The SJC noted the gravity of the issue, since classification as an "employee" generally entitles an individual to timely payment of wages, holiday and vacation pay; a minimum wage; overtime pay; a private right of action to enforce these rights; the ability to recover attorneys' fees; and, liquidated damages (treble damages for lost wages and other benefits).

The SJC also suggested that: "Employers who misclassify employees as independent contractors enjoy what might be viewed as a windfall. Misclassification permits an employer to avoid its statutory obligations to its workforce. Misclassification further allows employers to shift certain financial burdens to the Commonwealth and the Federal government [referring to Social Security and Medicare, unemployment insurance, workers' compensation and employee income tax withholdings]."

The SJC then turned its attention to the FTC Franchise Rule (16 CFR 436), which defines the term "franchise," in part, as a relationship in which the franchisor "… will exert or has the authority to exert a significant degree of control over the franchisee's method of operation … . " Thus, the very "control" which the FTC Franchise Rule definitionally signifies as evidencing a franchise relationship is identical to prong "A" of the "ABC test" of the Massachusetts Independent Contractor Law (as detailed above).

The Supreme Judicial Court took great pains to harmonize these two entirely disparate federal and state regulatory provisions. Noting that the Massachusetts Independent Contractor Law is silent on the issue of whether franchisees may be deemed employees, the court actually held that "[f]rom this silence, we infer that the Legislature intended the criteria for identifying independent contractors to be applied in the context of the franchise relationship (citation and internal quotation marks omitted)." In other words, statutory silence is construed by the Supreme Judicial Court as mandating a certain result.

The court then—most peculiarly, in this author's opinion—held that "… categorically excluding franchise relationships from the statute's ambit would permit employers to evade obligations under the wage statutes merely by labeling what is actually an employment relationship as a 'franchise' relationship"—utterly ignoring the definition of "franchise" found in every federal and state franchise law, rule and regulation, which requires not only a certain degree of franchisor "control" over its franchisees but, as well, the franchisor's licensing of its trademark or service mark to its franchisees and furnishing a marketing plan or system (and/or significant assistance) to those franchisees.

Noting that the certifying court (the First Circuit) observed that there is an inherent conflict between prong "A" (control) of the Massachusetts Independent Contractor Statute, on the one hand, and the FTC Franchise Rule, on the other, with the federal court believing that compliance with the latter would potentially make every franchisee an employee, the SJC entirely rebuffed the First Circuit's perceived conflict—in fact, outright rejecting it—holding that "[c]ompliance with [the FTC Franchise Rule's] disclosure requirements does not mandate that a franchisor exercise any particular degree of control over a franchisee." Held the court:

To be sure, the FTC Franchise Rule's disclosure obligations are … triggered where the franchisor elects to exercise a "significant degree of control over the franchisee's method of operation" [citation omitted]. It is this election that appears to be at the hub of the certifying court's concern. Specifically, the court was troubled that a franchisor that elects to exercise a "significant degree of control over the franchisee's method of operation" might not be able to show that the individual is "free from control and direction in connection with the performance of the service," under the first prong of the ABC test [statutory citation omitted].

Even where the franchisor makes that election, however, the FTC Franchise Rule's disclosure obligations do not run counter to proper classification of employees under the independent contractor statute. Thus, the identified "conflict" between the FTC Franchise Rule and the independent contractor statute rests on a misapprehension of what the former requires—that is, timely disclosures to the prospective franchisee.

The SJC then propounded a ruling that your author considers absolutely absurd: "A franchisor can comply with the FTC Franchise Rule … and in situations where a franchisee is deemed an employee under the independent contractor statute, the franchisor can comply with its obligations under the wage statutes. Compliance with these latter obligations does not render it impossible for a franchisor to comply with the FTC Franchise Rule."

Amazingly, the SJC then proceeded to cite cases from other jurisdictions strongly holding that a franchisor is not the employer of its franchisees—including three cases involving the very franchisor which is the defendant in this action, 7-Eleven (one of these cases referenced the company under its former name, Southland Corporation). Why these judicial precedents were not followed is anyone's guess.

The SJC then addressed, but only in a footnote, a most critical issue in franchising—the Lanham Act, under which a trademark licensor (which every franchisor is) must exert control over its trademark licensees (which all franchisees are) lest that trademark be deemed abandoned, since without such controls it stands for nothing. The SJC in this footnote even cites a 1979 Seventh Circuit decision holding that "the controls that franchisors are required to maintain under the Lanham Act are not intended to create a federal law of agency … [or to] saddle the licensor with the responsibilities under [s]tate law of a principal for his agent." Again, why this logic was not applied by the SJC is a mystery.

In support of its ruling, the SJC did cite a number of cases in which franchisors were held to be the employers of their franchisees. But all of them involved janitorial franchises, which are distinctly different from most other franchise formats.

While expressing no opinion as to how the Massachusetts Independent Contractor Law's "ABC test" applies to the federal case, the SJC did conclude "… that the Independent Contractor Statute applies to the franchisor-franchisee relationship and is not in conflict with the franchisor's disclosure obligations set forth in the FTC Franchise Rule."

This author views the decision in Patel to be the ill-conceived product of a "progressive" court. The entire thrust to have franchisors deemed the employers of their franchisees emanated from labor unions, particularly the Service Employees International Union, which for years have longed to be able to unionize franchisee workers and negotiate franchisee employees' wages with the franchisor, not the employing franchisee. In other words, the union's desire is to be able to collectively bargain with, for example, McDonald's to determine the wages that McDonald's franchisees must pay their employees. This progressive thrust, from its inception, has rested on the warped assumption that franchisors utilize the franchise model to evade labor law requirements, restrictions and prohibitions.

But this approach, as adopted by the SJC, is advanced in a legal vacuum: It contradicts over half a century of judicial precedent holding that franchisors and franchisees are independent contractors; utterly ignores the requirement of the Lanham Act that a trademark licensor control its franchisees' use of its name and marks; and, as noted, also entirely disregards every federal and state franchise law, rule and regulation which quite literally defines the term "franchise" as resting upon, in part, a franchisor's "control" over its franchisees.

Franchising is a remarkably robust economic engine. Today, it is estimated that over 40% of all retail sales consummated in this country take place at franchised outlets. Franchising entirely dominates certain sectors of our economy: guest lodging; quick service restaurants; real estate brokerage; home healthcare; staffing; lawn care; vehicle dealerships; and convenience stores among them. The International Franchise Association forecasts that franchise employment will grow in 2022 to a total of 8.5 million jobs and that the output of franchise businesses will be $826.6 billion (with franchising ending the year, it is predicted, with more than 792,000 establishments).

Moreover, it must be remembered that most franchisees do not at all wish to be characterized as employees. They invest in their businesses, run their businesses, reap incomes from those businesses and sell them for significant amounts. The last thing such franchisees would want is to be deemed an employee now working at minimum wage.

If the Supreme Judicial Court of Massachusetts merely wanted to adopt the "woke" position of labor unions, it should simply have done so explicitly. But while the absolute confusion, contradictions and nonsensical reasoning advanced by the SJC in Patel may have achieved the same end, the court did so in a most embarrassing fashion.

David J. Kaufmann is senior partner of Kaufmann, Gildin & Robbins. He authored the New York Franchise Act while serving as Special Deputy Attorney General of New York.