-: SJC 13485 Dhananjay Patel versus 7/11 Inc., et al.
(gavel bangs)
-: Okay, Attorney Liss-Riordan.
-: Okay.
Good morning, Your Honors.
I'm Shannon Liss-Riordan for plaintiffs with me,
Matthew Carrieri.
The answer to the certified question
in this case must be yes
because the certified question describes pretty much
every employment relationship that exists.
That is that obligations
or pursuit are performed pursuant to a contract,
well, an agreement that may either be written or implied
and the employer obtains revenue based upon the labor
that's performed by the employee.
So the way
that the First Circuit has certified this question,
there can be no other answer besides for yes
unless the court were to decide
that somehow it should be looked at differently
because this is a franchise
and that's something the court rejected last time.
-: Doesn't apply to every business relationship
that's ever existed too.
Every contract...
Forget about employment contracts.
Doesn't this cover every contract ever created
by mankind as well?
-: Well, part of the answer to that is
by the fact that no court
before the district court
in this case has ever used this predecessor
to the ABC requirements of 148B
as a way of limiting even applying the ABC analysis.
Yes, it's very broad.
What's that?
-: What about Sebago?
Didn't they do the threshold inquiry first?
-: Well, yes, no.
But they did not restrict an analysis of the ABC factors
based on that threshold inquiry.
No court has
-: Owners?
-: Not exactly.
If you look at the decision,
they did for the radio associations-
-: For the garage owners-
-: [Attorney Liss-Riordan] For the medallion-
-: The end of the inquiry for those garage owners.
-: Oh, I'm sorry.
That was a third part that wasn't talked about as much.
Yes, for the garage owners
because there wasn't-
-: Report is ever we have.
-: Okay, well, so there wasn't much focus on that.
I've never seen any other court.
-: It means something.
It may not mean much,
but it does mean something.
Not everybody is an employer.
-: Well, no, of course not.
And that's what the ABC factors recognize that.
-: Well, no, I'm talking about the threshold inquiry.
The threshold inquiry on that case said
that the garage owners,
even though they had some benefit flowing
to their business from the fact
that they service the taxi cabs
and did the credit cards that were required
to be installed in the taxi cabs,
they were not employers.
So it does have some teeth,
although they may be blunted.
I agree with you.
-: Right.
Although in that case,
there weren't really any obligations
that the taxi drivers were performing with respect
to the garage owners.
-: That brings me to the question,
what is the obligation
that your clients are performing for the franchise?
-: Well, they are running the stores.
They're managing the 7/11 stores.
They are making sure that they're staffed 24 hours a day,
364 days a year.
They're following the detailed instructions,
including the thousand plus page manual.
-: Running the stores,
how is that a service for 7/11?
-: So 7/11 has both so-called franchise stores,
as well as corporate-owned stores.
And the franchisees-
-: So how many (indistinct) the store a service for 7/11?
-: It's a service just the same way as the managers
in the corporate-owned stores are performing a service
for 7/11.
They're overseeing the store's operations
to make sure that products are sold,
that the cash register is staffed,
that stock is kept on the shelves,
that customers come in.
-: That's just the difference between owner-operated stores
and the franchise stores.
The owner operated stores,
do they own the business,
the underlying business?
I'm trying to figure out.
-: When you say they,
are you referring to...
Who are you referring to?
-: Okay, so your clients actually own
the underlying franchise, right?
-: Well, that's what 7/11 says.
Just like the cleaning franchisers said
in the cleaning cases
-: Of the gross profits.
-: Yeah.
Yes, that's correct.
-: Managers in the 7/11 owned stores get a percentage
of the store profits.
-: Well, we don't know from the record how they're paid,
but it's not uncommon for managers
to be paid based on some incentive-based system
where the amount of profit influences the amount
of compensation that they receive.
-: So they have some sort
of ownership stake is what you're saying?
-: Well, it depends on how you define ownership stake.
In order to endorse what 7/11 has done
and say that we don't even get past
this threshold inquiry gives employers wide latitude
to commit an end run around the Wage Laws
because countless companies-
-: Figure out what services your client is performing
for 7/11.
I mean, I know that the AG will argue
its own case after you,
but is it the payment of the franchise fee?
Is it the conformity to the 7/11 mandates
in order to maintain the value
of its same experience anywhere in the world,
7/11 mark?
What is it that your client is providing?
-: It's following 7/11's rules
to operate 7/11 stores just like the managers do.
-: It's possible in your view
that any entity like 7/11 or McDonald's
or any of those other sort of trademark,
same experience anywhere in the world kind of companies,
is it possible to have that kind of business
and not meet the threshold inquiry?
Or is it under your plan
that this threshold inquiry is gonna be met
by any franchise?
-: Well, I can't say any franchise
because I don't know the facts
of other cases that aren't before us.
But I think the crux of this question-
-: What franchise would pass your test
even if you don't know all of them?
-: Well, I mean, I don't know
because I don't know every franchise in the world.
I think the crux of the question here isn't the question
that's before this court.
Now, it's possibly the next time this case might get
before this court on the actual application
of the ABC Test.
And that's whether Prong B
-: Stick with the certified question.
I don't wanna get into the ABC
because that's not been certified.
But this question,
is there any franchise?
What is your test for this threshold inquiry?
