EMPLOYEE PROBLEMS ARE YOUR PROBLEM: H.R. Issues for 7-Eleven Franchisees
by David G. Ross

As a lawyer who practices both franchise law and employment law, let me give you some advice: be aware of the employment laws that apply to your business. A franchisee who ignores them is just asking for trouble.

You probably know that there are some laws that protect employees and job applicants from “discrimination” and other laws related to the payment of wages. But you might not know enough. Who’s protected by the discrimination laws, and what types of conduct do those laws prohibit? What exactly is “sexual harassment,” and what can you do to both prevent it and protect yourself against unfair accusations? What are the consequences of withholding a paycheck, and what other laws out there apply to you?

Unfortunately, this is one area in which 7-Eleven, Inc. won’t provide much guidance. When I met some of your colleagues in Vancouver for the May 2007 meetings of the National Coalition Board Meeting, they confirmed what I had already predicted: corporate staff will usually shy away from giving employment-related advice. This reluctance is typical of franchisors and, in fairness to 7-Eleven, quite understandable. Indeed, the more a franchisor involves itself with its franchisees’ employment issues, the more likely a court will be to treat the franchisor like a second “employer” of the franchisees’ employees. Since employment laws enable workers to sue their “employers” for employment violations, franchisors will usually do everything possible to avoid the “employer” tag.

Franchisees, on the other hand, cannot escape that label, so you must proceed with caution. In fact, your job is not limited to merely obeying the law. It also includes avoiding the appearance of violations. While a successful employee lawsuit against you can destroy your business, so can an unsuccessful lawsuit. Win or lose, you could be forced to divert valuable time, effort, and energy into the battle. And even if you win in the end, you’ve already lost – and almost certainly won’t recover – the lawsuit-related costs you incurred or the fees you paid your attorney.

But these problems might be only the beginning, as employee problems could lead you into conflict with 7-Eleven. 7-Eleven Franchise Agreements, like the agreements for many other franchises, contain a general “morals” or “conduct” clause that prohibits conduct damaging to the franchise system or reputation. That “catch-all” provision, 7-Eleven could argue, would allow it to hold you in default and possibly terminate your franchise for engaging in practices like racial discrimination and sexual harassment. Further, if your actions – or alleged actions – cause 7-Eleven to get sued, it probably will point to the Franchise Agreement’s “indemnification” provision and demand that you reimburse it for its legal fees and for any judgment or settlement paid by it.

For these reasons, you need at least a general, working understanding of your obligations to your employees and a strategy for protecting yourself against unwarranted accusations.

Employment 101

Your legal obligations will typically come from one of three sources: contract, statute (a “law” passed by Congress or a state/local legislature), and court-made “common law” (rules of law set down by judges when deciding cases). Usually, contract-related legal disputes arise only where the employer and employee have entered into a written agreement. Very few small franchisees have written contracts with their employees, and – absent legitimate concerns about future competition or use of trade secrets – they usually shouldn’t. Nonetheless, if you do use a written contract with your workers, make sure you know what it says and means. You’ll most likely be bound by it.

Assuming that you don’t use a written employment contract, your workers are probably considered “at will” employees. (You should learn the law in your particular state.) Generally, an “at will” employee can be fired “with or without cause.” This means that, with important exceptions, you can fire that person for a good reason, a bad reason, an incorrect reason, an unfair reason, or no reason at all. Similarly, the law will give you enormous leeway with regard to hiring, promotion, and demotion of employees. In most cases, the courts will apply something called the “business judgment rule”: the idea that they shouldn’t second-guess most business decisions.

But don’t get a false sense of security. “At will” employees, like other employees, are subject to the protections that come from statutes and common law. For example, Title VII of the Civil Rights Act of 1964 – a statute enacted by the federal government – prohibits any business with fifteen or more employees from discriminating against employees and job applicants based on characteristics such as race, sex, national origin, and ethnicity. Similarly, the federal Age Discrimination in Employment Act prohibits businesses with 20 or more employees from discriminating against individuals over 40 years old, and the Americans With Disabilities Act requires certain employers to “reasonably accommodate” disabled employees and applicants. Although most of you probably don’t have enough employees to be covered by these statutes, be aware that many states have adopted their own copy-cat versions of these federal laws and apply them to all employers – regardless of size. (Some state laws also protect additional characteristics such as sexual orientation.) And they apply to all aspects of the employment relationship, such as hiring, firing, promotion, demotion, pay, and work environment.

Be particularly conscious of “work environment” discrimination, which often consists of harassment based on sex, race, or other “protected” characteristics. What one person might consider harmless teasing, joking, or flirting might be interpreted by another (and by a court) to create a “hostile environment” and amount to unlawful harassment. You’ll need to know what the standards are and communicate them in writing to supervisors and other employees. You should also make clear to your employees that they can come to you with complaints about harassment without fear of retaliation and that you’ll remedy those problems in a quick, fair, and discreet manner. And then deliver on that promise when the time comes.

Also know that other statutes provide employees with additional protections. For example, one federal law prevents military reservists from losing their jobs as a result of military-related absences. There are also statutes that are meant to ensure safe working conditions and full, timely payment of wages. In fact, an employer that withholds an employee’s wages in bad faith will sometimes be forced to pay the employee three times the withheld amount, plus the employee’s legal fees and costs.

Further, courts themselves sometimes create “common law” protections based on public policy concerns. For example, some states recognize a cause of action called “common law wrongful discharge.” Under this doctrine, an employer may not terminate an employee simply because that person engaged in a socially beneficial act like reporting a crime or reporting other suspected wrongful conduct to a government administrative agency.

The bad news is that it’s impossible to recite and describe all of your employment-related legal obligations in one short article. The good news is that you don’t really need to become a legal scholar. Rather, it will suffice for you to understand the dangers, recognize potential problems, and provide written documentation of employee problems. When in doubt or when problems arise, consult a professional to help you prevent or contain the damage. Following these steps could save your business.

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Originally published in the July/August 2007 issue of AVANTI, the official magazine of the National Coalition of Associations of 7-Eleven Franchisees.