchisees are therefore properly classified as independent
contractors. Therefore, 7-Eleven reasons, the ICL does not apply,
as a matter of law, to its relationship with its franchisees. The
plaintiffs naturally disagree and reason that 7-Eleven has the
same burden as any other purported employer under the ICL and, the
plaintiffs press, 7-Eleven has failed to meet that burden.
The SJC has yet to analyze the interactions between the
ICL and the FTC Franchise Rule. The closest decision, as far as
we can tell, is from a case where the SJC considered the overlap
between a Massachusetts real estate statute and the ICL and held
that the ICL did not apply, as a matter of law, to the workers in
that case because the real estate statute made it impossible for
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United States Court of Appeals For the First Circuit
No. 20-1999
DHANANJAY PATEL, SAFDAR HUSSAIN, VATSAL CHOKSHI, DHAVAL PATEL, and NIRAL PATEL, on behalf of themselves and all others similarly situated,
Plaintiffs, Appellants,
v.
7-ELEVEN, INC.,
Defendant, Third-Party Plaintiff, Appellee,
MARY CARRIGAN; ANDREW BROTHERS,
Defendants,
DP MILK STREET INC.; DP JERSEY INC.; DP TREMONT STREET INC.; DPNEWT01,
Third-Party Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Thompson, Selya, and Hawkins,* Circuit Judges.
Shannon Liss-Riordan, with whom Michelle Cassorla, Tara
* Of the Court of Appeals for the Ninth Circuit, sitting by designation. Boghosian, and Lichten & Liss-Riordan, P.C. were on brief, for the appellants, Dhananjay Patel, Safdar Hussain, Vatsal Chokshi, Dhaval Patel, and Niral Patel. Norman M. Leon, with whom Matthew J. Iverson, Jennifer C. Brown, Jamie Kurtz, and DLA Piper LLP were on brief, for appellee 7-Eleven.
August 9, 2021 PER CURIAM. The plaintiffs are a putative class of
franchisees who sued 7-Eleven for violations of Massachusetts wage
laws. For reasons we explain below, the outcome of this appeal
hinges on a question of Massachusetts law, upon which the
Massachusetts courts have not spoken. Therefore, we certify a
question to the Massachusetts Supreme Judicial Court ("SJC")
pursuant to Massachusetts Supreme Judicial Court Rule 1:03. See
Fortin v. Titcomb, 671 F.3d 63, 66 (1st Cir. 2012). Some context
for this question and the question itself follow.
BACKGROUND
We begin with a basic recitation of the facts from the
summary judgment record, sharing only enough so that all may
understand our decision to certify this question to the SJC. The
plaintiffs own 7-Eleven franchises and accordingly operate 7-
Eleven branded convenience stores in Massachusetts. Per the terms
of their franchise agreements, the plaintiffs are obligated to
operate their convenience stores around the clock, stock inventory
sold by 7-Eleven's preferred vendors, utilize the 7-Eleven payroll
system to pay store staff, and adhere to a host of other guidelines
within the franchise agreement. The plaintiffs, as franchisees,
are classified by the franchise agreement as independent
contractors and do not receive a regular salary. Instead, each
plaintiff may draw pay from their store's gross profits, after
paying various fees required by the franchise agreement to 7-
- 3 - Eleven for the privilege of doing business with it. Finding this
arrangement to be suboptimal, the plaintiffs sued 7-Eleven,
alleging it misclassified them as independent contractors, rather
than employees, in violation of the Massachusetts Independent
Contractor Law ("ICL"), Mass. Gen. Laws ch. 149, § 148B, the
Massachusetts Wage Act, Mass. Gen. Laws ch. 149, § 148, and the
Massachusetts Minimum Wage Law, Mass. Gen. Laws ch. 151, §§ 1, 7.
The Massachusetts ICL presumes "an individual performing
any service" to be an employee, and therefore protected by relevant
wage and hour laws, unless that individual's alleged employer can
demonstrate that:
(1) the individual is free from control and direction in connection with the performance of the service, 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.