-: The test is whether,
as the question stated and as the statute says,
well, whether services are provided,
whether obligations are performed pursuant
to an agreement which may be written or implied,
and there is revenue,
the employer purported employer's revenue is based...
Where the employer makes its money based
on the alleged employee's labor.
So in the garage situation-
-: Flat fee.
-: Exactly.
That was the distinction.
-: Not triggered the threshold inquiry.
-: That is the distinction that this court made in Sebago.
Correct.
And that was part of why the garage owners were on one side
because they just received flat payments,
whereas-
-: Sebago, I didn't see anything
about flat payments in Sebago
-: Because there was a distinction drawn
between the parks case and the O'Hare Medway case in Sebago
and that was talked about both with respect
to the threshold inquiry and Prong B,
which is why it's a little confusing.
But there was a distinction that was drawn there that
because the revenue of the defendant
in the case with the Limo company did derive its revenue
based on a percentage
of what was brought in by the drivers,
their services were provided.
And what this court intimated that
that was relevant to the Prong B inquiry,
whereas if it was a flat payment,
then that wasn't the case.
So that was the important distinction.
-: The Limo case,
and you're much more familiar
with these than I am.
In the Limo case,
do the Limo drivers provide transportation
to the clients of the alleged employer?
-: Yes.
Yes.
And that's the same thing here,
because 7/11 advertises itself as a convenience store.
The people who walk into the store know
that they're walking into a 7/11.
They don't know that they're walking
into Joe Smith's convenience store.
So they are customers of 7/11.
It's not- -: Can I ask?
Does this apply...
Some of these guys are sort
of what I consider owners.
Is this requirement satisfied
even if any of the name plaintiffs did no work whatsoever
in the store
and they just owned the store
and had other people work for them?
-: Well, that might be a different question.
All of these plaintiffs-
-: But does that matter?
If the services have nothing to do with employment,
does that matter?
I mean, because we're trying to...
I mean, again, I feel like we're putting a square peg
in a round hole,
but the purpose of the Wage Act is to protect employees
and to protect relationships like that janitor case
where they really are employees,
but you're pretending them to be franchisees.
But these guys are businessmen.
-: [Attorney Liss-Riordan] Well, that's how 7/11-
-: Bear with me for a second
'cause I just wanna pose it's related
to Justice Wendlandt's question.
Are there different kinds of franchises?
And if the employment of these guys is minimal,
meaning these guys are owners...
Like one of the gentlemen...
Again, I'm basing on the brief,
I haven't read this whole record.
One of the gentlemen owns a bunch of stores.
He has a real estate business.
He has a stores that aren't 7/11 stores.
And how many hours does that gentleman work?
Why am I considering him an employee?
And shouldn't the services you're performing be
employment services?
-: So we are talking about plaintiffs did do the work
in the stories
and all of the facts that you just set forth,
that 7/11 is trying to emphasize.
That's what they said about the cleaning franchisees also.
Many of them had other businesses-
-: I read the facts.
I've read the (indistinct) decision on The Queen employees.
They're really just being exploited.
This is quite different.
-: Some of these franchisees work 70-80 hours in the stores
and are effectively making less than minimum wage
when you actually consider the amount that they take
after 701 takes out all the deductions.
The facts of these cases are really not different.
Facts of this case are really not
that different from the cleaning franchise cases.
-: Does it matter whether they work in the store?
-: Yes.
No, I think it does.
I think it does.
And the plaintiffs here do.
And also-
-: Give me example.
What percentage of the time...
Take the person the most extreme example,
the man who has multiple businesses stuff.
How many hours does he work in this store?
-: I don't think we have that in the record,
but I will say that there are managing-
-: Say he worked,
say he worked three hours a week,
does that mean he's still subject to this act?
-: So as Judge Wolf noted in one of the cleaning cases,
De Giovanni versus Jani-King,
cleaning and getting people to clean,
managing the cleaners is part of the work.
So these so-called franchisees are managing,
making sure people are there and performing the work.
In today's world,
we know that not all work is done on site.
A lot of it is done remotely.
So I don't know the facts about the particular plaintiffs
and how many hours they were in.
Some of these franchisees though,
they're not making enough money to even hire other people
to work behind the register.
It's often the franchisees
and their family members are running these stores,
keeping them open 24 hours a day.
Judge Kafker: Is that an important-
-: There is exploitation just like in the franchise,
cleaning cases.
Yes.
-: This is almost incomprehensible.
So I'm trying to understand.
And services, you define services
in an incredibly broad way.
He defines this saying...
I'm just trying to understand.
I go back to Justice Wendlandt's decision,
our decision in Patel.
We're saying we're dealing with a problem
which is treating employees
who are really employees like they're not.
I just don't have a sense that this is the same thing,
but I can't put my fingers around it.
-: Justice Kafker,
I think some of the questions
that you're getting at are going
to be more appropriate questions when we get
to the application of the ABC Test.
The last time this case was before this court,
it seemed clear that the court was expecting it to go back
to the district court to have the ABC Test applied.
And then we would be grappling with some of these questions.
Instead, what the court did was it gave teeth
to something that would give employers
throughout the commonwealth an opportunity to conflate facts
and twist things into making it seem
like actual employees are not employees
and allow them to evade the Wage Law.
