New Franchisee Concerns for 7-Eleven

Franchisee suit accuses corporate of "fraudulent misrepresentation" on overtime, benefits, taxes, more

Greg Lindenberg, Editor, CSP

Jerry Marks (left), associate

RED BANK, N.J. --7-Eleven Inc., recently the subject of intense scrutiny over the activities of a few independent franchisees, is now the subject of a new lawsuit.

Five single-store franchisees have filed a suit in the U.S. District Court in New Jersey, alleging that 7-Eleven Inc., through its corporate parent, Tokyo-based Seven & i Holdings Co. Ltd., "engages in the fraudulent misrepresentation of its relation with its store operators," according to court documents obtained by CSP Daily News.

Plaintiffs Tamer G. Atalla, Neil Naik, Hemang Patel, Jayesh Patel and Kalpana B. Patel allege that 7-Eleven "intentionally misclassifies its store operators as franchisees in order to increase corporate profits and avoid paying overtime, medical and pension benefits, FICA and other state and federal employer taxes. 7-Eleven engages in three specific fraudulent schemes that are abusive of its store operators in that it violates the New Jersey Fair Labor Standards Act, the New Jersey Franchise Practices Act and the New Jersey Law Against Discrimination."

The court documents detail what the lawsuit calls the "high level of control that is exerted by 7-Eleven" over its franchisees, including "regulation of vendors and product supply; processing franchisees’ payroll through its own internal payroll system; setting of pricing, advertising and promotional materials; intense daily oversight by market and zone managers of all store operations; requirement that store operators wear corporate uniforms; all store bookkeeping and accounting done by 7-Eleven corporate; failure to pay overtime or other corporate benefits ... ; franchisee/store managers cannot withdraw money without corporate approval; [and] in many locations, store temperature is even set by 7-Eleven corporate in Dallas."

A spokesperson for 7-Eleven Inc. told CSP Daily News, "The matter is in litigation, and at this time we are declining requests for public comment."

Jerry Marks, managing partner at Marks & Klein LLP, Red Bank, N.J., told CSP Daily News, "We're saying that these people have been defrauded because they're employees, not franchisees, and 7-Eleven is getting away without paying taxes."

He said that franchisees "have no control, no independence."

The lawsuit also claims that 7-Eleven "has steadily increased franchise fees for incoming franchisees, to the detriment of existing franchisees."

Marks said, "By raising [the fee], if people want to sell their stores, their good will is eroded."

The plaintiffs are calling for a jury trial and are seeking damages, recouping of overtime and other benefits going back three years and attorneys' fees, according to the court documents.

Dallas-based 7-Eleven Inc. operates, franchises or licenses more than 10,100 7-Eleven stores in North America. Seven & i had 50,254 c-stores worldwide with 8,116 outlets in the United States as of March 2013, according to the company's website. During 2012, 7-Eleven stores generated total worldwide sales of approximately $84.8 billion.