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SACRAMENTO —Assemblyman Jared Huffman (D-San Rafael) speaks with Blue MauMau about the fair franchising bill he introduced a month ago to the state of California, AB 2305, the Level Playing Field for Small Businesses Act. The bill was introduced to various committees of the assembly on Tuesday.
Huffman represents California's 6th state assembly district, which is just north of the Golden Gate Bridge and includes all of Marin and a portion of Sonoma counties. The measure, co-sponsored by Assemblyman Tom Ammiano (D-San Francisco), looks to be one of the most advanced fair franchising bills in the nation.
It is the newest in a wave of state franchise relationship laws that aims to protect against franchisor abuses after the sale of the franchise. Vermont and Massachusetts will also vote on similar fair franchising legislation this year. That's in addition to the franchise relationship law that was enacted in Rhode Island three years ago. What is at the heart of these new laws are complaints by franchisees that franchise contracts in the last 20 years have become intolerably lopsided and abusive.
A hearing on the bill will be open to public testimony beginning at 9 a.m., April 17 at the Assembly Committee on the Judiciary Room 4202 in the State Capitol Building in Sacramento. After the sponsors' testimony, those who have registered their names on the speaker list can testify for or against the bill on a first come, first served basis. Letters of support to the lawmakers in the Assembly Committee on the Judiciary office (contact info) must be received by April 10 in order to be reflected in the bill analysis.
BMM: Why did you introduce this fair franchising bill, known as the Level Playing Field for Small Businesses Act?
Huffman: I've been aware of tragic situations with franchisees, who have risked their entire livelihoods and families on these small businesses and lost them. I decided that 32 years after California enacted our statutory framework for franchising in California, it was high time to take a look at how effective it has been, how the courts have interpreted it and how adequately we are protecting franchisees in this important business relationship.
This is my final year in the assembly. This is an issue that I have had my eye on for a few years, so I want to make sure to give it my best effort to put some updates and reforms on the books before I leave the legislature.
BMM: Why does this bill stress good faith and fair dealing? Attorneys tell me that there is a fundamental argument represented in this bill: whether to legislate standards of fair dealings as opposed to considering a deal fair if two consenting adults agree to it in a franchise contract. Those on that side, typically franchisors, argue — who is the government to say what is abusive?
Huffman: Everyone knows that the franchisor-franchisee relationship is not an equal bargaining situation. Franchisors are often huge companies with teams of attorneys. They have figured out how to wire these contracts over the years to their advantage. Many times franchisees are coming at this as the first business endeavor of their life. They are putting their livelihood, their family, their house and everything on the line, relying on the good faith of the franchisor.
This bill codifies the duty of good faith as one of several aspects of the franchise relationship that needs to happen. Franchisees are relying on the representations of franchisors. That reliance needs to carry with it certain protections in case things don't turn out as advertised or as verbally warranted.
BMM: There is an ideological divide. A lot of small business people would probably like to just hunker down, run their own business and be left alone. Some struggle with the thought of state government providing yet more laws to protect them. Why should they pay attention and support this bill?
Huffman: If we have adequate safeguards, duties and remedies spelled out in the law, it reduces the likelihood of litigation, conflict and intervention in the relationship going forward. I think we have seen the way this has played out over the past few decades that without protection these independent business people are vulnerable to a number of traps that can be sprung on them in the franchise relationship. Small business owners need to balance any anti-government sensibilities with a value of fairness that I think deserves consideration for their own benefit, given how much they have at stake in the franchise relationship.
BMM: I see. You are saying that a well-crafted law like this actually facilitates the marketplace to be more transparent and easier so that small business owners are less likely to be involved in conflict and litigation.
Huffman: Exactly. If the duties and remedies are spelled out very clearly, you are likely to reduce conflict. It allows these relationships to work better for both sides, certainly at least for the franchisees, which is what we are focused on, because it hasn't worked as well for franchisees as it has for franchisors.
BMM: How likely is this to pass? I suppose that's a futile question. Of course you are going to say it will pass. You drafted the bill.
Huffman: No. I wouldn't bluster about it that way. I think we are going to be up against some formidable opposition.
This is what is needed for this bill to succeed:
Franchisees are uniquely credible messengers in terms of small business. Everybody says that they are for small business. So we need franchisees to make sure that their legislator knows that they need this legislation. There are jobs and livelihoods at stake out there. This legislation will help preserve them and enable franchisees to continue creating jobs, contribute to communities and help grow local economies all over the state. But without it, they are in jeopardy. There is a good chance that there will be more bankruptcies, more job losses and more failures that will negatively impact local economies.
I think this is going to be a significant uphill battle, mainly because I know the forces that we are up against. I've already heard of them mobilizing, and I know what they can do, especially in an election year.
That's an important part of the message. Legislators need to be reminded that franchisees are their constituents. These big, out-of-state companies that sell the franchises may be rich and powerful, but they don't vote in their district.
BMM: What do you want franchise owners to do?
Huffman: At this point the key will be to write to legislators of both parties (contact info) who sit on the key committee. We expect this bill to go to the judiciary and possibly to the business and professions committee. We need Republicans to hear from franchisees. They are going to hear loud and clear from the big franchisors. I expect franchisors to have a massive team of lobbyists who will fan out around the Capitol. These are going to be big, powerful companies that have existing relationships, frankly, with a lot of members of both parties.
That is what we are up against.
Every time assembly members hear from say, McDonald's, they need to also hear from a McDonald's franchisee. Every time they hear from UPS, they need to hear from a franchisee from The UPS Store. And so on.
We need to reach Republicans and Democrats as well because they are going to hear from franchisors. Lawmakers are going to hear that this is a solution in search of a problem, that everything is fine. All of the current remedies are adequate.
BMM: Have franchisee and small business associations already been in contact with you?
Huffman: We have been reaching out to small business organizations. What's interesting is that we have already seen the politicking and leveraging from the franchisor side of things play out.
BMM: What do you mean? Has the International Franchise Association contacted you to kill this bill?
Huffman: They have not directly contacted me. I have talked with a lobbyist who has worked with them in the past. I don't think they have decided yet who is going to represent them in Sacramento on this. Even as we speak, I think the wagons are circling. Opponents are pulling their teams together.
We've been in contact with various groups. We have been reaching out to small business folks.
To give you an example of the tactics and leverage that we are up against, I won't name the organization, but there is a small business organization in California, one of several. They had actually taken a support position on the bill and written a letter of support. Their lobbyist became aware of it and hit the roof. He argued with them and persuaded them to retract their support for the bill. He tried to get them to oppose the bill. Now why would their lobbyist do that? If you look closely at who else that lobbyist represents, you will see it is a long list of franchisors. That association has retracted their letter of support. We are having ongoing conversation with them. Our challenge is that their hired lobbyist has a big conflict of interest.
That's one of the things we are up against. It is hard to find a major lobbying group in Sacramento that doesn't represent at least one major franchisor.
BMM: If small business franchise owners lose this battle, I'm assuming these franchise relationship issues are not going away. The'll pop up again in another bill in another year.
Huffman: This may be one of those windows of opportunity to make a difference. This doesn't happen all the time. I'm not aware of any major attempt to update the franchise laws in California in the last 20 years [other than this one]. I know franchisees are busy folks. They have a lot on their plate. But this is that once-in-a-generation moment for them to make a difference that will matter to them, their families and their businesses.
I hope they will get involved in advocacy, express their support and help us pass this law.