-: Position where the franchisee is itself a corporation.
Do we have that presented to us here
or are they all individual?
-: No, some of them have incorporated and some have not.
And there's case law.
-: The employee in the ones that are the corporations.
-: It's the actual person who does the work,
who runs the stores,
who is effectively the manager of the store.
And there's case like at cite you from around the country,
including the Department of Labor said the fact
that someone has incorporated
or formed an LLC does not make them not an employee.
That's another ruse that employers use in order
to make it look like employees are not actually employees.
There's a whole wealth of tricks
that employers use.
If this court is to say no to this question,
it's going to unleash more tricks.
-: About who the employees in the case
where the franchisee is a corporation
and you are saying it's the individual store manager.
-: It's the person who's actually doing the work.
And it's clear in this case who that person is.
-: The person running the cashier.
I mean, who's actually-
-: In the case here with the plaintiffs
that are before this court,
every one of them actually worked in the stores.
A couple of them incorporated.
-: Their employees also worked in the stores, right?
-: Yes, right.
But this case isn't about that.
-: Figure out from you.
And I apologize, Chief.
What is the legal principle
that stops this at the store owner
versus all the employees of that store?
-: Well, that would be a different case.
That would be a case more like the Jinx case
where it would be a joint employment question.
Because on paper,
the franchisee is the employer
of the other people who work in the store.
The question that you're asking is
whether those employees are also employees of 7/11.
That would be a joint employer inquiry
that's not presented by this case.
Here, it is clear who the franchisee is.
-: In response to my question
about the corporate entity being the franchisee,
your response was it was the managers
who were actually doing the work.
-: No, no, no, no.
That's no.
I'm saying the franchisees,
each of the five franchisees who are plaintiffs
in this case were actually acting
like managers running each of the stores.
No different from the acknowledged managers
who run 7/11s corporate-owned stores.
There's really not any functional difference
between the franchisees here and those managers
and the work done by the managers
who 7/11 acknowledges or employees
who run the corporate-run stores.
And so we cited the Amero case for you
where you have a company
that has some people classified as employees,
some classified as independent contractors.
They're doing the same thing.
-: But those 7/11-owned stores,
all of the people working the store are employees.
-: Right.
But again, this case isn't addressing-
-: My question again
and maybe you don't have an answer and that's fine is,
what is your limiting principle?
Why do these corporate entities that are franchisees default
to the person running the store equivalent
and not all the other 7/11 employees?
-: Because the plaintiffs here,
I believe three of whom incorporated,
those individuals incorporated
and are the ones who signed the franchise agreement
and are the ones who are on the hook
to perform the obligations that 7/11 has required.
And what they're doing is the same as people
who sign those agreements in their individual capacity.
There's no issue that's raised here about,
are we talking about the franchisee?
Are we talking about the manager,
the night manager who works the, the night shift?
-: Not for your question,
but for mine it is.
-: Well, right.
-: We need to write some sort
of legal principle that cabins this
at what you're suggesting,
the name plaintiffs and not everybody else
who works at 7/11 is suddenly the employee
of corporate 7/11.
-: Right.
But again, answering yes
to the certified question would not lead
to this unanswerable series of questions
that you seem to be posing.
Again, the people who are classified as employees
who are working under the franchisees
who are working the cash register,
stocking the shelves, et cetera,
they are employees on paper of the franchisee.
And just like in the cleaning cases,
same thing happened.
Plenty of these cleaning franchisees had employees working
for them.
And defense counsel here argued to many courts.
You see, they can't possibly be employees
'cause they themselves have employees
and courts rejected that.
And the Department of Labor has rejected that
and courts around the country have rejected that,
which I could provide for the court
if you'd like additional citation.
That's not raised by this case here.
We're talking about the franchisees.
Two of these plaintiffs here are never incorporated.
So there's no question with respect to them.
You can't say you can't meet the threshold inquiry
of 148B because you incorporated or formed an LLC
that would put Massachusetts near the bottom of the states
in terms of employee protections
when we are well known to have one of, if not,
the strongest Wage Law in the country protecting employees
-: Sorry, last question for me on that issue on the LLC.
Was that a requirement that 7/11 corporate made?
-: I don't think it's in the record yet,
whether it was required or not.
There may have been at different points in time,
different requirements.
I do know that we often see this come up
in these independent contractor cases all the time,
that sometimes the alleged employees have been asked
to incorporate.
Sometimes they've been told to,
sometimes it's been to suggested to them that they can.
And the dividing line shouldn't be
whether they were required to or not
because employers have ways
of suggesting it without requiring it.
And again, it's been rejected around the country.
And I could provide you case cites
that that is not what the court looks at.
And again, some of these questions I feel like are going
to what will come up in the ABC analysis itself.
Again, when this court last saw this case,
it seemed clear-
-: You know it's gonna be a rough hoe road though,
Can I ask this question?
Say one of these people
and I'm not saying this is the facts,
I'm just opposing a hypothetical,
got a franchise agreement
and the chief person,
head managers making $3 million a year on the franchise.
He's also working or she's working three hours there.
Does that mean they're employees?
-: No 7/11 franchisees making $3-9.
-: I know, but I'm-
-: They're making just over minimum wage, if at all.
-: Okay.
We're dealing with all franchise in another respect too.
I'm just trying to understand.
