Franchisees are not employees, confirms US Court

A court in California has dismissed a class action by four franchisees of 7-Eleven which claimed that, because of the control the franchise exercises, they had been misclassified as independent contractors and were entitled to damages under both the Fair Labor Standards Act (FLSA) and the California Labor Code. including overtime compensation and expenses incurred in operating their stores such as payroll costs, maintenance, cleaning and uniforms. The lawsuit purported to have been brought on behalf of all of the over 1,500 7-Eleven franchise locations operating in California. The Court found that that 7-Eleven's alleged controls did 'not exceed what is necessary to protect 7-Eleven's trademark, trade name, and good will.'

The case will be of considerable interest given recent law changes in Australia which make franchisors responsible for franchisees' employment breaches, thereby blurring the long-established line between franchisor and franchisee.