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Franchisees Accuse 7-Eleven of Discrimination and Trying to Force Them Out of Their Stores

September 18, 2014

Posted in Business Litigation, Business Start Ups, Corporate Law, Employment Law

photo - 7-11There are many benefits to being a franchisee. Instead starting a brand from scratch, one is already established. You could get help paying for advertising. A system of operating a business may already be set up for you so you may not need to learn while doing.

But there are pitfalls to working with a franchisor, including a loss of control and the possibility you could lose that franchise in the future. An example of these problems is shown in a recent Los Angeles Times article about a large number of 7-Eleven franchisees who claim they’re being discriminated against because of their South Asian ethnicity.

The more than 1,200 members of the Franchise Owner’s Assn. of Greater Los Angeles, along with other franchisee organizations, have filed suit in Los Angeles federal court against the convenience store chain, claiming racial discrimination, invasion of privacy, illegal surveillance and mistreatment.

  • Plaintiffs state they don’t want money from 7-Eleven, but they’re seeking a court declaration stating 7-Eleven’s actions violate federal and California state laws.
  • Though the plaintiffs state they’re not seeking money, they claim the defendant, 7-Eleven, Inc., owned by Seven & I Holdings Co. in Tokyo, is treating them illegally to add millions of dollars in profits.
  • The company is accused of closely monitoring the franchisees and fabricating claims of wrongdoing to take away the stores and sell them to new franchisees willing to pay higher fees.

Ethnic South Asian franchisees across California claim they were specific targets of these practices because of their cultural and work habits, according Louis Tambaro, a partner with the New Jersey law firm Marks & Klein, the franchise owners group’s lead counsel.

7-Eleven denies any wrongdoing and defends its store takeovers, stating that some franchisees were stealing, often by falsifying sales records.

  • Part of the franchise agreement is that franchisees would split gross profits with the franchisor, creating an incentive to falsify financial records.
  • The company has sued multiple franchisees, accusing them of violating the law by diverting profits, illegally using trademarks and tinkering with sales reports.

The company has increased surveillance and beefed up its investigatory practices by using undercover shoppers and installing cameras in stores. Kurt McCord, a former 7-Eleven corporate investigations supervisor, said he left the company because he disagreed with these practices which he described in court documents in some instances as a “predatory program.” McCord alleges the company sets a yearly quota for store takeovers, this year’s target is allegedly 120.

Whether 7-Eleven’s actions were illegal may be decided by the judge, but this is obviously a situation where the relationship between franchisees and the franchisor has broken down in hundreds of stores. This kind of relationship is a very intimate collaboration between two businesses which requires trust and good faith actions and decisions by both parties. If you’re a franchisee and have questions about your agreement or obligations or feel you’re not being treated fairly by the franchisor, contact my office so we can talk about the situation and what you should do next.