Speedee 7-Eleven

National Labor Relations Board - Board Decisions

Apr 12, 1968

170 N.L.R.B. 1332 (N.L.R.B. 1968)

1332 DECISIONS OF NATIONAL LABOR RELATIONS BOARD
The Southland Corporation , d/b/a Speedee 7-Eleven
and Retail Store Employees Union, Local 428,
Retail Clerks International Association,
AFL-CIO, Petitioner . Case 20-RC-7806
April 12, 1968
DECISION AND ORDER
BY CHAIRMAN MCCULLOCH AND MEMBERS BROWN
AND JENKINS
Upon a petition duly filed under Section 9(c) of
the National Labor Relations Act, as amended, a
hearing was held before Elizabeth M. Bianchi,
Hearing Officer. Pursuant to the provisions of Sec-
tion 3(b) of the National Labor Relations Act, as
amended, the National Labor Relations Board has
delegated its powers in connection with this case to
a three-member panel. The Hearing Officer's rul-
ings made at the hearing are free from prejudicial
error and are hereby affirmed.
Upon the entire record in the case, the Board
finds:
1. The labor organization involved claims to
represent certain employees of the Employer.
2. No question affecting commerce exists con-
cerning the representation of employees of the Em-
ployer within the meaning of Sections 9(c)(1) and
2(6) and (7) of the Act for the following reasons:
Petitioner seeks to represent the employees at
Speedee Mart Store 465-420A located at Mountain
View, California. This store is operated by Wallace
S. George, Sr., under a franchise agreement with
Southland Corporation.
Petitioner contends that Southland exercises a
sufficient degree of control over the store operated
by George that it must be considered the employer
of the employees in that store. It further asserts that
George is a Southland supervisor or branch
manager of this store. Alternatively, the Petitioner
contends that Southland and George are joint em-
ployers.
Southland and George have entered into a stan-
dard franchise agreement which Southland has with
a number of other franchises in California for the
operation of a small convenience-type neighbor-
hood food store.
Southland surveys prospective store sites, buys or
leases the property, and arranges for the construc-
tion of the store. Southland then I eases or buys the
fixtures and outfits the store with a complete stock
of goods. This "package" is handed over to the
' George originally invested $4,000 and within a few months invested an
additional $5,000 His present equity in the store is approximately $15,000
f anchisee and, pursuant to the franchise agree-
ment, the franchisee leases the store and fixtures
from Southland and is licensed to use either the
7-Eleven or Speedee Mart trade name and opera-
tional system. The franchisee provides the opera-
tional capital and the inventory. The initial invento-
ry requirement under the agreement is $10,500.
The franchisee is expected to put up a substantial
portion of this in cash.' The amount by which the
inventory and working capital exceeds the
franchisee's equity is financed by an open interest-
bearing account owed by the franchisee to
Southland.
Southland also provides a number of services to
the franchisee after the store is opened. These are
discussed below.
Under the bookkeeping service set forth in the
franchise agreement the franchisee deposits daily in
the Southland's account all cash sales proceeds
which remain after cash purchases and reserves
needed by the franchisee. This sum is then credited
once a week to the franchisee's open account with
Southland. Invoices from "authorized" vendors are
sent by the franchisee to Southland headquarters
and are paid by Southland out of this open account.
The amount by which income items exceed
purchase and expense items is accumulated as cur-
rent profits and reduces the balance of the
franchisee's open account payable to Southland.
This procedure is repeated each week for 13
weeks, at which time the franchisee is furnished a
financial report reflecting his quarterly income
statement and balance sheet.
Franchisees with a net worth of $7,500 or more
may withdraw all their current operating profits;2
those with less equity are required to leave part of
their profits in the business in order to repay part of
Southland's loan. Franchisees file their own tax
returns, reporting profits as self-employment in-
come and scheduling store income and expense. No
withholding taxes or Social Security taxes are
deducted by Southland.
Franchisees who work in their store may draw a
fixed weekly amount against the store's anticipated
profits for the quarter. As George does not work in
the store but instead employs his son to manage the
store, he takes no draw. In return for services
rendered, Southland receives 55 percent of the ad-
justed gross profits of the franchisee.
