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SJC 13485 Dhananjay Patel versus 7/11 Inc., et al.
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(gavel bangs)
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Okay, Attorney Liss-Riordan.
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Okay.
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Good morning, Your Honors.
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I'm Shannon Liss-Riordan for plaintiffs with me,
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Matthew Carrieri.
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The answer to the certified question
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in this case must be yes
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because the certified question describes pretty much
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every employment relationship that exists.
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That is that obligations
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or pursuit are performed pursuant to a contract,
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well, an agreement that may either be written or implied
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and the employer obtains revenue based upon the labor
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that's performed by the employee.
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So the way
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that the First Circuit has certified this question,
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there can be no other answer besides for yes
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unless the court were to decide
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that somehow it should be looked at differently
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because this is a franchise
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and that's something the court rejected last time.
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Doesn't apply to every business relationship
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that's ever existed too.
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Every contract...
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Forget about employment contracts.
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Doesn't this cover every contract ever created
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by mankind as well?
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Well, part of the answer to that is
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by the fact that no court
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before the district court
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in this case has ever used this predecessor
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to the ABC requirements of 148B
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as a way of limiting even applying the ABC analysis.
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Yes, it's very broad.
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What's that?
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What about Sebago?
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Didn't they do the threshold inquiry first?
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Well, yes, no.
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But they did not restrict an analysis of the ABC factors
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based on that threshold inquiry.
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No court has
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Owners?
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Not exactly.
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If you look at the decision,
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they did for the radio associations-
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For the garage owners-
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[Attorney Liss-Riordan] For the medallion-
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The end of the inquiry for those garage owners.
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Oh, I'm sorry.
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That was a third part that wasn't talked about as much.
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Yes, for the garage owners
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because there wasn't-
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Report is ever we have.
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Okay, well, so there wasn't much focus on that.
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I've never seen any other court.
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It means something.
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It may not mean much,
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but it does mean something.
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Not everybody is an employer.
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Well, no, of course not.
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And that's what the ABC factors recognize that.
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Well, no, I'm talking about the threshold inquiry.
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The threshold inquiry on that case said
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that the garage owners,
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even though they had some benefit flowing
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to their business from the fact
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that they service the taxi cabs
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and did the credit cards that were required
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to be installed in the taxi cabs,
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they were not employers.
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So it does have some teeth,
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although they may be blunted.
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I agree with you.
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Right.
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Although in that case,
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there weren't really any obligations
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that the taxi drivers were performing with respect
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to the garage owners.
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That brings me to the question,
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what is the obligation
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that your clients are performing for the franchise?
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Well, they are running the stores.
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They're managing the 7/11 stores.
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They are making sure that they're staffed 24 hours a day,
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364 days a year.
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They're following the detailed instructions,
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including the thousand plus page manual.
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Running the stores,
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how is that a service for 7/11?
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So 7/11 has both so-called franchise stores,
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as well as corporate-owned stores.
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And the franchisees-
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So how many (indistinct) the store a service for 7/11?
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It's a service just the same way as the managers
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in the corporate-owned stores are performing a service
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for 7/11.
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They're overseeing the store's operations
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to make sure that products are sold,
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that the cash register is staffed,
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that stock is kept on the shelves,
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that customers come in.
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That's just the difference between owner-operated stores
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and the franchise stores.
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The owner operated stores,
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do they own the business,
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the underlying business?
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I'm trying to figure out.
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When you say they,
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are you referring to...
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Who are you referring to?
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Okay, so your clients actually own
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the underlying franchise, right?
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Well, that's what 7/11 says.
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Just like the cleaning franchisers said
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in the cleaning cases
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Of the gross profits.
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Yeah.
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Yes, that's correct.
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Managers in the 7/11 owned stores get a percentage
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of the store profits.
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Well, we don't know from the record how they're paid,
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but it's not uncommon for managers
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to be paid based on some incentive-based system
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where the amount of profit influences the amount
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of compensation that they receive.
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So they have some sort
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of ownership stake is what you're saying?
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Well, it depends on how you define ownership stake.
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In order to endorse what 7/11 has done
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and say that we don't even get past
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this threshold inquiry gives employers wide latitude
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to commit an end run around the Wage Laws
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because countless companies-
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Figure out what services your client is performing
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for 7/11.
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I mean, I know that the AG will argue
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its own case after you,
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but is it the payment of the franchise fee?
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Is it the conformity to the 7/11 mandates
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in order to maintain the value
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of its same experience anywhere in the world,
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7/11 mark?
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What is it that your client is providing?
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It's following 7/11's rules
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to operate 7/11 stores just like the managers do.
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It's possible in your view
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that any entity like 7/11 or McDonald's
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or any of those other sort of trademark,
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same experience anywhere in the world kind of companies,
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is it possible to have that kind of business
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and not meet the threshold inquiry?
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Or is it under your plan
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that this threshold inquiry is gonna be met
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by any franchise?
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Well, I can't say any franchise
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because I don't know the facts
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of other cases that aren't before us.
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But I think the crux of this question-
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What franchise would pass your test
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even if you don't know all of them?
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Well, I mean, I don't know
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because I don't know every franchise in the world.
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I think the crux of the question here isn't the question
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that's before this court.
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Now, it's possibly the next time this case might get
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before this court on the actual application
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of the ABC Test.
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And that's whether Prong B
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Stick with the certified question.
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I don't wanna get into the ABC
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because that's not been certified.
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But this question,
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is there any franchise?
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What is your test for this threshold inquiry?
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The test is whether,
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as the question stated and as the statute says,
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well, whether services are provided,
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whether obligations are performed pursuant
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to an agreement which may be written or implied,
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and there is revenue,
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the employer purported employer's revenue is based...
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Where the employer makes its money based
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on the alleged employee's labor.
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So in the garage situation-
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Flat fee.
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Exactly.
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That was the distinction.
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Not triggered the threshold inquiry.
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That is the distinction that this court made in Sebago.
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Correct.
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And that was part of why the garage owners were on one side
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because they just received flat payments,
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whereas-
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Sebago, I didn't see anything
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about flat payments in Sebago
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Because there was a distinction drawn
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between the parks case and the O'Hare Medway case in Sebago
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and that was talked about both with respect
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to the threshold inquiry and Prong B,
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which is why it's a little confusing.
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But there was a distinction that was drawn there that
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because the revenue of the defendant
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in the case with the Limo company did derive its revenue
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based on a percentage
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of what was brought in by the drivers,
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their services were provided.
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And what this court intimated that
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that was relevant to the Prong B inquiry,
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whereas if it was a flat payment,
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then that wasn't the case.
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So that was the important distinction.
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The Limo case,
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and you're much more familiar
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with these than I am.
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In the Limo case,
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do the Limo drivers provide transportation
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to the clients of the alleged employer?
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Yes.
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Yes.
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And that's the same thing here,
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because 7/11 advertises itself as a convenience store.
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The people who walk into the store know
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that they're walking into a 7/11.
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They don't know that they're walking
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into Joe Smith's convenience store.
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So they are customers of 7/11.
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It's not-
Can I ask?
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Does this apply...
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Some of these guys are sort
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of what I consider owners.
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Is this requirement satisfied
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even if any of the name plaintiffs did no work whatsoever
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in the store
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and they just owned the store
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and had other people work for them?
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Well, that might be a different question.
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All of these plaintiffs-
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But does that matter?
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If the services have nothing to do with employment,
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does that matter?
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I mean, because we're trying to...
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I mean, again, I feel like we're putting a square peg
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in a round hole,
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but the purpose of the Wage Act is to protect employees
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and to protect relationships like that janitor case
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where they really are employees,
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but you're pretending them to be franchisees.
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But these guys are businessmen.
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[Attorney Liss-Riordan] Well, that's how 7/11-
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Bear with me for a second
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'cause I just wanna pose it's related
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to Justice Wendlandt's question.
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Are there different kinds of franchises?
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And if the employment of these guys is minimal,
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meaning these guys are owners...
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Like one of the gentlemen...
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Again, I'm basing on the brief,
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I haven't read this whole record.
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One of the gentlemen owns a bunch of stores.
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He has a real estate business.
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He has a stores that aren't 7/11 stores.
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And how many hours does that gentleman work?
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Why am I considering him an employee?
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And shouldn't the services you're performing be
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employment services?
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So we are talking about plaintiffs did do the work
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in the stories
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and all of the facts that you just set forth,
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that 7/11 is trying to emphasize.
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That's what they said about the cleaning franchisees also.
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Many of them had other businesses-
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I read the facts.
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I've read the (indistinct) decision on The Queen employees.
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They're really just being exploited.
277
00:11:27.990 --> 00:11:30.463
This is quite different.
278
00:11:30.463 --> 00:11:35.463
Some of these franchisees work 70-80 hours in the stores
279
00:11:35.580 --> 00:11:37.950
and are effectively making less than minimum wage
280
00:11:37.950 --> 00:11:39.840
when you actually consider the amount that they take
281
00:11:39.840 --> 00:11:42.150
after 701 takes out all the deductions.
282
00:11:42.150 --> 00:11:45.030
The facts of these cases are really not different.
283
00:11:45.030 --> 00:11:46.950
Facts of this case are really not
284
00:11:46.950 --> 00:11:48.840
that different from the cleaning franchise cases.
285
00:11:48.840 --> 00:11:52.350
Does it matter whether they work in the store?
286
00:11:52.350 --> 00:11:53.250
Yes.
287
00:11:53.250 --> 00:11:54.870
No, I think it does.
288
00:11:54.870 --> 00:11:55.703
I think it does.
289
00:11:55.703 --> 00:11:57.030
And the plaintiffs here do.
290
00:11:57.030 --> 00:11:57.863
And also-
291
00:11:57.863 --> 00:11:58.696
Give me example.
292
00:11:58.696 --> 00:12:01.350
What percentage of the time...
293
00:12:01.350 --> 00:12:03.750
Take the person the most extreme example,
294
00:12:03.750 --> 00:12:06.300
the man who has multiple businesses stuff.
295
00:12:06.300 --> 00:12:08.100
How many hours does he work in this store?
296
00:12:08.100 --> 00:12:09.780
I don't think we have that in the record,
297
00:12:09.780 --> 00:12:11.640
but I will say that there are managing-
298
00:12:11.640 --> 00:12:12.720
Say he worked,
299
00:12:12.720 --> 00:12:16.143
say he worked three hours a week,
300
00:12:17.040 --> 00:12:20.520
does that mean he's still subject to this act?
301
00:12:20.520 --> 00:12:23.490
So as Judge Wolf noted in one of the cleaning cases,
302
00:12:23.490 --> 00:12:25.473
De Giovanni versus Jani-King,
303
00:12:26.370 --> 00:12:28.350
cleaning and getting people to clean,
304
00:12:28.350 --> 00:12:31.230
managing the cleaners is part of the work.
305
00:12:31.230 --> 00:12:34.260
So these so-called franchisees are managing,
306
00:12:34.260 --> 00:12:37.080
making sure people are there and performing the work.
307
00:12:37.080 --> 00:12:38.070
In today's world,
308
00:12:38.070 --> 00:12:40.290
we know that not all work is done on site.
309
00:12:40.290 --> 00:12:41.880
A lot of it is done remotely.
310
00:12:41.880 --> 00:12:44.940
So I don't know the facts about the particular plaintiffs
311
00:12:44.940 --> 00:12:46.350
and how many hours they were in.
312
00:12:46.350 --> 00:12:48.540
Some of these franchisees though,
313
00:12:48.540 --> 00:12:51.540
they're not making enough money to even hire other people
314
00:12:51.540 --> 00:12:55.200
to work behind the register.
315
00:12:55.200 --> 00:12:56.217
It's often the franchisees
316
00:12:56.217 --> 00:12:58.380
and their family members are running these stores,
317
00:12:58.380 --> 00:12:59.759
keeping them open 24 hours a day.
318
00:12:59.759 --> 00:13:00.592
Is that an important-
319
00:13:00.592 --> 00:13:02.966
There is exploitation just like in the franchise,
320
00:13:02.966 --> 00:13:04.050
cleaning cases.
321
00:13:04.050 --> 00:13:04.883
Yes.
322
00:13:04.883 --> 00:13:05.940
This is almost incomprehensible.
323
00:13:05.940 --> 00:13:08.130
So I'm trying to understand.