If someone's making millions of dollars
in one of these franchises
'cause I assume you don't do this
unless there's a potential,
big potential upside.
Well, are every chief...
Again, we're dealing with something that has the potential
to warp the employment laws.
Meaning a manager
who's really an entrepreneur making a huge amount
of money is entitled to wages.
In that hypothetical,
I'm not saying it's this case.
Is that person also an employee covered by the Wage Act?
-: Well, just a couple-
-: They make $3 million from profits
and they work a couple of hours a week
'cause they have a hundred other employees there.
Is that person covered by the Wage Act?
-: Well, I just wanna say a couple things.
-: But just answer the question one way or the other.
-: I don't know the facts of it.
No 7/11 franchisee is making $3 million a year.
Executives could make millions of dollars a year
and still be employees.
In the cleaning cases,
the cleaning companies always try to argue,
oh our franchisees, they're making millions
of dollars a year.
They have all these other businesses.
Those arguments were rejected.
That's not the inquiry. -: Help me out.
If a franchisee is the owner of the franchise
and is making a huge amount of money,
and again, the answer may be yes,
that person liked the CEO you're talking about.
Is that what you're saying, though?
That's the purpose of the...
The Wage Act are meant to cover that.
It's a question
I'm not trying to load it.
-: The Wage Act does cover highly compensated employees,
as well as low wage earners.
-: And owners, people who are owning something
and making a lot of money.
-: Right.
So the the issue is, is that the scheme
that 7/11 has set up here is it calls these people owners
and they're not really owning something
'cause they're not really running their own business.
Judge Kafker: Franchise.
-: A traditional franchise,
the problem is, is the word franchise brings up visions
of McDonald's.
And you think of someone
who's running this big fast food restaurant
and they must be making millions of dollars
'cause why else would they invest in it?
It's a largely an immigrant workforce
who have been put in this situation
where they pay all this money,
thinking that they will be able to run their own business.
But when you actually get into the weeds of it,
they are just carrying out the detailed instructions
that 7/11 has asked them to carry out.
And no different from managers.
This is not like McDonald's
or traditional franchises where in a traditional franchise,
the franchisee pays 3 or 4% as
as a franchise royalty fee to the franchisor.
Here it's 50%-
-: But that's my question.
-: Which is fundamentally different.
-: That's my question, though.
Is that person also an employee under your world?
Do the distinction.
I understand you're saying these people
like the janitors being exploited
and you may very well be right,
but this other franchise
where you're making lots of money
and it's only 3% profit,
whatever you're talking about,
are those also employees?
-: No, I don't think they are.
And I think the answer is really gonna come more when we get
to the ABC Test under Prong B
because I don't think that McDonald's is a hamburger seller.
I think McDonald's is known as a franchisor,
whereas 7/11, the way it holds itself out,
it is in the convenience store business.
-: You're walking down a slippery slope then.
-: No, I'm explaining why courts,
other than you're right with the garage owners
in Sebago courts have not in Massachusetts really dwelled
on this as a threshold inquiry that has any teeth to it.
And when California expressly looked around the country
and the California Supreme Court had decided
to adopt the Massachusetts ABC Test
because it was the strongest test around,
there's been a lot of litigation now about that test
that California expressly plucked out
from Massachusetts and applied.
And the courts there said
that this initial inquiry providing services
that's not in inquiry,
we're not going to use that to limit
who we apply the ABC Test to.
-: We do.
So you're saying McDonald's franchisees are different,
they would survive the threshold question
or would, I guess...
No, you're saying that-
-: No, I'm saying when you get to the ABC Test,
there may be a different analysis.
Correct.
-: McDonald's franchisees are also performing a service
for McDonald's
'cause it's such a low bar.
-: Yeah.
Yes, exactly.
'Cause I just wanna caution this court
that if you even thinking
that this is protecting the Wage Act for being used
to protect multimillion dollar earners,
if you allow this threshold inquiry
to become an actual gatekeeper in a way
that it really hasn't been in all the dozens
and dozens of cases that have been decided
in the Commonwealth,
it is going to be misused by employers
who are going to say,
see you worker in different industry,
you don't even perform services.
We're not even gonna let you get
to the very worker friendly ABC Test.
It is going to be abused and misused
and I urge the court not to allow that to happen.
-: Okay.
-: Thank you.
-: Attorney Kravitz.
-: Thank you, Chief Justice Budd.
May it please the court,
David Kravitz on behalf of the Attorney General.
We asked to participate in this argument
as we did in the First Circuit
because we view the presented in this case
as an extremely significant one.
The threshold inquiry under Section 148B is implicated
in literally every misclassification case
that is brought in the Commonwealth,
whether by the Attorney General or by private parties.
And the federal district court's approach
to resolving the question was, in our view,
not consistent with the text of the statute
and not consistent with this court's case law.
This court is well familiar with the harms
of misclassification
as it recently summarized in the Patel case earlier
in this very litigation.
It harms workers.
It harms businesses that play by the rules.
And it harms state and federal governments.
-: The AG's position is
that the franchise fee itself satisfies
the threshold inquiry.
-: Not the franchise fee necessarily. Okay. So
-: What is the position?