Under the franchise agreement, exclusive control
over labor relations is vested in the franchisee. Arti-
cle 14 of the franchise agreement states in relevant
part: "Owners [franchisees] agree to exercise full
and complete control over and have full responsi-
2 George has a net worth substantially in excess of $7,500 but has al-
lowed his profits to accumulate instead of withdrawing them
170 NLRB No.159
SPEEDEE 7-ELEVEN - 1333
bility for any and all labor relations, including the
hiring , firing , disciplining , compensation and work
schedules of their employees."
Although Southland makes out the wage checks
to employees, this is merely a convenience for the
franchisees, who furnish Southland's computer with
all relevant wage information , whereupon
Southland routinely makes out the checks in the
appropriate amounts. The franchisee's account is
debited accordingly-.
There ,is no evidence that Southland has-ever ex-
ercised any contol over any of the terms of employ-
ment of the store employees.
Petitioner bases its, contention that Southland is
the employer primarily on the following:
1. The Southland Policy Manual
2. The Retail Pricing Arrangement
3. The Right to Terminate the Relationship
4. Southland's alleged control over the
franchisee's source of supplies.
It argues that an analysis of these factors. reveals
that Southland so controls George's operation of
the store that Southland not only controls the result
but also the means by which it is accomplished.
Thus, Petitioner contends, George is not an inde-
pendent contractor but is an agent of Southland.
We do not agree. Although the policy manual
furnished to each franchisee describes in meticu-
lous detail virtually every action to be taken by the
franchisee in the conduct of his store, there is no
evidence that these are more than recommenda-
tions made consistent with sound retail store busi-
ness practice. Nowhere in the franchise agreement
is there any indication that these recommendations
are mandatory. Indeed, the record reveals that most
franchisees , including George , maintain a rather
casual attitude toward the manual and refer to it
only infrequently. Nor is there any evidence that
Southland has sought to secure compliance with the
manual recommendations or that it considers its
terms to be more than recommendatory.
Petitioner also asserts that Southland controls
George's pricing structure. While it is true that
Southland sends its franchisees periodic price
recommendations as to many of the various
products carried by the store, it is clear that this is
done for the purpose of informing franchisees of
the current market prices in the area in order to
enable franchisees to keep their prices competitive.
The record reveals that these suggested prices are
merely suggestions and that Southland does not in-
sist upon them. George has, on a number of occa-
sions, set his prices either above or below these sug-
gested prices. It is noteworthy that any deviation
from the suggested prices affects the, franchisee's
profits. Southland receives 55 percent of the
franchisee's gross profits based on, -the differential
between the wholesale price and Southland's sug-
gested retail price. If the franchisee charges more
than the suggested price, his -profits are increased.
If he sells for less, his- profits are correspondingly
decreased.
Petitioner's contention that Southland totally
controls George's source of products appears to be
equally lacking in,merit. For various reasons (e.g.,
price concessions which it. may, negotiate on behalf
of franchisees), Southland- will suggest - that
franchisees deal with certain "authorized, vendors."
Southland- sets up its, computer system in such a
manner as to. make it more -convenient for
franchisees to deal with these vendors than with
others. For, example, invoices of "authorized" ven-
dors are processed directly by Southland's com-
puter and payments are debited from the
franchisee's account. Southland's computer is not
programmed for other vendors, and in, order for the
franchisee to purchase goods from such -vendors -he
must pay cash and engage in a certain amount of
paperwork to record purchases , and sales.
Nevertheless, the record is clear that nothing in the
franchise agreement forbids - such purchases from
nonauthorized vendors; and it is equally clear that
almost all, franchisees, including George, purchase
some products from nonauthorized vendors. - -
Finally, Petitioner argues that article 15 of the
franchise agreement allows Southland to terminate
the relationship without cause upon 30 days'
notice. This provision, it contends, may be used as
a club to force` franchisees to accede to its demands
upon threat of severance of the-relationship. How-
ever, the Board has never held that this right to ter-
minate , standing alone , negates the existence of - an
independent contractor status. As we held in-Clark
Oil & Refining Corp., 129 NLRB 750,
It is true that there is a residual authority in
the Respondent, upon 30 days' notice, to ter-
minate the dealership of anyone whom it con-
siders to be conducting an unsatisfactory
operation . ... Such conditions , however,
neither create nor preserve an employee status.