324
00:13:08.130 --> 00:13:10.590
And services, you define services
325
00:13:10.590 --> 00:13:12.390
in an incredibly broad way.
326
00:13:12.390 --> 00:13:14.390
He defines this saying...
327
00:13:15.960 --> 00:13:17.643
I'm just trying to understand.
328
00:13:18.660 --> 00:13:21.270
I go back to Justice Wendlandt's decision,
329
00:13:21.270 --> 00:13:23.280
our decision in Patel.
330
00:13:23.280 --> 00:13:27.480
We're saying we're dealing with a problem
331
00:13:27.480 --> 00:13:29.910
which is treating employees
332
00:13:29.910 --> 00:13:33.675
who are really employees like they're not.
333
00:13:33.675 --> 00:13:37.920
I just don't have a sense that this is the same thing,
334
00:13:37.920 --> 00:13:39.810
but I can't put my fingers around it.
335
00:13:39.810 --> 00:13:40.643
Justice Kafker,
336
00:13:40.643 --> 00:13:41.640
I think some of the questions
337
00:13:41.640 --> 00:13:42.750
that you're getting at are going
338
00:13:42.750 --> 00:13:44.700
to be more appropriate questions when we get
339
00:13:44.700 --> 00:13:46.740
to the application of the ABC Test.
340
00:13:46.740 --> 00:13:48.840
The last time this case was before this court,
341
00:13:48.840 --> 00:13:51.810
it seemed clear that the court was expecting it to go back
342
00:13:51.810 --> 00:13:54.870
to the district court to have the ABC Test applied.
343
00:13:54.870 --> 00:13:57.210
And then we would be grappling with some of these questions.
344
00:13:57.210 --> 00:14:00.630
Instead, what the court did was it gave teeth
345
00:14:00.630 --> 00:14:04.140
to something that would give employers
346
00:14:04.140 --> 00:14:08.520
throughout the commonwealth an opportunity to conflate facts
347
00:14:08.520 --> 00:14:11.610
and twist things into making it seem
348
00:14:11.610 --> 00:14:14.250
like actual employees are not employees
349
00:14:14.250 --> 00:14:17.940
and allow them to evade the Wage Law.
350
00:14:17.940 --> 00:14:22.940
Position where the franchisee is itself a corporation.
351
00:14:22.980 --> 00:14:24.900
Do we have that presented to us here
352
00:14:24.900 --> 00:14:26.190
or are they all individual?
353
00:14:26.190 --> 00:14:29.130
No, some of them have incorporated and some have not.
354
00:14:29.130 --> 00:14:30.570
And there's case law.
355
00:14:30.570 --> 00:14:35.010
The employee in the ones that are the corporations.
356
00:14:35.010 --> 00:14:38.220
It's the actual person who does the work,
357
00:14:38.220 --> 00:14:39.900
who runs the stores,
358
00:14:39.900 --> 00:14:42.060
who is effectively the manager of the store.
359
00:14:42.060 --> 00:14:44.670
And there's case like at cite you from around the country,
360
00:14:44.670 --> 00:14:46.890
including the Department of Labor said the fact
361
00:14:46.890 --> 00:14:48.330
that someone has incorporated
362
00:14:48.330 --> 00:14:51.300
or formed an LLC does not make them not an employee.
363
00:14:51.300 --> 00:14:54.210
That's another ruse that employers use in order
364
00:14:54.210 --> 00:14:57.600
to make it look like employees are not actually employees.
365
00:14:57.600 --> 00:14:59.970
There's a whole wealth of tricks
366
00:14:59.970 --> 00:15:01.050
that employers use.
367
00:15:01.050 --> 00:15:03.750
If this court is to say no to this question,
368
00:15:03.750 --> 00:15:05.970
it's going to unleash more tricks.
369
00:15:05.970 --> 00:15:09.060
About who the employees in the case
370
00:15:09.060 --> 00:15:12.990
where the franchisee is a corporation
371
00:15:12.990 --> 00:15:17.520
and you are saying it's the individual store manager.
372
00:15:17.520 --> 00:15:19.800
It's the person who's actually doing the work.
373
00:15:19.800 --> 00:15:22.470
And it's clear in this case who that person is.
374
00:15:22.470 --> 00:15:24.810
The person running the cashier.
375
00:15:24.810 --> 00:15:26.910
I mean, who's actually-
376
00:15:26.910 --> 00:15:28.860
In the case here with the plaintiffs
377
00:15:28.860 --> 00:15:30.210
that are before this court,
378
00:15:30.210 --> 00:15:32.670
every one of them actually worked in the stores.
379
00:15:32.670 --> 00:15:35.370
A couple of them incorporated.
380
00:15:35.370 --> 00:15:37.680
Their employees also worked in the stores, right?
381
00:15:37.680 --> 00:15:38.513
Yes, right.
382
00:15:38.513 --> 00:15:39.810
But this case isn't about that.
383
00:15:39.810 --> 00:15:41.043
Figure out from you.
384
00:15:42.000 --> 00:15:44.670
And I apologize, Chief.
385
00:15:44.670 --> 00:15:47.190
What is the legal principle
386
00:15:47.190 --> 00:15:49.900
that stops this at the store owner
387
00:15:50.880 --> 00:15:53.220
versus all the employees of that store?
388
00:15:53.220 --> 00:15:54.480
Well, that would be a different case.
389
00:15:54.480 --> 00:15:56.700
That would be a case more like the Jinx case
390
00:15:56.700 --> 00:15:58.650
where it would be a joint employment question.
391
00:15:58.650 --> 00:16:00.210
Because on paper,
392
00:16:00.210 --> 00:16:02.250
the franchisee is the employer
393
00:16:02.250 --> 00:16:04.080
of the other people who work in the store.
394
00:16:04.080 --> 00:16:05.580
The question that you're asking is
395
00:16:05.580 --> 00:16:08.580
whether those employees are also employees of 7/11.
396
00:16:08.580 --> 00:16:10.350
That would be a joint employer inquiry
397
00:16:10.350 --> 00:16:12.270
that's not presented by this case.
398
00:16:12.270 --> 00:16:15.390
Here, it is clear who the franchisee is.
399
00:16:15.390 --> 00:16:16.980
In response to my question
400
00:16:16.980 --> 00:16:20.640
about the corporate entity being the franchisee,
401
00:16:20.640 --> 00:16:23.010
your response was it was the managers
402
00:16:23.010 --> 00:16:24.357
who were actually doing the work.
403
00:16:24.357 --> 00:16:25.620
No, no, no, no.
404
00:16:25.620 --> 00:16:26.580
That's no.
405
00:16:26.580 --> 00:16:28.110
I'm saying the franchisees,
406
00:16:28.110 --> 00:16:31.260
each of the five franchisees who are plaintiffs
407
00:16:31.260 --> 00:16:33.450
in this case were actually acting
408
00:16:33.450 --> 00:16:36.210
like managers running each of the stores.
409
00:16:36.210 --> 00:16:39.930
No different from the acknowledged managers
410
00:16:39.930 --> 00:16:42.930
who run 7/11s corporate-owned stores.
411
00:16:42.930 --> 00:16:46.050
There's really not any functional difference
412
00:16:46.050 --> 00:16:49.140
between the franchisees here and those managers
413
00:16:49.140 --> 00:16:51.240
and the work done by the managers
414
00:16:51.240 --> 00:16:53.820
who 7/11 acknowledges or employees
415
00:16:53.820 --> 00:16:55.200
who run the corporate-run stores.
416
00:16:55.200 --> 00:16:57.480
And so we cited the Amero case for you
417
00:16:57.480 --> 00:16:59.040
where you have a company
418
00:16:59.040 --> 00:17:01.200
that has some people classified as employees,
419
00:17:01.200 --> 00:17:02.970
some classified as independent contractors.
420
00:17:02.970 --> 00:17:04.230
They're doing the same thing.
421
00:17:04.230 --> 00:17:07.200
But those 7/11-owned stores,
422
00:17:07.200 --> 00:17:11.070
all of the people working the store are employees.
423
00:17:11.070 --> 00:17:11.903
Right.
424
00:17:11.903 --> 00:17:12.736
But again, this case isn't addressing-
425
00:17:12.736 --> 00:17:13.890
My question again
426
00:17:13.890 --> 00:17:16.050
and maybe you don't have an answer and that's fine is,
427
00:17:16.050 --> 00:17:17.640
what is your limiting principle?
428
00:17:17.640 --> 00:17:22.320
Why do these corporate entities that are franchisees default
429
00:17:22.320 --> 00:17:25.230
to the person running the store equivalent
430
00:17:25.230 --> 00:17:28.260
and not all the other 7/11 employees?
431
00:17:28.260 --> 00:17:31.110
Because the plaintiffs here,
432
00:17:31.110 --> 00:17:33.630
I believe three of whom incorporated,
433
00:17:33.630 --> 00:17:36.120
those individuals incorporated
434
00:17:36.120 --> 00:17:38.550
and are the ones who signed the franchise agreement
435
00:17:38.550 --> 00:17:40.590
and are the ones who are on the hook
436
00:17:40.590 --> 00:17:44.430
to perform the obligations that 7/11 has required.
437
00:17:44.430 --> 00:17:46.230
And what they're doing is the same as people
438
00:17:46.230 --> 00:17:49.080
who sign those agreements in their individual capacity.
439
00:17:49.080 --> 00:17:51.150
There's no issue that's raised here about,
440
00:17:51.150 --> 00:17:52.860
are we talking about the franchisee?
441
00:17:52.860 --> 00:17:54.660
Are we talking about the manager,
442
00:17:54.660 --> 00:17:58.260
the night manager who works the, the night shift?
443
00:17:58.260 --> 00:17:59.220
Not for your question,
444
00:17:59.220 --> 00:18:00.510
but for mine it is.
445
00:18:00.510 --> 00:18:02.610
Well, right.
446
00:18:02.610 --> 00:18:03.750
We need to write some sort
447
00:18:03.750 --> 00:18:07.200
of legal principle that cabins this
448
00:18:07.200 --> 00:18:08.880
at what you're suggesting,
449
00:18:08.880 --> 00:18:11.160
the name plaintiffs and not everybody else
450
00:18:11.160 --> 00:18:13.470
who works at 7/11 is suddenly the employee
451
00:18:13.470 --> 00:18:14.520
of corporate 7/11.
452
00:18:14.520 --> 00:18:15.353
Right.
453
00:18:15.353 --> 00:18:16.230
But again, answering yes
454
00:18:16.230 --> 00:18:18.330
to the certified question would not lead
455
00:18:18.330 --> 00:18:21.930
to this unanswerable series of questions
456
00:18:21.930 --> 00:18:23.250
that you seem to be posing.
457
00:18:23.250 --> 00:18:27.480
Again, the people who are classified as employees
458
00:18:27.480 --> 00:18:29.520
who are working under the franchisees
459
00:18:29.520 --> 00:18:31.470
who are working the cash register,
460
00:18:31.470 --> 00:18:33.480
stocking the shelves, et cetera,
461
00:18:33.480 --> 00:18:38.480
they are employees on paper of the franchisee.
462
00:18:38.790 --> 00:18:40.590
And just like in the cleaning cases,
463
00:18:40.590 --> 00:18:41.580
same thing happened.
464
00:18:41.580 --> 00:18:45.000
Plenty of these cleaning franchisees had employees working
465
00:18:45.000 --> 00:18:45.833
for them.
466
00:18:45.833 --> 00:18:48.600
And defense counsel here argued to many courts.
467
00:18:48.600 --> 00:18:50.027
You see, they can't possibly be employees
468
00:18:50.027 --> 00:18:52.440
'cause they themselves have employees
469
00:18:52.440 --> 00:18:54.000
and courts rejected that.
470
00:18:54.000 --> 00:18:56.850
And the Department of Labor has rejected that
471
00:18:56.850 --> 00:18:58.920
and courts around the country have rejected that,
472
00:18:58.920 --> 00:19:01.110
which I could provide for the court
473
00:19:01.110 --> 00:19:02.910
if you'd like additional citation.
474
00:19:02.910 --> 00:19:05.400
That's not raised by this case here.
475
00:19:05.400 --> 00:19:08.880
We're talking about the franchisees.
476
00:19:08.880 --> 00:19:11.010
Two of these plaintiffs here are never incorporated.
477
00:19:11.010 --> 00:19:13.260
So there's no question with respect to them.
