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,

(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,

, and the

Massachusetts Minimum Wage Law,

, 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,"

, 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."

-

- 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."

(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

(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,

(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.,

(1st Cir. 2008),

certified question answered sub nom. Ropes & Gray LLP v. Jalbert,

(Mass. 2009) (quoting Boston Gas Co. v. Century

Indem.,

, 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.

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