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California: Franchisees Receive Most Votes but Not Enough to Win

California State Capitol
California State Capitol (photo: Thomas Hawk)

SACRAMENTO — The California Assembly Business, Professions and Consumer Protections Committee members voted on Tuesday on a measure aimed at curbing abusive franchising practices with a surprising four votes in favor, three votes against and two abstentions.  Unfortunately, franchisees needed five votes to move the measure forward. Behind the scenes, the recent bill was anticipated to receive a minority of votes for franchised small business advocates today. But contrary to expectations, Assembly Bill 2305, the Level Playing Field of Small Businesses Act, which updates thirty- and forty-year-old franchise legislation in the state of California, received the most votes, but not enough to win.

 In addition to what is currently in the California Franchise Relations Act and the Franchise Investment Law that regulates vexatious conduct between franchisors and franchisees, the bill asks for 30 days to cure infractions of operating standards before a franchisee can be terminated, the ability of franchisees to pass down their businesses to family members, and penalties to abusive franchisors that make fraudulent claims in the sale of a franchise. 

Franchisors weren't happy.

A clear divide: Franchisees testify for, franchisors against

In what came after four grueling hours of lawmakers listening to 30 bill hearings without a break, a diverse group of independent franchisee association leaders and franchisees finally had an opportunity to tell their stories to assembly members. In a rare event in the franchise industry, various franchisees and franchisee groups were able to set aside their differences and come together to support the bill, working closely with the Coalition of Franchisee Associations and the Asian American Hotel Owners Association. The American Franchisee Association, AAHOA and the Coalition of Franchisee Associations took early leading roles in advocating the bill. The 7-Eleven Franchise Owners, American Association of Franchisees & Dealers, Independent Coalition of Franchise Owners (The UPS Stores), Service Station Franchise Association, as well as many individual franchise owners, supported the bill.

In all, 75 franchisees from over a dozen franchise systems went to the microphone to voice support for the bill. Franchisees told lawmakers that franchise arrangements have grown intolerably abusive over the past two decades.

Assembly members were moved, but not quite enough.

On the other side were franchisors that opposed the bill.

Franchisors Auntie Anne's, California Closet, CKE Restaurants, Fastsigns and Franchise Services (the parent company of Mission Viejo-based quick print franchisors Sir Speedy and PIP Printing), Marriott and ATM machine franchisor ACFN Franchised Inc. all objected to the changes in California's law that would provide penalties for abusive franchising practices. A representative of San Diego-based The UPS Store was there holding papers in his hand saying how the brands' franchisees were just now faxing in opposition to the franchising abuse reform bill. The California Chamber of Commerce also objected to the bill, while saying that it felt for the franchisees since its membership included both franchisees and franchisors. The California Retailers Association also opposed the bill because it would harm franchisor members.

"What's wrong with 2305?" asked attorney Dennis Wieczorek, partner in the Chicago office of DLA Piper, acting as the representative for the International Franchise Association. "Standards," he replied, answering his own question. "What does unreasonable proximity mean in this bill?" he queried about nebulous words describing territory encroachment that he thought impossible to enforce. He stated to lawmakers that if they voted for the bill that new franchises would freeze in the state as franchisors pulled out of California. He argued that the bill conflicted with the U.S. Constitution. "The bill contains provisions that conflict with the Federal Arbitration Act," he declared.

As lobbyists saw the writing on the wall that there was change in the air, the argument moved. A representative of the California Retailers Association said that change would happen but it needed to be not through "an individual who sues franchisors for a living" (referring to the author of the bill, franchisee attorney Peter Lagarias of San Rafael law firm Lagarias and Boulter LLP) but reform that bubbled up from institutions that they and others regularly work with, like California's Department of Corporations or the California bar review committee. "We need to bring in some experts and have a broader conversation," argued the representative on why the reform bill wasn't yet ready for prime time.

Assemblyman Huffman commented that frankly any change would be too much for franchisor opponents. "The opposition thinks everything is just fine with existing laws," he declared. Nonetheless, he was amenable to work with the bill's critics. "There are a few things we have heard here today that I think we can work on. I'm committed to do that," said the assemblyman who introduced the bill.

Not Quite Enough

As the arguments ended and a vote was taken, you could hear franchisees shouting with excitement in the hallway outside the assembly room when at first they thought the bill would make it out of committee. Chairwoman Mary Hayashi asked for the doors to be closed to shut out the noise. But as votes were officially tallied, the anticipated votes for the bill dwindled to the point where the ayes were the most numerous, but were not quite enough for the bill to make it out of committee.

Susan Kezios, president of the American Franchisee Association, thinks that this is just the beginning. "There is no way a franchisee will walk away from that hearing room as the same person," she says. "They'll take it with them from here on."

"Last week we kicked the brick out of the wall," contemplates Keith Miller about the franchisees successfully seeing the bill make it through the first committee, the Judicial Committee. The chair of the Coalition of Franchisee Associations continues: "This week the brick moved a little, but not all the way." He adds, "But we won't stop kicking."

For this year's California assembly, though, it's over.


Final vote on AB 2305



Mary Hayashi (D)– NO

Bill Berryhill (R) – no vote cast

Michael Allen (D) – AYE

Betsy Butler (D)– AYE

Mike Eng (D) – AYE

Curt Hageman (R) – no vote cast

Jerry Hill (D) – AYE

Fiona Ma (D) – NO

Cameron Smyth (R) – NO

 
No votes yet