7-Eleven Franchisees File Suit Alleging Abuse of Contractual Rights

RED BANK, N.J. -- Five franchisees filed a lawsuit against 7-Eleven Inc. and its parent company Seven & I Holdings Co. this week, alleging that the convenience store retailer has misclassified its relationship with them, not paid franchisees certain benefits and deprived them of equity in their stores.

According to the complaint, filed in the U.S. District Court in New Jersey, "7-Eleven, a seeming American icon, is in reality a Japanese corporation that misrepresents and misclassifies its relation with its store operators as franchisees when they are, in fact, employees."

The franchisees argue that the c-store chain does this to increase corporate profits and avoid paying overtime, medical and pension benefits, FICA (Federal Insurance Contributions Act) and other state and federal employer taxes.

In contrast, the plaintiffs note that 7-Eleven's market competitors, Wawa Inc. and QuickChek Corp., classify their store operators as employees. The franchisees argue that 7-Eleven purposefully mischaracterizes the employment relationship using the following methods:

(a) Regulation of vendors and product supply;

(b) Processing franchisees’ payroll through its own internal payroll system;

(c) Setting of pricing, advertising and promotional materials;

(d) Intense daily oversight by market and zone managers of all store operations;

(e) Requirement that store operators wear corporate uniforms;

(f) All store bookkeeping and accounting done by 7-Eleven corporate;

(g) Failure to pay overtime or other corporate benefits, such as pensions or medical, to store owners who routinely work 80-plus hours per week;

(h) Franchisee/store managers cannot withdraw money without corporate approval; and

(i) In many locations, store temperature is even set by 7-Eleven corporate in Dallas, Texas.

The franchisees also allege that 7-Eleven is in violation of three New Jersey fair labor statutes, as well as the federal Fair Labor Standards Act. They argue that 7-Eleven charges exorbitant franchisee fees determined by a mathematically skewed formula and oversteps the franchisee agreement by requiring franchisees to sell the products of designated vendors.

7-Eleven is also accused of using "bullying tactics" that force the franchisees -- particularly those of a different race -- to "live and work in fear."

One of the franchisees involved in the suit, Tamer Atalla, is already suing 7-Eleven for lagging behind the competition, as CSNews Online previously reported.

The other four franchisees -- Neil Naik, Hemang Patel, Jayesh Patel and Kalpana Patel -- all reside in New Jersey and operate stores in Hillsborough, Bayonne, Belford and Milltown.

The franchisees are seeking relief against 7-Eleven by way of an order, which would declare that termination of franchisees without 60 days notice is made without the requisite “good cause” required by the New Jersey Franchise Practices Act. In addition, the franchisees seek an award of compensatory and consequential damages. They are represented by Marks & Klein LLP, based in Red Bank, N.J.

When contacted by CSNews Online, 7-Eleven Inc. declined to comment because the matter is in litigation.