478
00:19:13.260 --> 00:19:17.490
You can't say you can't meet the threshold inquiry
479
00:19:17.490 --> 00:19:21.720
of 148B because you incorporated or formed an LLC
480
00:19:21.720 --> 00:19:25.110
that would put Massachusetts near the bottom of the states
481
00:19:25.110 --> 00:19:26.730
in terms of employee protections
482
00:19:26.730 --> 00:19:29.520
when we are well known to have one of, if not,
483
00:19:29.520 --> 00:19:33.960
the strongest Wage Law in the country protecting employees
484
00:19:33.960 --> 00:19:38.940
Sorry, last question for me on that issue on the LLC.
485
00:19:38.940 --> 00:19:42.120
Was that a requirement that 7/11 corporate made?
486
00:19:42.120 --> 00:19:44.040
I don't think it's in the record yet,
487
00:19:44.040 --> 00:19:46.050
whether it was required or not.
488
00:19:46.050 --> 00:19:48.480
There may have been at different points in time,
489
00:19:48.480 --> 00:19:49.470
different requirements.
490
00:19:49.470 --> 00:19:52.290
I do know that we often see this come up
491
00:19:52.290 --> 00:19:54.870
in these independent contractor cases all the time,
492
00:19:54.870 --> 00:19:59.870
that sometimes the alleged employees have been asked
493
00:20:00.330 --> 00:20:01.470
to incorporate.
494
00:20:01.470 --> 00:20:02.610
Sometimes they've been told to,
495
00:20:02.610 --> 00:20:05.850
sometimes it's been to suggested to them that they can.
496
00:20:05.850 --> 00:20:08.460
And the dividing line shouldn't be
497
00:20:08.460 --> 00:20:11.370
whether they were required to or not
498
00:20:11.370 --> 00:20:12.900
because employers have ways
499
00:20:12.900 --> 00:20:15.630
of suggesting it without requiring it.
500
00:20:15.630 --> 00:20:17.580
And again, it's been rejected around the country.
501
00:20:17.580 --> 00:20:18.960
And I could provide you case cites
502
00:20:18.960 --> 00:20:20.760
that that is not what the court looks at.
503
00:20:20.760 --> 00:20:23.580
And again, some of these questions I feel like are going
504
00:20:23.580 --> 00:20:27.870
to what will come up in the ABC analysis itself.
505
00:20:27.870 --> 00:20:30.060
Again, when this court last saw this case,
506
00:20:30.060 --> 00:20:30.893
it seemed clear-
507
00:20:32.693 --> 00:20:35.490
You know it's gonna be a rough hoe road though,
508
00:20:35.490 --> 00:20:36.720
Can I ask this question?
509
00:20:36.720 --> 00:20:38.370
Say one of these people
510
00:20:38.370 --> 00:20:40.020
and I'm not saying this is the facts,
511
00:20:40.020 --> 00:20:42.120
I'm just opposing a hypothetical,
512
00:20:42.120 --> 00:20:44.100
got a franchise agreement
513
00:20:44.100 --> 00:20:47.520
and the chief person,
514
00:20:47.520 --> 00:20:52.440
head managers making $3 million a year on the franchise.
515
00:20:52.440 --> 00:20:55.773
He's also working or she's working three hours there.
516
00:20:58.560 --> 00:21:00.303
Does that mean they're employees?
517
00:21:01.170 --> 00:21:03.150
No 7/11 franchisees making $3-9.
518
00:21:03.150 --> 00:21:04.921
I know, but I'm-
519
00:21:04.921 --> 00:21:07.320
They're making just over minimum wage, if at all.
520
00:21:07.320 --> 00:21:08.520
Okay.
521
00:21:08.520 --> 00:21:12.750
We're dealing with all franchise in another respect too.
522
00:21:12.750 --> 00:21:13.830
I'm just trying to understand.
523
00:21:13.830 --> 00:21:16.770
If someone's making millions of dollars
524
00:21:16.770 --> 00:21:18.270
in one of these franchises
525
00:21:18.270 --> 00:21:19.920
'cause I assume you don't do this
526
00:21:19.920 --> 00:21:21.210
unless there's a potential,
527
00:21:21.210 --> 00:21:23.010
big potential upside.
528
00:21:23.010 --> 00:21:24.660
Well, are every chief...
529
00:21:24.660 --> 00:21:28.650
Again, we're dealing with something that has the potential
530
00:21:28.650 --> 00:21:31.140
to warp the employment laws.
531
00:21:31.140 --> 00:21:32.460
Meaning a manager
532
00:21:32.460 --> 00:21:36.650
who's really an entrepreneur making a huge amount
533
00:21:36.650 --> 00:21:40.263
of money is entitled to wages.
534
00:21:43.350 --> 00:21:44.280
In that hypothetical,
535
00:21:44.280 --> 00:21:46.260
I'm not saying it's this case.
536
00:21:46.260 --> 00:21:50.670
Is that person also an employee covered by the Wage Act?
537
00:21:50.670 --> 00:21:51.503
Well, just a couple-
538
00:21:51.503 --> 00:21:53.820
They make $3 million from profits
539
00:21:53.820 --> 00:21:56.550
and they work a couple of hours a week
540
00:21:56.550 --> 00:21:58.770
'cause they have a hundred other employees there.
541
00:21:58.770 --> 00:22:00.750
Is that person covered by the Wage Act?
542
00:22:00.750 --> 00:22:02.248
Well, I just wanna say a couple things.
543
00:22:02.248 --> 00:22:05.024
But just answer the question one way or the other.
544
00:22:05.024 --> 00:22:06.630
I don't know the facts of it.
545
00:22:06.630 --> 00:22:09.420
No 7/11 franchisee is making $3 million a year.
546
00:22:09.420 --> 00:22:11.760
Executives could make millions of dollars a year
547
00:22:11.760 --> 00:22:14.400
and still be employees.
548
00:22:14.400 --> 00:22:15.990
In the cleaning cases,
549
00:22:15.990 --> 00:22:18.390
the cleaning companies always try to argue,
550
00:22:18.390 --> 00:22:20.790
oh our franchisees, they're making millions
551
00:22:20.790 --> 00:22:21.623
of dollars a year.
552
00:22:21.623 --> 00:22:23.490
They have all these other businesses.
553
00:22:23.490 --> 00:22:25.530
Those arguments were rejected.
554
00:22:25.530 --> 00:22:27.810
That's not the inquiry.
Help me out.
555
00:22:27.810 --> 00:22:32.190
If a franchisee is the owner of the franchise
556
00:22:32.190 --> 00:22:34.770
and is making a huge amount of money,
557
00:22:34.770 --> 00:22:36.240
and again, the answer may be yes,
558
00:22:36.240 --> 00:22:39.720
that person liked the CEO you're talking about.
559
00:22:39.720 --> 00:22:42.270
Is that what you're saying, though?
560
00:22:42.270 --> 00:22:44.580
That's the purpose of the...
561
00:22:44.580 --> 00:22:46.470
The Wage Act are meant to cover that.
562
00:22:46.470 --> 00:22:47.370
It's a question
563
00:22:47.370 --> 00:22:49.320
I'm not trying to load it.
564
00:22:49.320 --> 00:22:52.320
The Wage Act does cover highly compensated employees,
565
00:22:52.320 --> 00:22:53.820
as well as low wage earners.
566
00:22:53.820 --> 00:22:56.790
And owners, people who are owning something
567
00:22:56.790 --> 00:22:58.080
and making a lot of money.
568
00:22:58.080 --> 00:22:58.913
Right.
569
00:22:58.913 --> 00:23:00.870
So the the issue is, is that the scheme
570
00:23:00.870 --> 00:23:05.790
that 7/11 has set up here is it calls these people owners
571
00:23:05.790 --> 00:23:07.530
and they're not really owning something
572
00:23:07.530 --> 00:23:09.660
'cause they're not really running their own business.
573
00:23:09.660 --> 00:23:10.493
Franchise.
574
00:23:10.493 --> 00:23:11.370
A traditional franchise,
575
00:23:11.370 --> 00:23:14.010
the problem is, is the word franchise brings up visions
576
00:23:14.010 --> 00:23:15.060
of McDonald's.
577
00:23:15.060 --> 00:23:16.080
And you think of someone
578
00:23:16.080 --> 00:23:17.910
who's running this big fast food restaurant
579
00:23:17.910 --> 00:23:19.560
and they must be making millions of dollars
580
00:23:19.560 --> 00:23:22.080
'cause why else would they invest in it?
581
00:23:22.080 --> 00:23:24.840
It's a largely an immigrant workforce
582
00:23:24.840 --> 00:23:27.630
who have been put in this situation
583
00:23:27.630 --> 00:23:29.340
where they pay all this money,
584
00:23:29.340 --> 00:23:31.500
thinking that they will be able to run their own business.
585
00:23:31.500 --> 00:23:33.060
But when you actually get into the weeds of it,
586
00:23:33.060 --> 00:23:37.260
they are just carrying out the detailed instructions
587
00:23:37.260 --> 00:23:39.480
that 7/11 has asked them to carry out.
588
00:23:39.480 --> 00:23:41.010
And no different from managers.
589
00:23:41.010 --> 00:23:42.540
This is not like McDonald's
590
00:23:42.540 --> 00:23:46.020
or traditional franchises where in a traditional franchise,
591
00:23:46.020 --> 00:23:49.260
the franchisee pays 3 or 4% as
592
00:23:49.260 --> 00:23:51.900
as a franchise royalty fee to the franchisor.
593
00:23:51.900 --> 00:23:53.690
Here it's 50%-
594
00:23:53.690 --> 00:23:54.523
But that's my question.
595
00:23:54.523 --> 00:23:55.860
Which is fundamentally different.
596
00:23:55.860 --> 00:23:57.363
That's my question, though.
597
00:23:58.500 --> 00:24:01.803
Is that person also an employee under your world?
598
00:24:02.850 --> 00:24:04.650
Do the distinction.
599
00:24:04.650 --> 00:24:06.630
I understand you're saying these people
600
00:24:06.630 --> 00:24:08.400
like the janitors being exploited
601
00:24:08.400 --> 00:24:10.500
and you may very well be right,
602
00:24:10.500 --> 00:24:13.530
but this other franchise
603
00:24:13.530 --> 00:24:15.180
where you're making lots of money
604
00:24:15.180 --> 00:24:16.650
and it's only 3% profit,
605
00:24:16.650 --> 00:24:17.730
whatever you're talking about,
606
00:24:17.730 --> 00:24:19.470
are those also employees?
607
00:24:19.470 --> 00:24:20.970
No, I don't think they are.
608
00:24:20.970 --> 00:24:23.490
And I think the answer is really gonna come more when we get
609
00:24:23.490 --> 00:24:25.620
to the ABC Test under Prong B
610
00:24:25.620 --> 00:24:30.270
because I don't think that McDonald's is a hamburger seller.
611
00:24:30.270 --> 00:24:32.730
I think McDonald's is known as a franchisor,
612
00:24:32.730 --> 00:24:35.070
whereas 7/11, the way it holds itself out,
613
00:24:35.070 --> 00:24:37.260
it is in the convenience store business.
614
00:24:37.260 --> 00:24:39.390
You're walking down a slippery slope then.
615
00:24:39.390 --> 00:24:42.180
No, I'm explaining why courts,
616
00:24:42.180 --> 00:24:45.000
other than you're right with the garage owners
617
00:24:45.000 --> 00:24:47.970
in Sebago courts have not in Massachusetts really dwelled
618
00:24:47.970 --> 00:24:52.350
on this as a threshold inquiry that has any teeth to it.
619
00:24:52.350 --> 00:24:55.920
And when California expressly looked around the country
620
00:24:55.920 --> 00:24:58.020
and the California Supreme Court had decided
621
00:24:58.020 --> 00:25:00.900
to adopt the Massachusetts ABC Test
622
00:25:00.900 --> 00:25:03.960
because it was the strongest test around,
623
00:25:03.960 --> 00:25:06.750
there's been a lot of litigation now about that test
624
00:25:06.750 --> 00:25:09.300
that California expressly plucked out
625
00:25:09.300 --> 00:25:10.860
from Massachusetts and applied.
