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CAMDEN, N.J. – A federal judge here denied a 7-Eleven Inc. motion to dismiss franchisees' claims that they are company employees and were denied appropriate compensation and overtime wages in violation of the Fair Labor Standards Act, reported the New Jersey Law Journal.
U.S. District Judge Renee Bumb ruled that the four plaintiffs showed sufficient evidence that they are employees to move past the motion to dismiss. Among other grievances, the franchisees claimed that 7-Eleven controls settings of heat, air conditioning and television volume inside stores from corporate headquarters; maintains control of pricing, ordering and product advertising; and conducts all accounting itself.
The lawsuit claims that 7-Eleven misrepresents the nature of its relationship with franchisees to avoid paying minimum and overtime wages or benefits such as medical coverage. It also claims that 7-Eleven is harassing them to give up their franchises without paying for the equity they built over time.
Judge Bumb also denied 7-Eleven's motion to dismiss counts that it violated the New Jersey Franchise Practices Act by holding franchisees to unreasonable standards, but granted the company's motion to dismiss the claim that plaintiffs were subject to constructive termination under the New Jersey Franchise Practices Act.
"This franchisor is without doubt the worst example of franchising, because it totally strips away any sort of decisional power on the part of the franchisee," stated plaintiffs' attorney Gerald Marks. "Other franchisors needn't fear this type of attack because of the way 7-Eleven has imposed these rigid controls. You can see this is not a normal franchise situation."
Marks also claimed that 7-Eleven is trying to "churn" franchisees by taking control of the most profitable stores and reselling the franchises prior to a public stock offering in the company, according to the report.
"The allegations made in these claims are false. 7-Eleven Inc. is proud of its very diverse, independent franchisee population and its high retention rate for franchisees. In fact, in 2013, 7-Eleven Inc. had a less than 4-percent franchisee turnover rate nationwide," the company told CSNews Online in a statement. "Just because the judge did not dismiss every claim at this stage of the litigation does not mean she believes that they have merit. We are confident that when all of the facts are presented, the company will prevail on the remaining claims."