Massachusetts: State Independent Contractor Test Applies to Franchises

Applies to:           All MA Franchisor-Franchisee Relationships

Effective:             March 24, 2022

In Patel v. 7-Eleven, Inc., the Massachusetts Supreme Judicial Court stated that the state test for determining independent contractor status applies to the relationship between a franchisor and its franchises. Specifically, unless an individual satisfies the statutory ABC test for determining independent contractor status, an individual performing any service for an employer is an employee for purposes of wage laws. Thus, regardless of the FTC Franchise Rule, a franchisee providing services to a franchisor under the terms of a franchise agreement may still be classified as an “employee” of the franchisor under state wage-and-hour law.

There, the question was whether owner/operators of 7-11 franchises were employees of the national franchisor under state wage-and-hour law. The court stated, “[t]he FTC Franchise Rule ‘is a pre-sale disclosure rule[,]’” and “[c]ompliance with [its] disclosure requirements does not mandate that a franchisor exercise any particular degree of control over a franchisee.” Moreover, as indicated by the FTC itself, the FTC Franchise Rule does not conflict with state independent contractor rules. The court further acknowledged that this ruling does not “render every franchisee an employee” under state law. Nonetheless, franchises should immediately review their relationship status with legal counsel for compliance.

Action Items

1. Have franchise agreements reviewed by legal counsel.
2. Evaluate independent contractor status with legal counsel for compliance.
3. Subscribers can call our HR Hotline at (833) 268-5531 for further assistance.