626
00:25:10.860 --> 00:25:12.270
And the courts there said
627
00:25:12.270 --> 00:25:14.850
that this initial inquiry providing services
628
00:25:14.850 --> 00:25:16.050
that's not in inquiry,
629
00:25:16.050 --> 00:25:17.880
we're not going to use that to limit
630
00:25:17.880 --> 00:25:20.100
who we apply the ABC Test to.
631
00:25:20.100 --> 00:25:21.450
We do.
632
00:25:21.450 --> 00:25:23.970
So you're saying McDonald's franchisees are different,
633
00:25:23.970 --> 00:25:25.890
they would survive the threshold question
634
00:25:25.890 --> 00:25:27.120
or would, I guess...
635
00:25:27.120 --> 00:25:27.953
No, you're saying that-
636
00:25:27.953 --> 00:25:29.730
No, I'm saying when you get to the ABC Test,
637
00:25:29.730 --> 00:25:31.140
there may be a different analysis.
638
00:25:31.140 --> 00:25:31.983
Correct.
639
00:25:33.180 --> 00:25:37.530
McDonald's franchisees are also performing a service
640
00:25:37.530 --> 00:25:38.363
for McDonald's
641
00:25:38.363 --> 00:25:39.270
'cause it's such a low bar.
642
00:25:39.270 --> 00:25:40.103
Yeah.
643
00:25:40.103 --> 00:25:40.936
Yes, exactly.
644
00:25:40.936 --> 00:25:42.000
'Cause I just wanna caution this court
645
00:25:42.000 --> 00:25:43.590
that if you even thinking
646
00:25:43.590 --> 00:25:46.320
that this is protecting the Wage Act for being used
647
00:25:46.320 --> 00:25:49.953
to protect multimillion dollar earners,
648
00:25:52.350 --> 00:25:54.210
if you allow this threshold inquiry
649
00:25:54.210 --> 00:25:58.620
to become an actual gatekeeper in a way
650
00:25:58.620 --> 00:26:00.690
that it really hasn't been in all the dozens
651
00:26:00.690 --> 00:26:02.490
and dozens of cases that have been decided
652
00:26:02.490 --> 00:26:03.323
in the Commonwealth,
653
00:26:03.323 --> 00:26:06.000
it is going to be misused by employers
654
00:26:06.000 --> 00:26:06.930
who are going to say,
655
00:26:06.930 --> 00:26:10.530
see you worker in different industry,
656
00:26:10.530 --> 00:26:12.420
you don't even perform services.
657
00:26:12.420 --> 00:26:13.620
We're not even gonna let you get
658
00:26:13.620 --> 00:26:15.900
to the very worker friendly ABC Test.
659
00:26:15.900 --> 00:26:18.300
It is going to be abused and misused
660
00:26:18.300 --> 00:26:21.510
and I urge the court not to allow that to happen.
661
00:26:21.510 --> 00:26:22.343
Okay.
662
00:26:22.343 --> 00:26:23.176
Thank you.
663
00:26:23.176 --> 00:26:24.009
Thank you.
664
00:26:24.930 --> 00:26:26.193
Attorney Kravitz.
665
00:26:31.740 --> 00:26:32.940
Thank you, Chief Justice Budd.
666
00:26:32.940 --> 00:26:34.050
May it please the court,
667
00:26:34.050 --> 00:26:36.543
David Kravitz on behalf of the Attorney General.
668
00:26:37.950 --> 00:26:39.960
We asked to participate in this argument
669
00:26:39.960 --> 00:26:41.490
as we did in the First Circuit
670
00:26:41.490 --> 00:26:44.760
because we view the presented in this case
671
00:26:44.760 --> 00:26:46.830
as an extremely significant one.
672
00:26:46.830 --> 00:26:51.150
The threshold inquiry under Section 148B is implicated
673
00:26:51.150 --> 00:26:53.760
in literally every misclassification case
674
00:26:53.760 --> 00:26:55.170
that is brought in the Commonwealth,
675
00:26:55.170 --> 00:26:58.290
whether by the Attorney General or by private parties.
676
00:26:58.290 --> 00:27:01.320
And the federal district court's approach
677
00:27:01.320 --> 00:27:04.350
to resolving the question was, in our view,
678
00:27:04.350 --> 00:27:06.480
not consistent with the text of the statute
679
00:27:06.480 --> 00:27:09.840
and not consistent with this court's case law.
680
00:27:09.840 --> 00:27:12.330
This court is well familiar with the harms
681
00:27:12.330 --> 00:27:13.800
of misclassification
682
00:27:13.800 --> 00:27:17.610
as it recently summarized in the Patel case earlier
683
00:27:17.610 --> 00:27:19.380
in this very litigation.
684
00:27:19.380 --> 00:27:20.460
It harms workers.
685
00:27:20.460 --> 00:27:22.680
It harms businesses that play by the rules.
686
00:27:22.680 --> 00:27:25.467
And it harms state and federal governments.
687
00:27:25.467 --> 00:27:27.450
The AG's position is
688
00:27:27.450 --> 00:27:31.140
that the franchise fee itself satisfies
689
00:27:31.140 --> 00:27:32.370
the threshold inquiry.
690
00:27:32.370 --> 00:27:34.459
Not the franchise fee necessarily. Okay. So
691
00:27:34.459 --> 00:27:36.600
What is the position?
692
00:27:36.600 --> 00:27:37.530
So our view,
693
00:27:37.530 --> 00:27:39.730
just to sort of cut to the chase, I suppose,
694
00:27:41.700 --> 00:27:45.810
is that if you look at what happened in Sebago,
695
00:27:45.810 --> 00:27:50.418
it is clear that when the revenue flowing to the employer,
696
00:27:50.418 --> 00:27:53.047
the putative employer is, quote,
697
00:27:53.047 --> 00:27:55.923
"directly dependent on the work," unquote,
698
00:27:56.807 --> 00:27:58.270
of the worker,
699
00:27:58.270 --> 00:28:00.690
whatever work the worker may be doing,
700
00:28:00.690 --> 00:28:03.780
then that gets you over the threshold inquiry
701
00:28:03.780 --> 00:28:05.580
and that gets you into the ABC Test.
702
00:28:05.580 --> 00:28:06.413
So here-
703
00:28:06.413 --> 00:28:07.246
Let's talk about that.
704
00:28:07.246 --> 00:28:08.740
The radio dispatchers in that case,
705
00:28:08.740 --> 00:28:10.417
which is where that comes from, right?
706
00:28:10.417 --> 00:28:11.370
[Attorney Kravitz] Correct.
707
00:28:11.370 --> 00:28:14.580
Were, actually, they had clients
708
00:28:14.580 --> 00:28:16.740
for whom they were giving vouchers
709
00:28:16.740 --> 00:28:20.557
and the drivers were performing that work.
710
00:28:20.557 --> 00:28:21.657
[Attorney Kravitz] Correct.
711
00:28:21.657 --> 00:28:23.130
And so it's more than
712
00:28:23.130 --> 00:28:27.630
just the dispatcher's revenue was directly dependent
713
00:28:27.630 --> 00:28:29.310
on the driver's work.
714
00:28:29.310 --> 00:28:32.010
It was that the work being done was directly
715
00:28:32.010 --> 00:28:34.440
for the dispatcher's clients.
716
00:28:34.440 --> 00:28:37.410
And I think that that was 7/11's point.
717
00:28:37.410 --> 00:28:38.243
It's brief.
718
00:28:38.243 --> 00:28:39.840
I'm not being particularly unique,
719
00:28:39.840 --> 00:28:41.370
but can you respond to that?
720
00:28:41.370 --> 00:28:42.203
Sure.
721
00:28:42.203 --> 00:28:43.350
No, I mean, I think the work
722
00:28:43.350 --> 00:28:44.340
that the drivers were doing,
723
00:28:44.340 --> 00:28:47.190
remember the drivers were at the end of the day
724
00:28:47.190 --> 00:28:50.490
in Sebago were not deemed to be the employees
725
00:28:50.490 --> 00:28:52.320
of either the medallion owners
726
00:28:52.320 --> 00:28:54.120
or of the radio associations.
727
00:28:54.120 --> 00:28:55.980
They were deemed to be independent contractors.
728
00:28:55.980 --> 00:28:57.780
So the work they were doing was work they were doing
729
00:28:57.780 --> 00:28:58.613
for themselves.
730
00:28:58.613 --> 00:29:01.500
They were making money by taking fares
731
00:29:01.500 --> 00:29:04.470
and driving passengers around the city.
732
00:29:04.470 --> 00:29:07.867
The key point from Sebago again is, quote,
733
00:29:07.867 --> 00:29:10.290
"the revenue flowing to the radio association
734
00:29:10.290 --> 00:29:12.900
through the voucher program is directly dependent
735
00:29:12.900 --> 00:29:15.840
on the driver's work of transporting passengers."
736
00:29:15.840 --> 00:29:18.420
And the court went on to say that the plan,
737
00:29:18.420 --> 00:29:20.130
the drivers were not required
738
00:29:20.130 --> 00:29:21.930
to participate in the voucher program.
739
00:29:21.930 --> 00:29:24.090
They presumably could have not taken vouchers
740
00:29:24.090 --> 00:29:25.200
and just said it was casually.
741
00:29:25.200 --> 00:29:26.033
Well, they did.
742
00:29:26.033 --> 00:29:27.000
But they did.
743
00:29:27.000 --> 00:29:28.410
And because they did,
744
00:29:28.410 --> 00:29:29.760
that is precisely what they did.
745
00:29:29.760 --> 00:29:33.120
That constituted a service for the radio associations
746
00:29:33.120 --> 00:29:36.180
because it's 8 cents on every dollar
747
00:29:36.180 --> 00:29:37.290
that was going to the radio.
748
00:29:37.290 --> 00:29:38.730
So that's where they make their money.
749
00:29:38.730 --> 00:29:40.080
And so that is the service.
750
00:29:40.080 --> 00:29:41.640
Position is that it doesn't matter
751
00:29:41.640 --> 00:29:43.560
that the work was being performed
752
00:29:43.560 --> 00:29:46.173
for the dispatcher's clients?
753
00:29:48.300 --> 00:29:49.133
That's correct.
754
00:29:49.133 --> 00:29:50.730
I mean, the work that the...
755
00:29:50.730 --> 00:29:53.010
Again, the drivers were working for themselves
756
00:29:53.010 --> 00:29:53.843
to make money.
757
00:29:53.843 --> 00:29:55.980
They were driving the corporate clients around.
758
00:29:55.980 --> 00:29:56.970
Absolutely.
759
00:29:56.970 --> 00:29:58.560
But you can work for yourself to make money
760
00:29:58.560 --> 00:30:00.483
and also do the work of your employer.
761
00:30:01.939 --> 00:30:02.772
[Attorney Kravitz] Sure.
762
00:30:02.772 --> 00:30:03.605
I suppose so.
763
00:30:03.605 --> 00:30:06.300
That's exactly what the dispatcher's situation was,
764
00:30:06.300 --> 00:30:09.840
that they got the call from the client
765
00:30:09.840 --> 00:30:12.270
and then they said, "Yeah, we'll give you a ride."
766
00:30:12.270 --> 00:30:16.500
And some driver did perform the work.
767
00:30:16.500 --> 00:30:17.970
Yeah, some driver did.
768
00:30:17.970 --> 00:30:20.100
Your position, though, is that it doesn't matter
769
00:30:20.100 --> 00:30:23.430
whether or not that work was performed by the driver
770
00:30:23.430 --> 00:30:27.750
so long as the dispatcher's revenues were somehow dependent.
771
00:30:27.750 --> 00:30:29.220
Our position is yes,
772
00:30:29.220 --> 00:30:30.210
our position is that
773
00:30:30.210 --> 00:30:32.910
where the revenues are directly dependent on the work
774
00:30:32.910 --> 00:30:34.800
that the drivers are doing.
775
00:30:34.800 --> 00:30:37.320
I think this is what Sebago held,
776
00:30:37.320 --> 00:30:38.700
that that is enough,
777
00:30:38.700 --> 00:30:40.560
that gets you over the threshold inquiry.
778
00:30:40.560 --> 00:30:42.570
And again, significantly, I think,
779
00:30:42.570 --> 00:30:43.590
for this case,
780
00:30:43.590 --> 00:30:45.000
as well as that case
781
00:30:45.000 --> 00:30:46.350
that gets you into the ABC Test
782
00:30:46.350 --> 00:30:48.690
and we don't know what the result will be in the ABC Test.
