An independent contractor misclassification case between 7-Eleven Inc. and some of its franchisees has been sent back to district court after the Ninth Circuit found the lower court erred in its denial of a preliminary injunction.

In Serge Haitayan v. 7-Eleven Inc., 7-Eleven franchisees claim to have been misclassified as independent contractors in violation of the Fair Labor Standards Act and the California Labor Code. In a March 2018 decision, the district court denied the plaintiff’s motion for a preliminary injunction and corrective notice regarding 7-Eleven’s distribution of a franchise renewal agreement requiring franchisees to release their wage-and-hour claims. In its Feb. 27 ruling, the Ninth circuit vacated and remanded the case back to the district court.

The district court erred in failing to consider the plaintiffs’ allegations regarding 7-Eleven’s actual control over the plaintiffs, focusing instead on the contractual agreement, the Ninth Circuit said in its remand order. In rendering misclassification determinations, the court noted, “[t]he parties’ label is not dispositive and will be ignored if their actual conduct establishes a different relationship”). The court also noted that “economic realities, not contractual labels, determine employment status for the remedial purposes of the FLSA.”

The district court’s ruling also predated the landmark Dynamex ruling, which may now affect the case on remand; the Ninth Circuit also is considering how Dynamex applies to another franchise agreement case, Vazquez v. Jan-Pro Franchising Int’l Inc., which was argued before the court in December 2018. The district court may stay its proceedings for Haitayan pending the results of that case.