Last May, California’s state Senate passed a bill intended to give franchise owners a stronger hand in dealing with their corporate franchise systems. The bill stalled in the Assembly, but franchise owners are back in Sacramento this week pushing an amended version. And they’re getting support from an unlikely ally: the Service Employees International Union, whose campaign for higher wages for fast-food workers places it at odds with many franchise owners.
The bill would make it harder for franchisors to terminate franchisees, and would bring California closer in line with Hawaii, Washington, and other states with what supporters call “fair franchising” laws. Labor groups support it on the theory that making franchisees more independent will translate into better treatment for workers.
The main lobbying group for franchising chains, the International Franchise Association, opposes the bill, arguing that it would harm brands by allowing substandard operators to remain in business. Charles Internicola, a franchise lawyer who owns a home-cleaning franchise system called Ecomaids, agrees that the bill would allow poorly run franchises to harm a system’s reputation by opening franchisors to potential litigation. “Franchisors are going to be gun-shy about enforcing their rights,” he says.
That uneasy alliance between franchisees and labor unions shows how franchise owners occupy a strange place in the U.S. economy. They hire, fire, and pay wages like any employer, but they’re also bound by detailed rules set forth by franchise systems.
Franchisees who don’t live up to the letter of those rules can have their licenses voided. The California bill prohibits franchisors from terminating a contract unless there’s been “a substantial and material breach.” It also makes it easier for a store owner to sell his or her license to operate a franchise business. “The core of what the fair franchising movement is about is—‘You’re not our boss. You can’t terminate us without cause,’” says Keith Miller, chairman of the Coalition of Franchise Associations, a franchisee group pushing the bill.
People buying into a franchise business are often sold on the idea of working for themselves, says Peter Lagarias, a San Rafael (Calif.)-based lawyer who has been lobbying for the California law. In reality, corporate systems dictate most of a franchisees’ business activities, including where individual stores can buy supplies, how many workers should be on duty for a given shift, and how often employees must clean the bathrooms. “Many of them come to realize that the only thing they’re independent in is being responsible to pay the bills,” Lagarias says.
Franchise systems’ control over store owners’ behavior has been used to justify labor-friendly policies that both sides oppose. That includes Seattle’s new minimum wage law, which classified individual franchise stores as large employers, and the recent National Labor Relations Board ruling that McDonald’s (MCD) should be considered a joint employer in labor disputes between franchisees and fast-food workers. By preventing a franchise system from revoking a license or blocking a sale, the California law would give franchisees greater control, and bolster the argument that store owners are independent entrepreneurs, Miller says.