783
00:30:48.690 --> 00:30:52.980
Your position is that performing any services means
784
00:30:54.150 --> 00:30:57.663
that the putative employer receives some revenue.
785
00:30:58.800 --> 00:31:00.840
Some revenue that is directly dependent
786
00:31:00.840 --> 00:31:01.920
on the work of the plaintiffs.
787
00:31:01.920 --> 00:31:02.790
That is one way
788
00:31:02.790 --> 00:31:06.240
of satisfying the performing any service inquiry.
789
00:31:06.240 --> 00:31:08.520
There may well be other ways.
790
00:31:08.520 --> 00:31:11.610
And it may be that other things that the franchisees
791
00:31:11.610 --> 00:31:14.167
in this case are doing would also satisfy the inquiry.
792
00:31:14.167 --> 00:31:17.610
How would any franchise survive in Massachusetts
793
00:31:17.610 --> 00:31:19.080
under the threshold inquiry?
794
00:31:19.080 --> 00:31:21.270
Or are you saying that's just such a modest inquiry
795
00:31:21.270 --> 00:31:25.620
that the ABC Test will solve
796
00:31:25.620 --> 00:31:26.693
for any franchise?
797
00:31:26.693 --> 00:31:28.950
I mean, I think this court addressed
798
00:31:28.950 --> 00:31:31.680
that very issue in its previous iteration
799
00:31:31.680 --> 00:31:33.000
in this case in the Patel case
800
00:31:33.000 --> 00:31:35.400
where the argument was made
801
00:31:35.400 --> 00:31:37.800
that if you allow the ABC Test,
802
00:31:37.800 --> 00:31:40.710
if you allow Section 148B to be applied to franchising,
803
00:31:40.710 --> 00:31:42.570
it will end franchising in Massachusetts.
804
00:31:42.570 --> 00:31:43.851
This court-
805
00:31:43.851 --> 00:31:45.690
And AG's position in that case was it will not.
806
00:31:45.690 --> 00:31:46.523
Correct.
807
00:31:46.523 --> 00:31:47.356
And that's what this court said.
808
00:31:47.356 --> 00:31:48.600
This court said, in fact, it will not,
809
00:31:48.600 --> 00:31:50.070
there's no reason to think that it will.
810
00:31:50.070 --> 00:31:53.370
And it describes 7/11's argument as a faulty premise
811
00:31:53.370 --> 00:31:54.690
that there will be no way for them
812
00:31:54.690 --> 00:31:56.904
to get out from under the ABC Test.
813
00:31:56.904 --> 00:32:00.270
So does every franchise...
814
00:32:00.270 --> 00:32:01.950
I'm just trying to understand is,
815
00:32:01.950 --> 00:32:03.450
is there any limitations on this?
816
00:32:03.450 --> 00:32:05.820
Again, the guy-
817
00:32:05.820 --> 00:32:06.840
I think it's gonna be-
818
00:32:06.840 --> 00:32:10.110
Owns the franchises making multimillion dollars
819
00:32:10.110 --> 00:32:11.520
from profits.
820
00:32:11.520 --> 00:32:16.520
The AG's view is that person's covered by the Wage Act,
821
00:32:16.645 --> 00:32:17.478
that's what the way-
822
00:32:17.478 --> 00:32:18.570
Well, they're absolutely covered.
823
00:32:18.570 --> 00:32:20.280
I mean, they may be covered by the Wage Act.
824
00:32:20.280 --> 00:32:21.494
As my colleague said,
825
00:32:21.494 --> 00:32:24.360
there's no earning limitation under the Wage Act.
826
00:32:24.360 --> 00:32:25.980
Even if they don't work there,
827
00:32:25.980 --> 00:32:27.120
if they don't do anything there?
828
00:32:27.120 --> 00:32:29.100
It's gonna be a question of the facts of every case.
829
00:32:29.100 --> 00:32:30.210
But just bear with me.
830
00:32:30.210 --> 00:32:31.800
You own the franchise,
831
00:32:31.800 --> 00:32:33.690
you're making a lot of profits.
832
00:32:33.690 --> 00:32:35.610
I'm not saying that's this case.
833
00:32:35.610 --> 00:32:37.020
But you own the franchise,
834
00:32:37.020 --> 00:32:37.853
you make profits,
835
00:32:37.853 --> 00:32:39.990
and you don't do any work there.
836
00:32:39.990 --> 00:32:41.430
You hire the employees
837
00:32:41.430 --> 00:32:42.960
and you don't do any work.
838
00:32:42.960 --> 00:32:45.390
Are you still covered by the Wage Act according to the-
839
00:32:45.390 --> 00:32:47.460
I mean, the question for purposes
840
00:32:47.460 --> 00:32:48.750
of the threshold inquiry is,
841
00:32:48.750 --> 00:32:51.750
are you providing services to the putative employee?
842
00:32:51.750 --> 00:32:52.583
I know.
843
00:32:52.583 --> 00:32:54.510
I don't know what the answer to that will be
844
00:32:54.510 --> 00:32:56.010
in a hypothetical world.
845
00:32:56.010 --> 00:32:57.600
There's no way to answer that question.
846
00:32:57.600 --> 00:32:59.190
Well, help me out then
847
00:32:59.190 --> 00:33:02.280
because do the services have nothing to do with employment?
848
00:33:02.280 --> 00:33:05.103
'Cause the Wage Act is an employment act, isn't it?
849
00:33:06.270 --> 00:33:09.780
Well, I mean, sure the Wage Act has to do with employment,
850
00:33:09.780 --> 00:33:12.420
but I think it would be that this court has rejected.
851
00:33:12.420 --> 00:33:13.440
I think you're telling me, though,
852
00:33:13.440 --> 00:33:15.480
the performance of services has nothing
853
00:33:15.480 --> 00:33:16.773
to do with employment.
854
00:33:18.780 --> 00:33:20.310
Well, it depends.
Is that what you're saying?
855
00:33:20.310 --> 00:33:21.180
It depends what you mean.
Because I really
856
00:33:21.180 --> 00:33:22.084
can't figure out.
857
00:33:22.084 --> 00:33:23.353
If you're saying that employment means work for pay-
858
00:33:23.353 --> 00:33:24.390
I can't.
859
00:33:24.390 --> 00:33:26.370
Well, employment means I go to work
860
00:33:26.370 --> 00:33:29.490
and I get paid to do work in the place
861
00:33:29.490 --> 00:33:31.560
as opposed to I own the business.
862
00:33:31.560 --> 00:33:33.210
So if I may,
863
00:33:33.210 --> 00:33:34.540
I think what you're saying...
864
00:33:34.540 --> 00:33:37.320
Well, I can't follow what the AG is saying,
865
00:33:37.320 --> 00:33:40.200
so tell me what it means.
866
00:33:40.200 --> 00:33:42.678
Is the AG saying if I own the business
867
00:33:42.678 --> 00:33:44.850
and it's a franchise business
868
00:33:44.850 --> 00:33:48.153
and I don't do any hours there,
869
00:33:49.140 --> 00:33:50.790
I'm still an employee?
870
00:33:50.790 --> 00:33:52.020
Physically in the store.
871
00:33:52.020 --> 00:33:52.890
Is that your question?
872
00:33:52.890 --> 00:33:53.820
Yeah.
873
00:33:53.820 --> 00:33:56.790
I don't know that there's a geographical limitation
874
00:33:56.790 --> 00:33:59.120
in Section 148B.
875
00:33:59.120 --> 00:34:00.000
I don't know.
But there's no difference
876
00:34:00.000 --> 00:34:03.150
between owners and employees then under the Wage Act
877
00:34:03.150 --> 00:34:05.073
in the franchise context.
878
00:34:05.923 --> 00:34:08.073
That's what I'm struggling with.
879
00:34:08.970 --> 00:34:10.950
It's gonna depend on the terms
880
00:34:10.950 --> 00:34:12.870
of any particular franchise agreement.
881
00:34:12.870 --> 00:34:16.140
There may well be ways of designing a franchise agreement
882
00:34:16.140 --> 00:34:18.180
that would not constitute performing services
883
00:34:18.180 --> 00:34:19.013
for the employer.
884
00:34:19.013 --> 00:34:20.601
I don't know.
885
00:34:20.601 --> 00:34:23.070
I mean, again, you're our best guide
886
00:34:23.070 --> 00:34:25.110
on what the legislature was intending.
887
00:34:25.110 --> 00:34:27.960
You think the legislatures intending
888
00:34:27.960 --> 00:34:31.650
for owners who are really being paid out of profits
889
00:34:31.650 --> 00:34:36.650
to also being employees in all these franchise agreements.
890
00:34:36.690 --> 00:34:38.075
I'm just trying to understand
891
00:34:38.075 --> 00:34:39.825
if that's the AG's position or not.
892
00:34:40.860 --> 00:34:44.070
Again, well, obviously not taking any position
893
00:34:44.070 --> 00:34:47.220
on how the ABC Test is going to apply in this case
894
00:34:47.220 --> 00:34:48.717
'cause that's the ultimate question.
895
00:34:48.717 --> 00:34:49.921
Are they employees?
896
00:34:49.921 --> 00:34:53.850
The ABC Test cross references services.
897
00:34:53.850 --> 00:34:55.590
The first prong of the thing goes,
898
00:34:55.590 --> 00:34:57.060
the individual is free from control
899
00:34:57.060 --> 00:34:58.530
and direction in connection with the performance
900
00:34:58.530 --> 00:34:59.760
of the service.
901
00:34:59.760 --> 00:35:00.593
Then the next one,
902
00:35:00.593 --> 00:35:02.730
the service is performed outside the usual course
903
00:35:02.730 --> 00:35:03.563
of business.
904
00:35:04.710 --> 00:35:05.670
I'm just trying to understand,
905
00:35:05.670 --> 00:35:09.600
does service include any that you do work
906
00:35:09.600 --> 00:35:11.463
as opposed to you own the business?
907
00:35:12.570 --> 00:35:15.810
I mean, service has always been understood by this court
908
00:35:15.810 --> 00:35:17.550
as a very broad word.
909
00:35:17.550 --> 00:35:20.460
Had the legislature intended to narrow it,
910
00:35:20.460 --> 00:35:22.740
it surely would either have defined the word service,
911
00:35:22.740 --> 00:35:23.970
which it did not do.
912
00:35:23.970 --> 00:35:26.550
Or it could have done what the statutes in New Jersey
913
00:35:26.550 --> 00:35:29.985
and Indiana did that were cited by 7/11,
914
00:35:29.985 --> 00:35:31.170
the ACNC dogs cases
915
00:35:31.170 --> 00:35:33.360
and the Kirby case could have added in words
916
00:35:33.360 --> 00:35:36.060
like services performed for remuneration.
917
00:35:36.060 --> 00:35:37.980
That looks a lot like work for pay.
918
00:35:37.980 --> 00:35:39.180
That is the argument.
919
00:35:39.180 --> 00:35:40.350
That is essentially the position
920
00:35:40.350 --> 00:35:41.730
that the district court adopted.
921
00:35:41.730 --> 00:35:43.110
That's essentially what 7/11
922
00:35:43.110 --> 00:35:45.300
and some of it's amici are urging here,
923
00:35:45.300 --> 00:35:48.900
but those words do not appear in Section 148B.
924
00:35:48.900 --> 00:35:51.270
And so I think the answer
925
00:35:51.270 --> 00:35:53.730
to the question is the statute essentially says
926
00:35:53.730 --> 00:35:56.670
what it says if there's a problem with the statute,
927
00:35:56.670 --> 00:35:58.590
that is a question for the legislature,
928
00:35:58.590 --> 00:35:59.490
not for this court.
929
00:35:59.490 --> 00:36:02.250
When a franchisee is a corporation,
930
00:36:02.250 --> 00:36:04.147
I know you heard this question I asked.
931
00:36:04.147 --> 00:36:06.630
[Attorney Kravitz] Yeah.
932
00:36:06.630 --> 00:36:08.647
Who is the employee-
933
00:36:08.647 --> 00:36:12.180
Yeah, so this court has actually addressed
934
00:36:12.180 --> 00:36:13.950
that question in a case called Chambers.
935
00:36:13.950 --> 00:36:15.720
I'm not sure it's in any of the party's briefing,
936
00:36:15.720 --> 00:36:19.740
but the citation is 476 mass 95.