-: So our view,
just to sort of cut to the chase, I suppose,
is that if you look at what happened in Sebago,
it is clear that when the revenue flowing to the employer,
the putative employer is, quote,
"directly dependent on the work," unquote,
of the worker,
whatever work the worker may be doing,
then that gets you over the threshold inquiry
and that gets you into the ABC Test.
So here-
-: Let's talk about that.
The radio dispatchers in that case,
which is where that comes from, right?
-: [Attorney Kravitz] Correct.
-: Were, actually, they had clients
for whom they were giving vouchers
and the drivers were performing that work.
-: [Attorney Kravitz] Correct.
-: And so it's more than
just the dispatcher's revenue was directly dependent
on the driver's work.
It was that the work being done was directly
for the dispatcher's clients.
And I think that that was 7/11's point.
It's brief.
I'm not being particularly unique,
but can you respond to that?
-: Sure.
No, I mean, I think the work
that the drivers were doing,
remember the drivers were at the end of the day
in Sebago were not deemed to be the employees
of either the medallion owners
or of the radio associations.
They were deemed to be independent contractors.
So the work they were doing was work they were doing
for themselves.
They were making money by taking fares
and driving passengers around the city.
The key point from Sebago again is, quote,
"the revenue flowing to the radio association
through the voucher program is directly dependent
on the driver's work of transporting passengers."
And the court went on to say that the plan,
the drivers were not required
to participate in the voucher program.
They presumably could have not taken vouchers
and just said it was casually.
-: Well, they did.
-: But they did.
And because they did,
that is precisely what they did.
That constituted a service for the radio associations
because it's 8 cents on every dollar
that was going to the radio.
So that's where they make their money.
And so that is the service.
-: Position is that it doesn't matter
that the work was being performed
for the dispatcher's clients?
-: That's correct.
I mean, the work that the...
Again, the drivers were working for themselves
to make money.
They were driving the corporate clients around.
-: Absolutely.
But you can work for yourself to make money
and also do the work of your employer.
-: [Attorney Kravitz] Sure.
I suppose so.
-: That's exactly what the dispatcher's situation was,
that they got the call from the client
and then they said, "Yeah, we'll give you a ride."
And some driver did perform the work.
-: Yeah, some driver did.
-: Your position, though, is that it doesn't matter
whether or not that work was performed by the driver
so long as the dispatcher's revenues were somehow dependent.
-: Our position is yes,
our position is that
where the revenues are directly dependent on the work
that the drivers are doing.
I think this is what Sebago held,
that that is enough,
that gets you over the threshold inquiry.
And again, significantly, I think,
for this case,
as well as that case
that gets you into the ABC Test
and we don't know what the result will be in the ABC Test.
-: Your position is that performing any services means
that the putative employer receives some revenue.
-: Some revenue that is directly dependent
on the work of the plaintiffs.
That is one way
of satisfying the performing any service inquiry.
There may well be other ways.
And it may be that other things that the franchisees
in this case are doing would also satisfy the inquiry.
-: How would any franchise survive in Massachusetts
under the threshold inquiry?
Or are you saying that's just such a modest inquiry
that the ABC Test will solve
for any franchise?
-: I mean, I think this court addressed
that very issue in its previous iteration
in this case in the Patel case
where the argument was made
that if you allow the ABC Test,
if you allow Section 148B to be applied to franchising,
it will end franchising in Massachusetts.
This court-
-: And AG's position in that case was it will not.
-: Correct.
And that's what this court said.
This court said, in fact, it will not,
there's no reason to think that it will.
And it describes 7/11's argument as a faulty premise
that there will be no way for them
to get out from under the ABC Test.
-: So does every franchise...
I'm just trying to understand is,
is there any limitations on this?
Again, the guy-
-: I think it's gonna be-
-: Owns the franchises making multimillion dollars
from profits.
The AG's view is that person's covered by the Wage Act,
that's what the way-
-: Well, they're absolutely covered.
I mean, they may be covered by the Wage Act.
As my colleague said,
there's no earning limitation under the Wage Act.
-: Even if they don't work there,
if they don't do anything there?
-: It's gonna be a question of the facts of every case.
-: But just bear with me.
You own the franchise,
you're making a lot of profits.
I'm not saying that's this case.
But you own the franchise,
you make profits,
and you don't do any work there.
You hire the employees
and you don't do any work.
Are you still covered by the Wage Act according to the-
-: I mean, the question for purposes
of the threshold inquiry is,
are you providing services to the putative employee?
-: I know.
-: I don't know what the answer to that will be
in a hypothetical world.
There's no way to answer that question.
-: Well, help me out then
because do the services have nothing to do with employment?
'Cause the Wage Act is an employment act, isn't it?
-: Well, I mean, sure the Wage Act has to do with employment,
but I think it would be that this court has rejected.
-: I think you're telling me, though,
the performance of services has nothing
to do with employment.
-: Well, it depends. -: Is that what you're saying?
-: It depends what you mean. -: Because I really
can't figure out.
-: If you're saying that employment means work for pay-
-: I can't.
Well, employment means I go to work
and I get paid to do work in the place
as opposed to I own the business.
-: So if I may,
I think what you're saying...
-: Well, I can't follow what the AG is saying,
so tell me what it means.
Is the AG saying if I own the business
and it's a franchise business
and I don't do any hours there,
I'm still an employee?
-: Physically in the store.