The most that can be said is that they establish
a month-to-month tenancy-a not-insubstantial
tenure-and one not ordinarily associated with
master-servant relationships. Under the cir-
cumstances here such a condition does not
negate the existence of an independent con-
tractor status.
On the above facts we are unable to find that
Southland so controls the means by which George
operates his store to warrant finding his employees
1334 DECISIONS OF NATIONAL LABOR ' RELATIONS BOARD
to be employees of Southland. We find-George to
be an independent contractor.
Remaining for` consideration is Petitioner's con-
tention that, notwithstanding a finding that George
is an independent contractor, he and Southland
together should be regarded as joint employers. We
find no merit in this contention.
We have long held that the critical factor in
determining whether a joint employer relationship
exists is the control which one party exercises over
the labor relations policy of the other.' It is im-
material whether this control be actually exercised
so long as it may potentially be exercised by virtue
of the agreement under which the parties operate.4
In the instant case Southland neither exercises ac-
tual, nor possesses potential, control over the
store's labor relations under the franchise agree-
ment. It is undisputed that George alone and exclu-
sively hires, fires, and in every other respect sets
the terms and - conditions of employment of the
store's employees. There is no evidence that the
clear language of article 14 of the franchise agree-
ment granting complete control over store labor
relations to the franchisee has ever been disre-
garded by the parties or that Southland has ever
sought to interpret the agreement in such a way as
to vest in itself the right to influence George's labor
relations policies .5
In its brief Petitioner advances the contention
that Southland "in practice does keep a check on
the number of employees, their hours and wages,"
by means of article 21 of the franchise agreement.
Article 21 states that if the franchisee's payroll "ex-
ceeds 8 percent of, net sales for said preceding
week, or $200, whichever- is greater; the remittance
(the owner's weekly draw) may be reduced by-the
amount of such excess." But it does not require
George to reduce the number of hours or wages of
its employees.
We are of the opinion that the impact of this con-
tractual provision upon George's employees is' too
remote and conjectural to warrant a finding that
Southland has any meaningful control over Geor-
ge's labor relations policies. Moreover, there is no
evidence that George has ever been affected by this
provision. Indeed, the record shows- that George
does not even take a draw. Further, even if George
did accept a draw it would be sheer speculation to
assume that the terms of employment of his em-
ployees would in any way be affected by the draw
restriction.
For the foregoing reasons we find on the present
record that George and Southland are not joint em-
ployers of the store employees within the meaning
of the Act. Accordingly, as George is the sole em-
ployer and as George's annual retail sales are less
than the Board's minimum retail jurisdictional stan-
dards, we find that it will not effectuate the policies
of the Act to assert jurisdiction herein, and we shall
dismiss the petition.
ORDER
It is hereby ordered that the petition filed herein
be, and it hereby is, dismissed.
' S.A.G E, Inc. of Houston and its Licensees, 146 NLRB 325
4 Thnfton n, Inc., 161 NLRB 603. Although in Thnftou n the Board
found the termination clause in the parties' agreement to be significant in
establishing a joint employer relationship, this was found to be so because
of the "special nature of the relationship ," i.e., a discount department store
in which all the leased departments were under one roof and were held out
to the public to be part of an integrated enterprise . Moreover, the lease
agreement specifically reserved to Thriftown the right to control its lessees'
labor relations , a right which would normally be exercised in order to
prevent a dispute involving one lessee from adversely affecting the opera-
tiomof the entire store.
' In this,regard it is noteworthy that on one occasion a customer com-
plained to Southland about the conduct of a clerk in George's store.
Although a Southland representative suggested to George that the em-
ployee be fired, George rejected the suggestion and continued to employ
the clerk . Southland thereafter made no attempt to alter George's decision.