Mass. Gen. Laws ch. 149, § 148B(a). At the federal level, the
Federal Trade Commission has promulgated a collection of
applicable regulations, known together as the "FTC Franchise
Rule," 16 C.F.R. § 436.1, et seq., in order "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. Reg. 15444-
- 4 - 01 (Mar. 30, 2007). As relevant here, the FTC Franchise Rule
defines a franchise, in part, as a commercial relationship where
the parties agree that, among other things, "[t]he 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 operation." 16 C.F.R.
§ 436.1(h).
Considering the text of each of the above-cited
provisions, there appears to be a conflict between the
Massachusetts ICL and the "exert[ing] . . . control" prong of the
FTC Franchise Rule. It appears difficult, if not impossible, for
a franchisor to satisfy the FTC Franchise Rule's requirement that
the franchisor "exert or ha[ve] authority to exert a significant
degree of control over the franchisee's method of operation" and
simultaneously rebut the Massachusetts ICL's employee presumption
by demonstrating that each franchisee is "free from control and
direction in connection with the performance of the service." We
are mindful, of course, that a franchisor may not exert any degree
of control and instead may "provide significant assistance in the
franchisee's method of operation."1 See 16 C.F.R. § 436.1(h).
17-Eleven appears, at least for the purposes of the instant summary judgment motion, to operate under the "exert[ing] . . . control" business model.
- 5 - Such a franchising model may or may not implicate any of the
concerns at issue in this case.
7-Eleven argues (and the district court so held) that
the conflict between the ICL and the FTC Franchise Rule make it
impossible for 7-Eleven to satisfy federal law and demonstrate
that, due to this conflict, the ICL does not apply and its
franchisees are therefore properly classified as independent
contractors. Therefore, 7-Eleven reasons, the ICL does not apply,
as a matter of law, to its relationship with its franchisees. The
plaintiffs naturally disagree and reason that 7-Eleven has the
same burden as any other purported employer under the ICL and, the
plaintiffs press, 7-Eleven has failed to meet that burden.
The SJC has yet to analyze the interactions between the
ICL and the FTC Franchise Rule. The closest decision, as far as
we can tell, is from a case where the SJC considered the overlap
between a Massachusetts real estate statute and the ICL and held
that the ICL did not apply, as a matter of law, to the workers in
that case because the real estate statute made it impossible for
purported employers to also satisfy one or more of the ICL's
prongs. See Monell v. Boston Pads, LLC, 31 N.E.3d 60 (Mass. 2015).
However informative this analysis may be, we do not read the
decision in Monell, without further elaboration, to decide the
issue presented in this case. While we are aware of other tools
at our disposal for resolving this question, we consider the most
- 6 - prudent approach to be to give the SJC the first opportunity to
weigh in on this issue.
Plus, there are unique policy interests at stake,
specific to Massachusetts, that also counsel toward certification.
The resolution of a question involving the ICL impacts untold
sectors of workers and business owners across the Commonwealth.
Though we often resolve questions of state law that affect many,
certification is more appropriate here because "[t]his is also not
a case in which the 'policy arguments line up solely behind one
solution.'" In re Engage, Inc., 544 F.3d 50, 57 (1st Cir. 2008),
certified question answered sub nom. Ropes & Gray LLP v. Jalbert,
910 N.E.2d 330 (Mass. 2009) (quoting Boston Gas Co. v. Century
Indem., 529 F.3d 8, 12 14 (1st Cir. 2008)).
CERTIFICATION
In light of the forgoing, we certify the following
question to the Massachusetts Supreme Judicial Court:
(1) Whether the three-prong test for independent contractor status set forth in Mass. Gen. Laws ch. 149 § 148B applies to the relationship between a franchisor and its franchisee, where the franchisor must also comply with the FTC Franchise Rule.
We would welcome any further guidance from the Supreme Judicial
Court on any other relevant aspect of Massachusetts law that it
believes would aid in the proper resolution of the issues presented
here.
- 7 - The clerk of this court is directed to forward to the
Massachusetts Supreme Judicial Court, under the official seal of
this court, a copy of the certified question, this opinion, the
district court's opinion, and the merits briefs and appendices
filed by the parties. We retain jurisdiction over this case
pending resolution of this certified question.
- 8 -