Is that your question?
-: Yeah.
-: I don't know that there's a geographical limitation
in Section 148B.
I don't know. -: But there's no difference
between owners and employees then under the Wage Act
in the franchise context.
That's what I'm struggling with.
-: It's gonna depend on the terms
of any particular franchise agreement.
There may well be ways of designing a franchise agreement
that would not constitute performing services
for the employer.
I don't know.
-: I mean, again, you're our best guide
on what the legislature was intending.
You think the legislatures intending
for owners who are really being paid out of profits
to also being employees in all these franchise agreements.
I'm just trying to understand
if that's the AG's position or not.
-: Again, well, obviously not taking any position
on how the ABC Test is going to apply in this case
'cause that's the ultimate question.
Are they employees?
-: The ABC Test cross references services.
The first prong of the thing goes,
the individual is free from control
and direction in connection with the performance
of the service.
Then the next one,
the service is performed outside the usual course
of business.
I'm just trying to understand,
does service include any that you do work
as opposed to you own the business?
-: I mean, service has always been understood by this court
as a very broad word.
Had the legislature intended to narrow it,
it surely would either have defined the word service,
which it did not do.
Or it could have done what the statutes in New Jersey
and Indiana did that were cited by 7/11,
the ACNC dogs cases
and the Kirby case could have added in words
like services performed for remuneration.
That looks a lot like work for pay.
That is the argument.
That is essentially the position
that the district court adopted.
That's essentially what 7/11
and some of it's amici are urging here,
but those words do not appear in Section 148B.
And so I think the answer
to the question is the statute essentially says
what it says if there's a problem with the statute,
that is a question for the legislature,
not for this court.
-: When a franchisee is a corporation,
I know you heard this question I asked.
-: [Attorney Kravitz] Yeah.
-: Who is the employee-
-: Yeah, so this court has actually addressed
that question in a case called Chambers.
I'm not sure it's in any of the party's briefing,
but the citation is 476 mass 95.
It's from 2016.
And the court said in that case that just
because there's a corporate form,
that does not mean
that you can't bring a misclassification game.
It's a very intensely fact-based determination.
And I do not know whether the franchisees
that our corporations in this case would qualify or not.
I just don't.
I'm not sufficiently familiar with the record to statement.
-: I'm sorry.
Is performing any service,
if we adopt the AG's position,
it means that the employer's revenue is directly dependent
on the work?
What implications have you thought of
for the word service in the ABC Test?
If performing any service means
employer's revenue is directly dependent
on the employee's work.
-: That's one way of satisfying it, yes.
-: What implications would that have on the ABC Test
that uses the word service as well?
-: I guess I'm not sure
I'm following your question.
-: The same question you asked.
-: All right, I'll figure it out.
Thank you.
(attendees laughing)
-: Okay.
Thank you. -: Thank you.
-: Okay, Attorney Leon.
No, no, take your time.
Take your time.
-: One second.
-: Yes, of course.
-: Thank you, Your Honors.
May it please the court.
Norman Leon for the appellee, 7/11.
Your Honors, the answer to the very narrow
certified question,
which is specific to franchised businesses must be no,
because there is nothing about that test
that distinguishes legitimate business relationships
from misclassification
and there is no limiting principle whatsoever.
It would turn an untold number of ordinary,
legitimate business relationships immediately
into presumptive employment relationships.
And Justice Wendlandt,
to go back to your question,
which was not really answered,
there is no limiting principle here at all
because every single franchisor would
immediately wake up tomorrow
as a presumptive employer of all of its franchisees
in the Commonwealth
if the answer to the certified question was yes.
And let me explain why.
-: But isn't that the whole point
of the low threshold inquiry
that that it's almost a presumption that yes,
you are an employer?
I mean, to the AG's point,
that it's really supposed to be a very low bar.
-: I don't see anything in the statutory text
or the legislative history,
which indicates that that language in the statutes supposed
to be given any meaning
other than its ordinary meaning.
Service means-
-: Well, it is definitely a remedial statute.
And you've read,
I'm sure all the cases that I've read
that say we interpret this thing really broadly.
-: It is also the position at least
that the AG is taking today is inconsistent
with the position it took previously.
And the position this court has laid out.
It was specifically noted by the AG before
and by Patel that there is nothing in the Wage Act
that precludes legitimate franchise businesses
from operating in the commonwealth.
Take a look at the two prongs that the AG
and the plaintiffs are telling you should be
the determination for employment.
-: Well, you're not precluded from operating.
You're gonna have to treat the franchisee
as an employee is basically what they're...
I mean, you're not precluded from the relationship.
You're just not outside the Wage Act is what they're saying.
-: Well then there is no franchise relationship.
You have an employment relationship.
-: Well, they're saying you have both.
I'm not saying I agree with it,
but that's what they're saying is...
And you're right, I don't see any limiting principles,
but I think they're basically saying
that you're gonna have to abide by the Wage Act laws too,
for at least every hour that even the owners work.
-: No one's even come up with a suggestion
of how that's feasible.
-: It's not feasible,
meaning you're gonna have
to change the business structure
to make it profitable for you.
I take it.
But they're arguing the legislature.
I'm not saying they're right,
but they're clearly saying
that everyone there fits the literal meaning of this
and therefore franchisees are not illegal,
but they're gonna have
to change their business model is what they're saying.
