RIVERSIDE, Calif. (CN) - After a Japanese corporation bought the 7-Eleven chain, it began illegal surveillance of franchisees, turned business owners into low-level employees, and pushed out hard-working South Asian immigrant store-owners, transforming "the American Dream into an American Nightmare," a class action claims in Federal Court.
"Tragically, 7-Eleven has now become a cautionary tale of the dangers of corporate greed in the franchise context," the complaint states. "7-Eleven has become an unfortunate example of the tragic results that occur when a franchisor ceases to consider its franchisees as valuable, independent contractors and business owners and to see them merely as disposable assets to be exploited for short-term profits, then discarded once their value has been extracted."
FOAGLA Inc., a franchise owners association, and five 7-Eleven operators filed the lawsuit against 7-Eleven Inc., alleging racial discrimination, invasion of privacy and illegal surveillance retaliation against franchisees, and misclassification of employment relationship with franchisees.
"Throughout the 20th century, 7-Eleven pioneered and grew the 'convenience store' concept and helped make it a standard part of American life," the complaint states. "What fueled 7-Eleven's growth was its franchise arrangement with small business owners, many of them South Asian immigrants from such countries as India and Pakistan, who paid upfront franchise fees and operated the 7-Eleven franchised stores in exchange for a percentage of the store profits.
"7-Eleven found that the South Indian cultural traits of hard work, family unity, respect for authority, and community-mindedness made South Asians ideal owner/operators for 7-Eleven stores."
But things changed when Tokyo-based Seven and I Holdings Co., one of the largest retail conglomerations in the world, took over the 7-Eleven chain in 2005, the franchisees say. Staffing many of its top management positions with West Point graduates, the company took a "cold, predatory and militaristic approach to business."
The new regime saw an opportunity to exploit the franchisees and transform the goodwill they had built in their local markets into corporate profit by expelling franchisees, paying them nothing, and selling their franchises for enormous profit, according to the complaint.
"In fact, they realized that they could increase their profits exponentially by reselling valuable stores over and over - an industry practice known as 'churning,'" the franchisees say.
7-Eleven diminished the role of the franchisee from independent contractor and small business owner to the role of a low-level employee with no say in the operation of their store, the complaint states.
The franchise controls the day-to-day operations of its franchisees, exerting "a heightened and almost pathological level of control by 7-Eleven over franchisees," according to the complaint.
For example, 7-Eleven controls the maintenance of the equipment in franchisees' stores, the volume on their televisions, and employees' payroll and paychecks, the lawsuit states.
It also employs illegal surveillance to spy on franchisees and has hired unlicensed private investigators to follow franchisee activities outside of the store, the franchisees say.
In addition to having unfettered access to franchisees' electronic surveillance DVR systems, 7-Eleven now seeks to impose a more intrusive surveillance system, purportedly to protect franchisees. The systems "are actually being used as a 'sword' to monitor and harass franchisees where they would otherwise have a reasonable expectation of privacy," the complaint states.
These combined actions have been particularly discriminatory toward franchisees of South Asian descent, as 7-Eleven has "implemented tactics designed to exploit South Indian cultural and societal traits - such as respect for authority and fear of being shamed in their communities - to its full advantage," the complaint states.
7-Eleven has "resorted to tactics against South Asian franchisees ranging from stalking, spying, bullying, and interrogation to coerce these franchisees into giving up their stores without compensation," according to the complaint.
The company also threatens to make public any claims of franchisee impropriety, even when false, knowing that such claims carry with them "a great deal of shame to the family within the tightly knit South Asian community, thereby making it even easier to coerce these franchisees," according to the lawsuit.
According to Professor Jaideep Singh, "7-Eleven is 'aware of and exploits the social vulnerability of South Asian American immigrants' in which 'everyone knows everyone else, and often the intimate details of their personal business' and where threats by 7-Eleven investigators of incarceration and public censure leads to 'community level shaming' which, in turn, will lead to 'social exclusion' and 'inflict a 'social death' upon shunned community members,'" the complaint states.
7-Eleven has sued many South Asian franchisees through the country and "even resorted to police-like interrogation tactics to create a fear of criminal exposure and deportation to innocent, but frightened and impressionable minority franchisees," with the ultimate goal of disenfranchising them, according to the complaint.
"As a result of 7-Eleven's illegal and discriminatory actions, numerous South East Asian franchisees have already been targeted and lost their business and this protected group, of which FOAGLA is substantially comprised, continues to be targeted and harassed to date."
The franchisees seek declaratory judgment that 7-Eleven's actions violate federal and state laws, including civil rights law, "by purposely targeting, harassing and threatening FOAGLA members and all franchisees of South Asian descent," by invading their privacy, churning their stores to retaliate against "outspoken and minority franchisees," and court costs.
They are represented by Eric Schindler.
A 7-Eleven spokeswoman told Courthouse News on Wednesday: "The allegations made in this complaint are false. 7-Eleven is proud of its very diverse, independent franchisee population. In fact, USA Today named 7-Eleven one of the Top 50 Franchises for Minorities in 2013, and has received recognition as one of the top franchisee opportunities by Professional Woman's Magazine, Hispanic Network Magazine and BLACK EOE Journal."
She added: "Honest, hardworking, independent franchisees are the backbone of the 7-Eleven brand."