If you own a 7-Eleven franchise, you were presented with a new version of the company’s franchise agreement in the light of the company’s ongoing wage scandal. A main part of the new agreement was a profit sharing clause, where income from profitable stores would be used to subsidize unprofitable ones. The problem is that because of razor-thin margins, the only item on a 7-Eleven’s income statement that made many of them profitable at all, was their ability to illegally circumvent local minimum wage laws. Once a new higher wage scale was adopted there were not enough profitable stores left to carry the unprofitable ones. Now, as a result, the company is not honoring the profit sharing agreement and instead abruptly shutting unprofitable stores and canceling their franchise agreements. If a franchisee had gone deeply into debt in order to make a legal payroll year after year, they had hoped to make the losses back and then some when they sold their franchise. With the shuttering of the stores, all is lost and goodwill is basically nil.

With the shuttering of hundreds of stores and the lawsuits that are sure to follow, people assigned as industry watchdogs are beginning to question whether the 7-Eleven business franchise was ever profitable to begin with. Digging deeper into company’s practices may even reveal that hiring immigrants and underpaying employees constituted a business practice and was known at the highest level of the corporation. If that is the case, the very existence of the company may be in question. To make matters worse, employees who were being paid below minimum wage or were forced to kick back wages, are now being threatened with termination and if immigrants, deportation. This is having the unfortunate effect of causing employees to be afraid to come forward to blow the whistle on their employers.

Given the nature of the scandals at 7-Eleven and the heavy-handed way in which the company is treating honest, yet unprofitable franchisees, it is hard to make a case for new franchisees to pay a premium for what was once the company’s positive brand name recognition and goodwill. The consequences of the company knowing that its franchisees were breaking the minimum wage laws may force an end to the chain altogether.

As an experienced international and American franchise lawyer, I can help you decide if buying a franchise is the right fit for you. Are you interested in buying a franchise? Do you need a lawyer’s help with a franchise law issue? Please contact me, Mario L. Herman, to arrange your consultation.