-: Well, not just franchisees,
commercial lessors, licensors of patents,
trademarks, and copyrights-
-: Well, I don't know. -: Music publishers,
book publishers.
-: Well, why isn't the limiting principle the ABC Test?
I mean, we still don't have an answer to Justice Kafker
and Justice Wendlandt's question
of if we're going to define services
as the appellants want us to,
we still have the issue of how you port that definition
into the ABC Test.
But why isn't the ABC Test...
Because it's not as if you meet the low threshold
and say you're presumptively an employer
that it ends the inquiry.
-: And I do wanna make that point, Your Honor,
I think that's a great question
'cause I think with respect,
the court's being led down the primrose path a little bit
by that argument and here's why.
The test that they're proposing
as the service threshold is exactly the standard
that this court applied in applying Prong B in Sebago.
If, Your Honors, will recall,
the court drew a distinction between cab drivers
who paid a flat fee to rent the cabs in the medallions
and Limo drivers who paid a portion of the profits
to the Limo companies.
The test that they want,
this graduated fee being the test for the threshold inquiry,
that's Prong B.
That means that if you fail the service threshold,
you also fail pong Prong B.
There's no opportunity at all
to pass the ABC Test.
And I want to be clear about the record here
and about the impact on franchising.
And, Justice Kafker,
I'm not prepared to believe
that the Commonwealth is prepared to say
that every franchise relationship is no longer
a franchise relationship,
but an employment relationship.
The IFA attached to its brief,
the excerpts from the franchise agreements
of the best known franchisors in the world,
Hilton, Marriott, Burger King, McDonald's, Pizza Hut,
and Dunkin' which has over a thousand locations
in this state.
Every single one of those franchise agreements show
that the franchisees perform some obligations
to get their franchise.
Every one of those franchise agreements show
that the franchisees pay a portion of their profits
to the franchisor as compensation for the services
and the rights that they receive
under the franchise agreements.
That means that every single one of those franchisees,
of all of those systems,
including multimillionaires that own hotels,
including multimillionaire franchisees
that are actually public companies,
are going to figure out that their employees are no longer
independent contractors.
-: I recognize the problem.
I'm trying to understand how to work
and so are you, which is services,
how do we define services in a way that draws distinctions
between the owner of the Hilton Hotel
and the cute operator of that janitorial service
where he's converting his janitors into franchise?
How do we make this language work to draw that distinction?
Help us out
'cause I can't do it.
-: I think there's two ways
and we actually spend a lot of time thinking about this,
trying to distill the themes from the cases.
And there really are two.
And it depends on distinguishing contractual obligations
that are services versus contractual obligations
that are conditions to the provision of those services.
For example, if I hire you to paint my house
and I say I'm going to pay you $500,
you're providing a service to me.
If we put in our contract that I'm gonna pay you
that amount within 30 days,
that's a precondition to the provision of those services.
You tell the difference just as Judge Gordon did
by following the money.
People perform services with an expectation.
Expressor implied that they're going to get paid for it.
If they don't have an expectation of getting paid,
that's called a favor.
And the AG now can sees
that the ICL is not intended to cover favors.
We acknowledge, as we did in our brief,
that that test doesn't cover everything.
People will come up with attempts to evade the Wage Act.
But there's a consistent second theme
that covers all of those cases.
And this is it.
And this is the definition that we worked out.
The first part of it ties back to what Judge Gordon did.
Service is labor performed for the benefit of another
for an express or implied promise of a fee
as in the Black's Law Dictionary.
And we're the only party that's offered a textual definition
of the word service, by the way.
The second part deals
with the attempts to evade the Wage Act.
-: But you've added this word labor,
service is labor performed for fee.
That's sort of what I was asking earlier about.
Is employment a condition of this meaning of service?
But it doesn't say that, right?
You've added the word labor.
-: Labor work, a benefit,
I don't think it makes a difference, Your Honor.
Doing something for another person
with an expectation of payment,
that covers virtually every case.
The only cases it doesn't cover, Your Honor-
-: Doesn't it cover the Hilton too?
They're providing a hotel
and they're running the hotel and paying Hilton.
I don't understand
why the franchisor isn't performing services there.
-: The the franchisor is performing-
-: Excuse me, the franchisee.
-: The franchisee is not
because there is no expectation from the franchisee
in that case, the Hilton franchisee,
that they're going to get a penny of Hilton's money.
They're going to be compensated by the money
that they obtain from their own customers renting the rooms.
Just as 7/11 franchisees never expect
and never get a penny of Hilton's money.
Everything that they get is a portion of the money
that their franchisees generate by selling products
to their own customers.
As to the second prime,
again, recognizing that there are attempts
to evade the Wage Act out there.
-: But hold on a sec.
I just find it harder than that.
So in this case,
the 7/11 is providing a lot of stuff to them.
And they're providing.
Aren't they providing a lot of...
I mean, you're saying the only thing
they're providing is money back to them.
-: They're providing nothing to 7/11.
They're paying for the services that 7/11 provides.
7/11 gives them real estate,
it gives them a trademark license,
it gives them the right to use equipment,
and it gives them the right
to use 7/11's operating system
that it has honed for decades.
-: But 7/11 has given them the name brand.
