The franchise market in California, a keystone of small business in the state, soon could change radically.
The California Legislature last Thursday sent a bill to Gov. Jerry Brown’s desk that would effectively supersede the contractual agreements between California-based franchises and such national franchisors as Subway, Supercuts, 7-Eleven, Jiffy Lube, RE/MAX, H&R Block, Holiday Inn and The UPS Store.
The measure, Senate Bill 610, was carried by Sen. Hannah-Beth Jackson, D-Santa Barbara. It barely advanced beyond on the Assembly floor early last week before winning passage on the state Senate floor, when putative moderate Democrats backed the so-called California Franchise Relations Act after initially withholding their support.
Jackson maintained her bill will “level the playing field” between the state’s more than 80,000 “small-business” franchisees and the “giant, often out-of-state corporations” that oversee them.
“Current law allows these corporations to put these small franchisees out of business for even the most minor and arbitrary violations,” said Jackson. “This bill would put these small business owners on a more equal legal footing and protect them from unfair actions that take away their livelihood.”
The International Franchise Association suggested that the Santa Barbara lawmaker has ulterior motives; that she has not suddenly become a champion of California’s small business owners “working hard to live the American dream,” as she put it.
IFA President and CEO Steve Caldeira accused Jackson of doing the bidding of organized labor; in particular, the Service Employees International Union, which, he said, has waged “a blatant misinformation campaign against our industry.”
Indeed, the SEIU has not previously stood in solidarity with the American Association of Franchisees and Dealers, based in Palm Desert, which represents small business franchise owners, almost none of which are unionized. Yet the two natural adversaries joined together in support of the Franchise Relations Act.
That’s because AAFD represents disgruntled franchisees who don’t like the terms of the contracts they signed with Subway, Supercuts, 7-Eleven, Jiffy Lube, RE/MAX, H&R Block, Holiday Inn, The UPS Store or other such corporate franchisors.
And SEIU is hoping that its support for SB610 will engender such goodwill with small business franchisees – particularly in the fast food industry – they will happily allow SEIU to unionize their employees.
IFA CEO Caleira warned that, if Brown signs the FRA into law, it will be but a Pyrrhic victory for the AAFD and California’s small business franchisees.
“Without question,” he said, it will “shift franchise brands to more company-owned stores, thereby taking away ownership opportunities for both existing and prospective entrepreneurs in the state and would severely hinder franchise small business growth throughout California.”
The parent corporations cannot be forced to give out franchises. And if regulations become too onerous, it’s possible the corporations will just run things themselves, or simply shut down operations in some areas.
For example, according to Entrepreneur magazine, in 2014 7-Eleven has 44,400 franchises globally, of which 489 are company-owned. Each franchise is for 10 years. So if the franchise situation in California changes in favor of direct ownership by the corporation, the parent firm, although unlikely to do so, potentially could take over all franchises within a decade. Or it even could shutter them, pulling out of the state entirely.
Cross-posted at CalWatchDog.