937
00:36:19.740 --> 00:36:21.360
It's from 2016.
938
00:36:21.360 --> 00:36:23.880
And the court said in that case that just
939
00:36:23.880 --> 00:36:27.090
because there's a corporate form,
940
00:36:27.090 --> 00:36:27.960
that does not mean
941
00:36:27.960 --> 00:36:30.360
that you can't bring a misclassification game.
942
00:36:30.360 --> 00:36:34.170
It's a very intensely fact-based determination.
943
00:36:34.170 --> 00:36:37.860
And I do not know whether the franchisees
944
00:36:37.860 --> 00:36:40.890
that our corporations in this case would qualify or not.
945
00:36:40.890 --> 00:36:41.820
I just don't.
946
00:36:41.820 --> 00:36:44.700
I'm not sufficiently familiar with the record to statement.
947
00:36:44.700 --> 00:36:45.533
I'm sorry.
948
00:36:45.533 --> 00:36:48.360
Is performing any service,
949
00:36:48.360 --> 00:36:51.000
if we adopt the AG's position,
950
00:36:51.000 --> 00:36:56.000
it means that the employer's revenue is directly dependent
951
00:36:56.640 --> 00:36:57.870
on the work?
952
00:36:57.870 --> 00:37:00.300
What implications have you thought of
953
00:37:00.300 --> 00:37:03.243
for the word service in the ABC Test?
954
00:37:05.340 --> 00:37:07.600
If performing any service means
955
00:37:08.640 --> 00:37:11.610
employer's revenue is directly dependent
956
00:37:11.610 --> 00:37:13.740
on the employee's work.
957
00:37:13.740 --> 00:37:16.203
That's one way of satisfying it, yes.
958
00:37:17.280 --> 00:37:20.850
What implications would that have on the ABC Test
959
00:37:20.850 --> 00:37:22.803
that uses the word service as well?
960
00:37:24.240 --> 00:37:25.170
I guess I'm not sure
961
00:37:25.170 --> 00:37:26.490
I'm following your question.
962
00:37:26.490 --> 00:37:27.630
The same question you asked.
963
00:37:27.630 --> 00:37:29.490
All right, I'll figure it out.
964
00:37:29.490 --> 00:37:30.642
Thank you.
965
00:37:30.642 --> 00:37:32.741
(attendees laughing)
966
00:37:32.741 --> 00:37:33.574
Okay.
967
00:37:33.574 --> 00:37:34.407
Thank you.
Thank you.
968
00:37:37.800 --> 00:37:39.840
Okay, Attorney Leon.
969
00:37:39.840 --> 00:37:41.430
No, no, take your time.
970
00:37:41.430 --> 00:37:42.363
Take your time.
971
00:37:46.320 --> 00:37:47.153
One second.
972
00:37:47.153 --> 00:37:48.093
Yes, of course.
973
00:37:57.810 --> 00:37:58.643
Thank you, Your Honors.
974
00:37:58.643 --> 00:37:59.476
May it please the court.
975
00:37:59.476 --> 00:38:01.503
Norman Leon for the appellee, 7/11.
976
00:38:02.400 --> 00:38:05.280
Your Honors, the answer to the very narrow
977
00:38:05.280 --> 00:38:06.390
certified question,
978
00:38:06.390 --> 00:38:10.170
which is specific to franchised businesses must be no,
979
00:38:10.170 --> 00:38:12.630
because there is nothing about that test
980
00:38:12.630 --> 00:38:15.120
that distinguishes legitimate business relationships
981
00:38:15.120 --> 00:38:16.770
from misclassification
982
00:38:16.770 --> 00:38:19.560
and there is no limiting principle whatsoever.
983
00:38:19.560 --> 00:38:22.980
It would turn an untold number of ordinary,
984
00:38:22.980 --> 00:38:25.680
legitimate business relationships immediately
985
00:38:25.680 --> 00:38:27.690
into presumptive employment relationships.
986
00:38:27.690 --> 00:38:29.040
And Justice Wendlandt,
987
00:38:29.040 --> 00:38:30.330
to go back to your question,
988
00:38:30.330 --> 00:38:32.130
which was not really answered,
989
00:38:32.130 --> 00:38:35.130
there is no limiting principle here at all
990
00:38:35.130 --> 00:38:37.800
because every single franchisor would
991
00:38:37.800 --> 00:38:39.540
immediately wake up tomorrow
992
00:38:39.540 --> 00:38:42.570
as a presumptive employer of all of its franchisees
993
00:38:42.570 --> 00:38:43.740
in the Commonwealth
994
00:38:43.740 --> 00:38:46.170
if the answer to the certified question was yes.
995
00:38:46.170 --> 00:38:47.160
And let me explain why.
996
00:38:47.160 --> 00:38:50.688
But isn't that the whole point
997
00:38:50.688 --> 00:38:53.970
of the low threshold inquiry
998
00:38:53.970 --> 00:38:56.820
that that it's almost a presumption that yes,
999
00:38:56.820 --> 00:38:58.740
you are an employer?
1000
00:38:58.740 --> 00:39:00.230
I mean, to the AG's point,
1001
00:39:01.230 --> 00:39:04.020
that it's really supposed to be a very low bar.
1002
00:39:04.020 --> 00:39:06.540
I don't see anything in the statutory text
1003
00:39:06.540 --> 00:39:07.740
or the legislative history,
1004
00:39:07.740 --> 00:39:10.830
which indicates that that language in the statutes supposed
1005
00:39:10.830 --> 00:39:11.850
to be given any meaning
1006
00:39:11.850 --> 00:39:13.110
other than its ordinary meaning.
1007
00:39:13.110 --> 00:39:14.220
Service means-
1008
00:39:14.220 --> 00:39:16.230
Well, it is definitely a remedial statute.
1009
00:39:16.230 --> 00:39:17.063
And you've read,
1010
00:39:17.063 --> 00:39:18.720
I'm sure all the cases that I've read
1011
00:39:18.720 --> 00:39:22.170
that say we interpret this thing really broadly.
1012
00:39:22.170 --> 00:39:24.570
It is also the position at least
1013
00:39:24.570 --> 00:39:26.880
that the AG is taking today is inconsistent
1014
00:39:26.880 --> 00:39:28.470
with the position it took previously.
1015
00:39:28.470 --> 00:39:30.570
And the position this court has laid out.
1016
00:39:30.570 --> 00:39:33.120
It was specifically noted by the AG before
1017
00:39:33.120 --> 00:39:36.090
and by Patel that there is nothing in the Wage Act
1018
00:39:36.090 --> 00:39:38.610
that precludes legitimate franchise businesses
1019
00:39:38.610 --> 00:39:40.290
from operating in the commonwealth.
1020
00:39:40.290 --> 00:39:43.110
Take a look at the two prongs that the AG
1021
00:39:43.110 --> 00:39:44.970
and the plaintiffs are telling you should be
1022
00:39:44.970 --> 00:39:45.842
the determination for employment.
1023
00:39:45.842 --> 00:39:47.520
Well, you're not precluded from operating.
1024
00:39:47.520 --> 00:39:51.185
You're gonna have to treat the franchisee
1025
00:39:51.185 --> 00:39:53.910
as an employee is basically what they're...
1026
00:39:53.910 --> 00:39:55.860
I mean, you're not precluded from the relationship.
1027
00:39:55.860 --> 00:39:59.190
You're just not outside the Wage Act is what they're saying.
1028
00:39:59.190 --> 00:40:00.840
Well then there is no franchise relationship.
1029
00:40:00.840 --> 00:40:02.280
You have an employment relationship.
1030
00:40:02.280 --> 00:40:03.960
Well, they're saying you have both.
1031
00:40:03.960 --> 00:40:05.310
I'm not saying I agree with it,
1032
00:40:05.310 --> 00:40:07.920
but that's what they're saying is...
1033
00:40:07.920 --> 00:40:10.260
And you're right, I don't see any limiting principles,
1034
00:40:10.260 --> 00:40:12.660
but I think they're basically saying
1035
00:40:12.660 --> 00:40:15.780
that you're gonna have to abide by the Wage Act laws too,
1036
00:40:15.780 --> 00:40:19.320
for at least every hour that even the owners work.
1037
00:40:19.320 --> 00:40:21.420
No one's even come up with a suggestion
1038
00:40:21.420 --> 00:40:23.010
of how that's feasible.
1039
00:40:23.010 --> 00:40:24.030
It's not feasible,
1040
00:40:24.030 --> 00:40:25.170
meaning you're gonna have
1041
00:40:25.170 --> 00:40:26.730
to change the business structure
1042
00:40:26.730 --> 00:40:28.650
to make it profitable for you.
1043
00:40:28.650 --> 00:40:29.640
I take it.
1044
00:40:29.640 --> 00:40:32.520
But they're arguing the legislature.
1045
00:40:32.520 --> 00:40:34.050
I'm not saying they're right,
1046
00:40:34.050 --> 00:40:36.180
but they're clearly saying
1047
00:40:36.180 --> 00:40:41.180
that everyone there fits the literal meaning of this
1048
00:40:41.550 --> 00:40:45.780
and therefore franchisees are not illegal,
1049
00:40:45.780 --> 00:40:46.613
but they're gonna have
1050
00:40:46.613 --> 00:40:49.110
to change their business model is what they're saying.
1051
00:40:49.110 --> 00:40:50.400
Well, not just franchisees,
1052
00:40:50.400 --> 00:40:52.830
commercial lessors, licensors of patents,
1053
00:40:52.830 --> 00:40:54.300
trademarks, and copyrights-
1054
00:40:54.300 --> 00:40:55.675
Well, I don't know.
Music publishers,
1055
00:40:55.675 --> 00:40:56.558
book publishers.
1056
00:40:56.558 --> 00:41:00.120
Well, why isn't the limiting principle the ABC Test?
1057
00:41:00.120 --> 00:41:03.900
I mean, we still don't have an answer to Justice Kafker
1058
00:41:03.900 --> 00:41:05.310
and Justice Wendlandt's question
1059
00:41:05.310 --> 00:41:08.250
of if we're going to define services
1060
00:41:08.250 --> 00:41:11.220
as the appellants want us to,
1061
00:41:11.220 --> 00:41:14.790
we still have the issue of how you port that definition
1062
00:41:14.790 --> 00:41:16.470
into the ABC Test.
1063
00:41:16.470 --> 00:41:18.990
But why isn't the ABC Test...
1064
00:41:18.990 --> 00:41:23.190
Because it's not as if you meet the low threshold
1065
00:41:23.190 --> 00:41:25.470
and say you're presumptively an employer
1066
00:41:25.470 --> 00:41:28.200
that it ends the inquiry.
1067
00:41:28.200 --> 00:41:30.960
And I do wanna make that point, Your Honor,
1068
00:41:30.960 --> 00:41:31.793
I think that's a great question
1069
00:41:31.793 --> 00:41:32.940
'cause I think with respect,
1070
00:41:32.940 --> 00:41:35.520
the court's being led down the primrose path a little bit
1071
00:41:35.520 --> 00:41:37.770
by that argument and here's why.
1072
00:41:37.770 --> 00:41:39.570
The test that they're proposing
1073
00:41:39.570 --> 00:41:44.070
as the service threshold is exactly the standard
1074
00:41:44.070 --> 00:41:48.600
that this court applied in applying Prong B in Sebago.
1075
00:41:48.600 --> 00:41:49.800
If, Your Honors, will recall,
1076
00:41:49.800 --> 00:41:52.590
the court drew a distinction between cab drivers
1077
00:41:52.590 --> 00:41:56.040
who paid a flat fee to rent the cabs in the medallions
1078
00:41:56.040 --> 00:41:58.890
and Limo drivers who paid a portion of the profits
1079
00:41:58.890 --> 00:42:00.630
to the Limo companies.
1080
00:42:00.630 --> 00:42:01.950
The test that they want,
1081
00:42:01.950 --> 00:42:05.730
this graduated fee being the test for the threshold inquiry,
1082
00:42:05.730 --> 00:42:07.320
that's Prong B.
1083
00:42:07.320 --> 00:42:10.800
That means that if you fail the service threshold,
1084
00:42:10.800 --> 00:42:12.630
you also fail pong Prong B.
