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Franchisees File Major Suit against 7-Eleven for Its Extreme Control over Franchises

The National Coalition of Associations of 7-Eleven Franchises, which represent nearly 7,000 franchised locations in the United States, today announced it has filed a proposed class action lawsuit against franchisor 7-Eleven, Inc. for not fulfilling its promise of treating franchisees as independent contractors and business owners.

Filed in U.S. District Court for the Central District of California as a collective and class action, the NCASEF complaint names five individual plaintiff franchisees, Serge Haitayan, Jaspreet Dhillon, Robert Elkins, Manjit Purewal and Maninder "Paul" Lobana, on behalf of others. The lawsuit challenges certain provisions of the 7-Eleven Franchise Agreement, and seeks monetary damages, attorney's fees and costs and other relief for claims relating to unpaid overtime wages and unreimbursed expenses. Members of the Coalition assert that the franchisor has been increasing management control over franchisee operations outside their franchise agreements.

The lawsuit includes allegations of violations of the federal Fair Labor Standard Act; California state wage and hour laws; federal Class Action Fairness Act for violations of the California wage and hour laws. As part of the complaint, NCASEF alleges 7-Eleven franchisees are employees, applying the six-factor test under Wage and Hour Division of the Department of Labor. The lawsuit states that 7-Eleven, Inc. "openly admits" in its franchise agreement that it retains "a significant financial and marketing advisory role in the franchise business than in most other franchisee businesses." And it adds, "This admission grossly understates the degree of Defendant's [7-Eleven's] control."

One attorney representing NCASEF, Eric H. Karp of Witmer, Karp, Warner & Ryan, said that the franchisees took this step only reluctantly after repeated attempts to resolve the difference between the parties, and to create a franchise agreement that would create a fair balance of the risks and rewards of the franchise relationship. He explained, "The complaint alleges that the controls that 7-Eleven exerts over the franchisees are so pervasive beyond anything you would see in any other franchise system that they have become, in effect, employees. The company controls everything from the cash they generate to the hours they operate to the temperatures in their stores."

The lawsuit also asserts that the franchisor is taking away the opportunity for franchisees to possess and/or control monies generated from franchised stores and directing franchisees to sell any good or service for less than the cost of acquiring and selling the same. It also claims 7-Eleven is requiring franchisees to use equipment it specifies to operate franchise stores. And that the franchisor is imposing a regressive royalty structure that penalizes franchisees for increasing sales, and transferring responsibility for paying credit card processing fees directly to franchisees.

NCASEF Executive Vice Chair Jay Singh today expressed that franchisees have long complained that the brand has been chipping away at their profits, increasing their costs, and exercising more control over what is supposed to be an independent operation. He said conditions imposed by 7-Eleven, Inc. are threatening franchisee businesses, many of which are family operations. Singh declared, "Many of our members have operated 7-Eleven franchises for decades and are gravely concerned not only for their future, but the future of the brand they love and have invested so much in."

Singh also explained, "We need to hold 7-Eleven accountable. We love this brand and are saddened by the way they have been treating the people who are the very heart and soul of the company."

7-Eleven, Inc. did not respond to our request for comments on the NCASEF's purported class action lawsuit filed yesterday.

The National Coalition of Associations of 7-Eleven Franchises was originally founded in 1973 by six franchisees, and today NCASEF is comprised of 46 Franchise Owners Associations (FOA) association members who represent more than 4,700 franchise owners in 33 states. The Coalition is funded through FOA member dues, proceeds from the national convention exhibitors and sponsors, advertisers in Avanti magazine, affiliate member dues, and presentation sponsorships at NCASEF board meetings.

7-Eleven first introduced its retail convenience store concept in 1927, operating all units as corporate owned until 1964, when it acquired a chain of 126 franchised stores in California. Today, 7-Eleven and its controlling affiliates own 25,000 convenience stores worldwide, of which 7,800 are 7-Eleven's stores located within the United States. Approximately 1,500 are located in California, and the franchisor also maintains a principle business office in Bakersfield, California.


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About Janet Sparks

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Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.