Attorney Leon: Correct.
-: It's given them all this information on how
to run a successful grocery store,
whatever these things are.
It's a mutual,
it's beautifully beneficial.
They're both providing services to each other.
They're not providing labor services, I don't know,
but they're providing some services to each other.
-: 7/11 is providing services
to the franchisees for which they pay.
The franchisees are providing services
to their own businesses.
They are doing the things they're supposed
to do under the franchise agreement,
both to protect the services that 7/11 is giving them,
to protect the trademark rights,
and to protect the brand,
and to grow their business.
They don't get paid one penny by 7/11.
There is no expectation, express or implied,
that they will ever receive anything from 7/11.
-: So, I mean, under your test,
then 7/11 is the employee?
-: I'm sorry.
I think if you adopted their interpretation,
then yes, Your Honor.
-: No, but even under your test,
labor for promises of a fee,
isn't that what 7/11 is providing?
So that can't be the test.
-: Well, I think that that will cover all non-absurd
employment relationships, Your Honor.
I think that for the others,
the consistency theme that runs
through the commercial cleaning cases,
the newspaper delivery cases,
even the exotic dancer cases is this,
that a service may also be provided in circumstances
where a putative employer has engaged in a scheme
to evade the Wage Laws
such as where an individual provides services
to a putative employer's own customers.
And if you think back at all
of the cases this court has dealt with over the years,
think about what happened in Sebago,
think about what happened in the commercial cleaning cases.
In each one of those cases,
what was happening was a top tier entity that was using,
whether you call them employees,
independent contractors, franchisees,
whatever they were in that particular case,
to perform the services
that they had agreed to provide to their own customers.
In Sebago, the radio associations were using the drivers
to provide the services that the radio associations had sold
to their own customers through the voucher program.
The concern with respect
to the medallion owners was the same
as a concern the advertising.
The medallion owners had sold advertising space
on their cabs.
The drivers were providing those services,
the ones that the medallion owners sold to their customers
by driving around with whatever sort of ads were put
on the cabs.
In all of those cases,
in the carry opinion that the AG relies on the same thing.
-: So can I ask you to pause there on the medallion owners?
Attorney Leon: Yes.
-: The ad space circulating
with each cab was not something a labor
that the drivers were providing for a fee.
It was a benefit.
Attorney Leon: It was a benefit.
-: Yeah.
So there was definitely a benefit to the medallion owners
to be able to say, "Hey, look, our guys go out all over."
But the drivers were not being promised a fee for that.
-: [Attorney Liss-Riordan] Correct.
-: So how does that fit with your definition?
Isn't that a problem with your definition?
-: It's not a problem with my definition
because it's covered by the second part
of the definition, Your Honor.
They were providing the services
to the medallion owners' customers
that the medallion owners agreed to provide.
They were simply a substitute source
for the labor necessary
to provide those advertising services.
-: Why can't we just do your second part?
-: I think you could do the second one
other than the fact that I'm not sure that
that would encompass the traditional employment scenarios
in which someone expects to be paid for doing work.
That is the common sense definition of employment.
-: Okay.
Sorry, are you done?
I just don't understand.
Say, let's do the 7/11 franchisee
who's working 12 hour days in that store.
He or she works the 7:00 AM to 7:00 PM shift.
And without that 12 hours of work by that person,
7/11's not making money on that store.
And that person's not performing services for 7/11 too
'cause I understand the owner who's never there,
who's hired a bunch of employees.
All those employees are covered by the Wage Act
and protected by the Wage Act
because that guy is their employer.
But this person who's sort of the self-employed franchisee,
which a lot of these people at least are in part,
isn't that person performing employment services
'cause without him,
7/11 doesn't make any money?
-: Well, that's not entirely correct, Your Honor.
7/11 is paid based upon the performance
of the franchise,
not based upon the labor of any particular employee.
-: Doesn't get a percentage of the gross from that.
-: It's a percentage of the gross revenue generated
by the store.
-: By him working 12 hours,
they're not hiring someone else to work 12 hours.
And that doesn't that affect the revenues
-: That's the same as any business.
The franchisee can show up and work if they want,
or they don't have to show up and work.
Each of these plaintiffs admitted a deposition
that they work when they want
and they don't work when they don't wanna work.
So it's not dependent upon their labor,
it's dependent upon the store's performance.
This is a shared economic benefit,
which this court made clear both in Jinx
and Patel was not enough to trigger the service inquiry.
The fact that it's a graduated fee makes
no difference at all.
And the AG's brief actually proves this point.
They say in deciding whether or not something is a service,
you need to take a look
at what the worker is actually doing.
Fine.
Take a look at what the worker is actually doing.
Whether the franchise pays a flat fee
or a graduated fee to 7/11 makes no difference.
The franchisee,
to the extent they choose to work in the store,
will still be doing the exact same thing.
The only thing that will result will be
that the payments the franchisees make
to 7/11 will be entirely inequitable
because a franchisee that runs a store
that generates a million dollars a year
in gross sales should not be paying
to 7/11 the same amount of money
that a franchisee that is fortunate enough
to run a store that makes $7 million a year pays to 7/11.
This graduated concept exists in all franchises
so that franchisees pay an equitable amount
based upon the benefits they receive from the services
that the franchisors provide.
Unless the court has any further questions.