1085
00:42:12.630 --> 00:42:14.850
There's no opportunity at all
1086
00:42:14.850 --> 00:42:16.410
to pass the ABC Test.
1087
00:42:16.410 --> 00:42:18.510
And I want to be clear about the record here
1088
00:42:18.510 --> 00:42:20.550
and about the impact on franchising.
1089
00:42:20.550 --> 00:42:21.840
And, Justice Kafker,
1090
00:42:21.840 --> 00:42:22.890
I'm not prepared to believe
1091
00:42:22.890 --> 00:42:25.110
that the Commonwealth is prepared to say
1092
00:42:25.110 --> 00:42:27.030
that every franchise relationship is no longer
1093
00:42:27.030 --> 00:42:28.260
a franchise relationship,
1094
00:42:28.260 --> 00:42:29.910
but an employment relationship.
1095
00:42:29.910 --> 00:42:32.280
The IFA attached to its brief,
1096
00:42:32.280 --> 00:42:34.260
the excerpts from the franchise agreements
1097
00:42:34.260 --> 00:42:36.870
of the best known franchisors in the world,
1098
00:42:36.870 --> 00:42:40.860
Hilton, Marriott, Burger King, McDonald's, Pizza Hut,
1099
00:42:40.860 --> 00:42:43.050
and Dunkin' which has over a thousand locations
1100
00:42:43.050 --> 00:42:44.040
in this state.
1101
00:42:44.040 --> 00:42:46.800
Every single one of those franchise agreements show
1102
00:42:46.800 --> 00:42:49.560
that the franchisees perform some obligations
1103
00:42:49.560 --> 00:42:50.970
to get their franchise.
1104
00:42:50.970 --> 00:42:53.340
Every one of those franchise agreements show
1105
00:42:53.340 --> 00:42:56.700
that the franchisees pay a portion of their profits
1106
00:42:56.700 --> 00:42:59.820
to the franchisor as compensation for the services
1107
00:42:59.820 --> 00:43:00.900
and the rights that they receive
1108
00:43:00.900 --> 00:43:02.160
under the franchise agreements.
1109
00:43:02.160 --> 00:43:04.530
That means that every single one of those franchisees,
1110
00:43:04.530 --> 00:43:05.850
of all of those systems,
1111
00:43:05.850 --> 00:43:09.030
including multimillionaires that own hotels,
1112
00:43:09.030 --> 00:43:11.370
including multimillionaire franchisees
1113
00:43:11.370 --> 00:43:13.260
that are actually public companies,
1114
00:43:13.260 --> 00:43:16.440
are going to figure out that their employees are no longer
1115
00:43:16.440 --> 00:43:17.883
independent contractors.
1116
00:43:18.750 --> 00:43:21.300
I recognize the problem.
1117
00:43:21.300 --> 00:43:24.210
I'm trying to understand how to work
1118
00:43:24.210 --> 00:43:27.090
and so are you, which is services,
1119
00:43:27.090 --> 00:43:31.410
how do we define services in a way that draws distinctions
1120
00:43:31.410 --> 00:43:35.190
between the owner of the Hilton Hotel
1121
00:43:35.190 --> 00:43:39.750
and the cute operator of that janitorial service
1122
00:43:39.750 --> 00:43:43.770
where he's converting his janitors into franchise?
1123
00:43:43.770 --> 00:43:48.180
How do we make this language work to draw that distinction?
1124
00:43:48.180 --> 00:43:49.050
Help us out
1125
00:43:49.050 --> 00:43:50.460
'cause I can't do it.
1126
00:43:50.460 --> 00:43:51.720
I think there's two ways
1127
00:43:51.720 --> 00:43:53.820
and we actually spend a lot of time thinking about this,
1128
00:43:53.820 --> 00:43:56.040
trying to distill the themes from the cases.
1129
00:43:56.040 --> 00:43:58.740
And there really are two.
1130
00:43:58.740 --> 00:44:02.250
And it depends on distinguishing contractual obligations
1131
00:44:02.250 --> 00:44:05.130
that are services versus contractual obligations
1132
00:44:05.130 --> 00:44:08.250
that are conditions to the provision of those services.
1133
00:44:08.250 --> 00:44:11.580
For example, if I hire you to paint my house
1134
00:44:11.580 --> 00:44:14.790
and I say I'm going to pay you $500,
1135
00:44:14.790 --> 00:44:16.350
you're providing a service to me.
1136
00:44:16.350 --> 00:44:18.480
If we put in our contract that I'm gonna pay you
1137
00:44:18.480 --> 00:44:19.980
that amount within 30 days,
1138
00:44:19.980 --> 00:44:23.760
that's a precondition to the provision of those services.
1139
00:44:23.760 --> 00:44:27.330
You tell the difference just as Judge Gordon did
1140
00:44:27.330 --> 00:44:29.070
by following the money.
1141
00:44:29.070 --> 00:44:31.897
People perform services with an expectation.
1142
00:44:31.897 --> 00:44:34.950
Expressor implied that they're going to get paid for it.
1143
00:44:34.950 --> 00:44:37.890
If they don't have an expectation of getting paid,
1144
00:44:37.890 --> 00:44:39.270
that's called a favor.
1145
00:44:39.270 --> 00:44:40.680
And the AG now can sees
1146
00:44:40.680 --> 00:44:43.350
that the ICL is not intended to cover favors.
1147
00:44:43.350 --> 00:44:45.480
We acknowledge, as we did in our brief,
1148
00:44:45.480 --> 00:44:48.360
that that test doesn't cover everything.
1149
00:44:48.360 --> 00:44:51.510
People will come up with attempts to evade the Wage Act.
1150
00:44:51.510 --> 00:44:53.640
But there's a consistent second theme
1151
00:44:53.640 --> 00:44:56.340
that covers all of those cases.
1152
00:44:56.340 --> 00:44:57.240
And this is it.
1153
00:44:57.240 --> 00:44:59.400
And this is the definition that we worked out.
1154
00:44:59.400 --> 00:45:02.400
The first part of it ties back to what Judge Gordon did.
1155
00:45:02.400 --> 00:45:06.480
Service is labor performed for the benefit of another
1156
00:45:06.480 --> 00:45:09.720
for an express or implied promise of a fee
1157
00:45:09.720 --> 00:45:11.310
as in the Black's Law Dictionary.
1158
00:45:11.310 --> 00:45:14.130
And we're the only party that's offered a textual definition
1159
00:45:14.130 --> 00:45:15.900
of the word service, by the way.
1160
00:45:15.900 --> 00:45:17.040
The second part deals
1161
00:45:17.040 --> 00:45:18.780
with the attempts to evade the Wage Act.
1162
00:45:18.780 --> 00:45:20.790
But you've added this word labor,
1163
00:45:20.790 --> 00:45:23.010
service is labor performed for fee.
1164
00:45:23.010 --> 00:45:25.800
That's sort of what I was asking earlier about.
1165
00:45:25.800 --> 00:45:30.800
Is employment a condition of this meaning of service?
1166
00:45:32.940 --> 00:45:35.310
But it doesn't say that, right?
1167
00:45:35.310 --> 00:45:37.053
You've added the word labor.
1168
00:45:38.070 --> 00:45:39.600
Labor work, a benefit,
1169
00:45:39.600 --> 00:45:41.400
I don't think it makes a difference, Your Honor.
1170
00:45:41.400 --> 00:45:43.320
Doing something for another person
1171
00:45:43.320 --> 00:45:45.090
with an expectation of payment,
1172
00:45:45.090 --> 00:45:47.940
that covers virtually every case.
1173
00:45:47.940 --> 00:45:49.980
The only cases it doesn't cover, Your Honor-
1174
00:45:49.980 --> 00:45:52.380
Doesn't it cover the Hilton too?
1175
00:45:52.380 --> 00:45:54.760
They're providing a hotel
1176
00:45:56.550 --> 00:46:00.483
and they're running the hotel and paying Hilton.
1177
00:46:01.878 --> 00:46:02.711
I don't understand
1178
00:46:02.711 --> 00:46:06.420
why the franchisor isn't performing services there.
1179
00:46:06.420 --> 00:46:07.528
The the franchisor is performing-
1180
00:46:07.528 --> 00:46:08.520
Excuse me, the franchisee.
1181
00:46:08.520 --> 00:46:09.960
The franchisee is not
1182
00:46:09.960 --> 00:46:12.930
because there is no expectation from the franchisee
1183
00:46:12.930 --> 00:46:14.970
in that case, the Hilton franchisee,
1184
00:46:14.970 --> 00:46:17.340
that they're going to get a penny of Hilton's money.
1185
00:46:17.340 --> 00:46:19.770
They're going to be compensated by the money
1186
00:46:19.770 --> 00:46:23.460
that they obtain from their own customers renting the rooms.
1187
00:46:23.460 --> 00:46:26.640
Just as 7/11 franchisees never expect
1188
00:46:26.640 --> 00:46:28.890
and never get a penny of Hilton's money.
1189
00:46:28.890 --> 00:46:31.020
Everything that they get is a portion of the money
1190
00:46:31.020 --> 00:46:34.320
that their franchisees generate by selling products
1191
00:46:34.320 --> 00:46:36.690
to their own customers.
1192
00:46:36.690 --> 00:46:38.130
As to the second prime,
1193
00:46:38.130 --> 00:46:40.380
again, recognizing that there are attempts
1194
00:46:40.380 --> 00:46:41.970
to evade the Wage Act out there.
1195
00:46:41.970 --> 00:46:43.650
But hold on a sec.
1196
00:46:43.650 --> 00:46:45.600
I just find it harder than that.
1197
00:46:45.600 --> 00:46:47.433
So in this case,
1198
00:46:48.540 --> 00:46:53.013
the 7/11 is providing a lot of stuff to them.
1199
00:46:55.354 --> 00:46:56.490
And they're providing.
1200
00:46:56.490 --> 00:46:58.680
Aren't they providing a lot of...
1201
00:46:58.680 --> 00:47:00.240
I mean, you're saying the only thing
1202
00:47:00.240 --> 00:47:02.670
they're providing is money back to them.
1203
00:47:02.670 --> 00:47:04.290
They're providing nothing to 7/11.
1204
00:47:04.290 --> 00:47:07.230
They're paying for the services that 7/11 provides.
1205
00:47:07.230 --> 00:47:09.750
7/11 gives them real estate,
1206
00:47:09.750 --> 00:47:11.550
it gives them a trademark license,
1207
00:47:11.550 --> 00:47:13.290
it gives them the right to use equipment,
1208
00:47:13.290 --> 00:47:14.220
and it gives them the right
1209
00:47:14.220 --> 00:47:16.050
to use 7/11's operating system
1210
00:47:16.050 --> 00:47:17.892
that it has honed for decades.
1211
00:47:17.892 --> 00:47:21.210
But 7/11 has given them the name brand.
1212
00:47:21.210 --> 00:47:22.043
Correct.
1213
00:47:22.043 --> 00:47:24.660
It's given them all this information on how
1214
00:47:24.660 --> 00:47:27.090
to run a successful grocery store,
1215
00:47:27.090 --> 00:47:28.413
whatever these things are.
1216
00:47:32.130 --> 00:47:33.570
It's a mutual,
1217
00:47:33.570 --> 00:47:35.302
it's beautifully beneficial.
1218
00:47:35.302 --> 00:47:38.250
They're both providing services to each other.
1219
00:47:38.250 --> 00:47:40.770
They're not providing labor services, I don't know,
1220
00:47:40.770 --> 00:47:43.530
but they're providing some services to each other.
1221
00:47:43.530 --> 00:47:45.360
7/11 is providing services
1222
00:47:45.360 --> 00:47:47.610
to the franchisees for which they pay.
1223
00:47:47.610 --> 00:47:49.410
The franchisees are providing services
1224
00:47:49.410 --> 00:47:51.210
to their own businesses.
1225
00:47:51.210 --> 00:47:53.040
They are doing the things they're supposed
1226
00:47:53.040 --> 00:47:54.630
to do under the franchise agreement,
1227
00:47:54.630 --> 00:47:58.440
both to protect the services that 7/11 is giving them,
1228
00:47:58.440 --> 00:48:00.210
to protect the trademark rights,
1229
00:48:00.210 --> 00:48:01.470
and to protect the brand,
1230
00:48:01.470 --> 00:48:03.000
and to grow their business.
1231
00:48:03.000 --> 00:48:06.210
They don't get paid one penny by 7/11.
