Trade groups representing franchisors and franchisees on Tuesday announced a compromise on a franchising reform law making its way through the California legislature.
The International Franchise Association and the Coalition of Franchisee Associations trade groups have jointly proposed an amendment to Assembly Bill 525, which gives franchisees more protection over what some consider franchisors’ predatory practices.
If the amendment is included in the bill, it would end the IFA’s opposition, potentially clearing the way for the legislation to make its way into law. Gov. Jerry Brown vetoed similar legislation last year over concerns about the bill’s language and questioned whether the bill was needed.
The agreement “will end several years of dispute in a way that helps ensure franchising remains an important part of the California economy,” Robert Cresanti, executive vice president of government relations and public policy for the IFA, said in a statement.
The bill was introduced in April and is a refined version of SB 610 that Brown vetoed in August with instructions that franchisors and franchisees hammer out their differences.
The proposal restricts the ability of franchisors like Subway, McDonald’s or Taco Bell to terminate franchisees unless there is a substantial violation of the franchise agreement. Franchisees would also be compensated, or their business sold, if the franchise agreement is terminated. The law also ensures that franchisees that substantially comply with their franchise agreement can have that deal renewed when the time comes.
The legislation is being closely watched throughout the franchise community, as California is a big state and other states could mimic regulations that get passed there.
The bill has also drawn interest from union groups targeting the franchise business model in an effort to win higher pay for quick-service workers as well as union rights. The Service Employees International Union has put its weight behind the franchisee proposal.
Franchisees, led by the CFA, have pushed the bill for years to combat what they see as some franchisors’ predatory practices.
The IFA, however, vehemently opposed the bill and insisted that it would hurt franchising in the state by restricting franchisors’ ability to police their systems.
The two sides have spent weeks hammering out an amendment, which includes several language clarifications, to alleviate some of the IFA’s concerns while keeping the main thrust of the legislation in place.
“We thought the bill was out of balance,” Cresanti said. “There were pieces of it we felt were threatening to the stability of the industry in California.”
The amendment was delivered to Toni Atkins, a San Diego Democrat and speaker of the California State Assembly, as Chris Holden, the author of AB 525.
“While neither organization is fully pleased with the bill’s substance, both IFA and CFA made significant concessions in a good faith effort to reach a workable, common sense compromise on behalf of our industry’s nearly 1 million workers at 82,000 franchise locations, which contribute $94 billion in economic output to California’s economy,” the groups said in a letter to Atkins and Holden. The letter was signed by Stephen Caldeira, CEO of the IFA, as well as Keith Miller, chairman of the CFA, Robert Branca, the group’s vice chairman, and Misty Chally, its executive director.
The IFA does remain skeptical of the bill. Cresanti in particular noted that it might increase franchisor-franchisee lawsuits.
“This will remove our objection on the bill going forward,” he said. “But it’s not without its cost.”