1232
00:48:06.210 --> 00:48:09.360
There is no expectation, express or implied,
1233
00:48:09.360 --> 00:48:12.540
that they will ever receive anything from 7/11.
1234
00:48:12.540 --> 00:48:14.010
So, I mean, under your test,
1235
00:48:14.010 --> 00:48:15.693
then 7/11 is the employee?
1236
00:48:17.190 --> 00:48:18.023
I'm sorry.
1237
00:48:18.023 --> 00:48:20.370
I think if you adopted their interpretation,
1238
00:48:20.370 --> 00:48:21.203
then yes, Your Honor.
1239
00:48:21.203 --> 00:48:23.220
No, but even under your test,
1240
00:48:23.220 --> 00:48:25.800
labor for promises of a fee,
1241
00:48:25.800 --> 00:48:29.250
isn't that what 7/11 is providing?
1242
00:48:29.250 --> 00:48:30.720
So that can't be the test.
1243
00:48:30.720 --> 00:48:35.400
Well, I think that that will cover all non-absurd
1244
00:48:35.400 --> 00:48:37.500
employment relationships, Your Honor.
1245
00:48:37.500 --> 00:48:40.680
I think that for the others,
1246
00:48:40.680 --> 00:48:42.540
the consistency theme that runs
1247
00:48:42.540 --> 00:48:45.150
through the commercial cleaning cases,
1248
00:48:45.150 --> 00:48:47.070
the newspaper delivery cases,
1249
00:48:47.070 --> 00:48:50.040
even the exotic dancer cases is this,
1250
00:48:50.040 --> 00:48:53.100
that a service may also be provided in circumstances
1251
00:48:53.100 --> 00:48:56.550
where a putative employer has engaged in a scheme
1252
00:48:56.550 --> 00:48:58.050
to evade the Wage Laws
1253
00:48:58.050 --> 00:49:01.320
such as where an individual provides services
1254
00:49:01.320 --> 00:49:04.260
to a putative employer's own customers.
1255
00:49:04.260 --> 00:49:06.180
And if you think back at all
1256
00:49:06.180 --> 00:49:08.940
of the cases this court has dealt with over the years,
1257
00:49:08.940 --> 00:49:11.190
think about what happened in Sebago,
1258
00:49:11.190 --> 00:49:13.830
think about what happened in the commercial cleaning cases.
1259
00:49:13.830 --> 00:49:15.570
In each one of those cases,
1260
00:49:15.570 --> 00:49:19.980
what was happening was a top tier entity that was using,
1261
00:49:19.980 --> 00:49:21.390
whether you call them employees,
1262
00:49:21.390 --> 00:49:23.130
independent contractors, franchisees,
1263
00:49:23.130 --> 00:49:25.590
whatever they were in that particular case,
1264
00:49:25.590 --> 00:49:27.870
to perform the services
1265
00:49:27.870 --> 00:49:31.530
that they had agreed to provide to their own customers.
1266
00:49:31.530 --> 00:49:36.530
In Sebago, the radio associations were using the drivers
1267
00:49:36.600 --> 00:49:40.110
to provide the services that the radio associations had sold
1268
00:49:40.110 --> 00:49:42.810
to their own customers through the voucher program.
1269
00:49:42.810 --> 00:49:44.210
The concern with respect
1270
00:49:44.210 --> 00:49:46.200
to the medallion owners was the same
1271
00:49:46.200 --> 00:49:48.060
as a concern the advertising.
1272
00:49:48.060 --> 00:49:51.870
The medallion owners had sold advertising space
1273
00:49:51.870 --> 00:49:53.190
on their cabs.
1274
00:49:53.190 --> 00:49:55.470
The drivers were providing those services,
1275
00:49:55.470 --> 00:49:58.410
the ones that the medallion owners sold to their customers
1276
00:49:58.410 --> 00:50:00.540
by driving around with whatever sort of ads were put
1277
00:50:00.540 --> 00:50:01.440
on the cabs.
1278
00:50:01.440 --> 00:50:02.640
In all of those cases,
1279
00:50:02.640 --> 00:50:06.630
in the carry opinion that the AG relies on the same thing.
1280
00:50:06.630 --> 00:50:10.800
So can I ask you to pause there on the medallion owners?
1281
00:50:10.800 --> 00:50:11.633
Yes.
1282
00:50:11.633 --> 00:50:16.620
The ad space circulating
1283
00:50:16.620 --> 00:50:20.310
with each cab was not something a labor
1284
00:50:20.310 --> 00:50:23.975
that the drivers were providing for a fee.
1285
00:50:23.975 --> 00:50:25.379
It was a benefit.
1286
00:50:25.379 --> 00:50:26.580
It was a benefit.
1287
00:50:26.580 --> 00:50:27.413
Yeah.
1288
00:50:27.413 --> 00:50:30.420
So there was definitely a benefit to the medallion owners
1289
00:50:30.420 --> 00:50:33.660
to be able to say, "Hey, look, our guys go out all over."
1290
00:50:33.660 --> 00:50:37.982
But the drivers were not being promised a fee for that.
1291
00:50:37.982 --> 00:50:38.815
[Attorney Liss-Riordan] Correct.
1292
00:50:38.815 --> 00:50:41.670
So how does that fit with your definition?
1293
00:50:41.670 --> 00:50:43.470
Isn't that a problem with your definition?
1294
00:50:43.470 --> 00:50:45.180
It's not a problem with my definition
1295
00:50:45.180 --> 00:50:46.650
because it's covered by the second part
1296
00:50:46.650 --> 00:50:48.090
of the definition, Your Honor.
1297
00:50:48.090 --> 00:50:50.010
They were providing the services
1298
00:50:50.010 --> 00:50:51.690
to the medallion owners' customers
1299
00:50:51.690 --> 00:50:54.300
that the medallion owners agreed to provide.
1300
00:50:54.300 --> 00:50:56.550
They were simply a substitute source
1301
00:50:56.550 --> 00:50:57.960
for the labor necessary
1302
00:50:57.960 --> 00:51:00.243
to provide those advertising services.
1303
00:51:03.900 --> 00:51:05.900
Why can't we just do your second part?
1304
00:51:08.850 --> 00:51:10.140
I think you could do the second one
1305
00:51:10.140 --> 00:51:13.680
other than the fact that I'm not sure that
1306
00:51:13.680 --> 00:51:18.680
that would encompass the traditional employment scenarios
1307
00:51:18.990 --> 00:51:22.020
in which someone expects to be paid for doing work.
1308
00:51:22.020 --> 00:51:25.170
That is the common sense definition of employment.
1309
00:51:25.170 --> 00:51:26.003
Okay.
1310
00:51:27.000 --> 00:51:28.053
Sorry, are you done?
1311
00:51:29.130 --> 00:51:30.300
I just don't understand.
1312
00:51:30.300 --> 00:51:35.010
Say, let's do the 7/11 franchisee
1313
00:51:35.010 --> 00:51:38.583
who's working 12 hour days in that store.
1314
00:51:42.390 --> 00:51:47.390
He or she works the 7:00 AM to 7:00 PM shift.
1315
00:51:47.700 --> 00:51:52.653
And without that 12 hours of work by that person,
1316
00:51:53.640 --> 00:51:56.283
7/11's not making money on that store.
1317
00:51:57.450 --> 00:52:01.170
And that person's not performing services for 7/11 too
1318
00:52:01.170 --> 00:52:05.340
'cause I understand the owner who's never there,
1319
00:52:05.340 --> 00:52:07.350
who's hired a bunch of employees.
1320
00:52:07.350 --> 00:52:09.690
All those employees are covered by the Wage Act
1321
00:52:09.690 --> 00:52:11.130
and protected by the Wage Act
1322
00:52:11.130 --> 00:52:14.250
because that guy is their employer.
1323
00:52:14.250 --> 00:52:19.140
But this person who's sort of the self-employed franchisee,
1324
00:52:19.140 --> 00:52:22.307
which a lot of these people at least are in part,
1325
00:52:22.307 --> 00:52:25.480
isn't that person performing employment services
1326
00:52:28.449 --> 00:52:30.510
'cause without him,
1327
00:52:30.510 --> 00:52:32.253
7/11 doesn't make any money?
1328
00:52:33.150 --> 00:52:34.980
Well, that's not entirely correct, Your Honor.
1329
00:52:34.980 --> 00:52:37.170
7/11 is paid based upon the performance
1330
00:52:37.170 --> 00:52:38.340
of the franchise,
1331
00:52:38.340 --> 00:52:41.280
not based upon the labor of any particular employee.
1332
00:52:41.280 --> 00:52:43.410
Doesn't get a percentage of the gross from that.
1333
00:52:43.410 --> 00:52:45.450
It's a percentage of the gross revenue generated
1334
00:52:45.450 --> 00:52:46.283
by the store.
1335
00:52:47.550 --> 00:52:49.500
By him working 12 hours,
1336
00:52:49.500 --> 00:52:52.533
they're not hiring someone else to work 12 hours.
1337
00:52:53.730 --> 00:52:55.810
And that doesn't that affect the revenues
1338
00:52:56.820 --> 00:52:58.380
That's the same as any business.
1339
00:52:58.380 --> 00:53:01.050
The franchisee can show up and work if they want,
1340
00:53:01.050 --> 00:53:02.340
or they don't have to show up and work.
1341
00:53:02.340 --> 00:53:04.410
Each of these plaintiffs admitted a deposition
1342
00:53:04.410 --> 00:53:05.550
that they work when they want
1343
00:53:05.550 --> 00:53:07.950
and they don't work when they don't wanna work.
1344
00:53:07.950 --> 00:53:09.510
So it's not dependent upon their labor,
1345
00:53:09.510 --> 00:53:11.310
it's dependent upon the store's performance.
1346
00:53:11.310 --> 00:53:13.320
This is a shared economic benefit,
1347
00:53:13.320 --> 00:53:15.780
which this court made clear both in Jinx
1348
00:53:15.780 --> 00:53:18.690
and Patel was not enough to trigger the service inquiry.
1349
00:53:18.690 --> 00:53:21.120
The fact that it's a graduated fee makes
1350
00:53:21.120 --> 00:53:22.380
no difference at all.
1351
00:53:22.380 --> 00:53:26.070
And the AG's brief actually proves this point.
1352
00:53:26.070 --> 00:53:29.010
They say in deciding whether or not something is a service,
1353
00:53:29.010 --> 00:53:29.910
you need to take a look
1354
00:53:29.910 --> 00:53:32.010
at what the worker is actually doing.
1355
00:53:32.010 --> 00:53:32.850
Fine.
1356
00:53:32.850 --> 00:53:34.950
Take a look at what the worker is actually doing.
1357
00:53:34.950 --> 00:53:37.560
Whether the franchise pays a flat fee
1358
00:53:37.560 --> 00:53:41.520
or a graduated fee to 7/11 makes no difference.
1359
00:53:41.520 --> 00:53:42.390
The franchisee,
1360
00:53:42.390 --> 00:53:44.550
to the extent they choose to work in the store,
1361
00:53:44.550 --> 00:53:47.370
will still be doing the exact same thing.
1362
00:53:47.370 --> 00:53:49.470
The only thing that will result will be
1363
00:53:49.470 --> 00:53:51.330
that the payments the franchisees make
1364
00:53:51.330 --> 00:53:53.820
to 7/11 will be entirely inequitable
1365
00:53:53.820 --> 00:53:56.310
because a franchisee that runs a store
1366
00:53:56.310 --> 00:53:58.110
that generates a million dollars a year
1367
00:53:58.110 --> 00:54:00.210
in gross sales should not be paying
1368
00:54:00.210 --> 00:54:02.250
to 7/11 the same amount of money
1369
00:54:02.250 --> 00:54:04.350
that a franchisee that is fortunate enough
1370
00:54:05.891 --> 00:54:10.170
to run a store that makes $7 million a year pays to 7/11.
1371
00:54:10.170 --> 00:54:14.730
This graduated concept exists in all franchises
1372
00:54:14.730 --> 00:54:18.030
so that franchisees pay an equitable amount
1373
00:54:18.030 --> 00:54:21.240
based upon the benefits they receive from the services
1374
00:54:21.240 --> 00:54:23.103
that the franchisors provide.
1375
00:54:25.830 --> 00:54:27.980
Unless the court has any further questions.