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Franchise Protection Bills Introduced in California

California state flag
photo/mjambon

SACRAMENTO — Fed up with a legal stacked deck of cards, franchisees have decided to take a more direct role in writing laws to protect their businesses. Franchise owners in the Golden State have just submitted bills to California's assembly and senate.

One such bill is the California Small Business Investment Protection Act, Assembly Bill 1141. The bill aims to enable franchise owners to be freer to transfer their businesses, to have a right to renew their licenses if in good standing with their franchisors, to be protected from unreasonable terminations, and to have a right to assemble in their own trade groups without fear of persecution or termination by franchisors for doing so.

"Passing this law will be a large step to provide balance back into the [franchise] industry, which is needed so franchisees continue investing into the industry and creating jobs in California," says Keith Miller, a Greater Sacramento-based Subway franchise owner. Miller, who is chairman of the Coalition of Franchisee Associations, a franchisee group represented by some of the nation's largest brands, helped draft the bill along with other franchisee leaders.

The International Franchise Association does not view the bill in the same light. "Our initial read of the bill raises some serious concerns," says full-time staffer Matthew Haller, vice president of public affairs.

Last year a consortium of franchise owners tried for the first time to work to get a law to better protect their rights through the California assembly. Assembly Bill 2305 surprisingly passed the Judiciary Committee and then gained a plurality of votes in the Business and Professions Committee. But with an abstention of supporting votes from Republican committee members, the vote failed to move the bill to the floor of the assembly.

Washington D.C. lobbyist IFA brought in the seasoned California Chamber of Commerce to vociferously fight against the bill. What is surprising is how far the bill went, in view of its grassroot beginning with small businesses and strong opposition by big businesses.

Hoteliers, McDonald's restaurateurs, service station dealers and many other local franchise owners said they would not be thwarted and were just beginning.

Now California franchise bills are multiplying. This year there is not only AB 1141, sponsored by Republican Assembly member Brian Dahle of District 1, but also SB 610 and SB 538.

The state pioneered the regulation of franchise sales in 1970 with its California Franchise Investment Law, which required that franchisors disclose certain information to investors before a franchise agreement could be signed. That practice spread to other states, and then it became federal law.

But California has not updated its franchise laws in years, not even to match federal law. This year's SB 538 simply updates the outdated California law by replacing the now defunct term Uniform Franchise Offering Circular with the 2007 federal rule's Franchise Disclosure Document. It also changes the old requirement that an investor be given the pertinent disclosure document from 10 days prior to a franchise purchase to the now six-year old federal requirement of 14 days.

The IFA has an annual Washington D.C. franchising day. Concerned, the IFA has now introduced a "California Franchising Day", urging franchisors and their franchisees to make a show of strength as a group before the Golden State lawmakers this Tuesday. The organization, which is largely funded by franchisors, may be worried that where goes California, so goes the rest of the nation.

The Coalition's Keith Miller says, "I can't thank Assembly member Brian Dahle and his staff enough for taking a leadership position on this bill." He continues, "Mr. Dahle, while not a franchisee, is a small businessman himself. He understands the challenges we face in our businesses, and by sponsoring AB-1141 he is supporting local small businesses throughout the state."

Vice President Haller of the IFA also wants his organization to work with California's sponsors. According to Haller, the IFA wants "to ensure that any franchise-related bill that has either been introduced, or may be introduced in the future, does not have unintended consequences that would impede the growth of the franchising industry, which is one of the few industries that is experiencing growth above the overall projected growth rate of the U.S. economy."

Miller, who works full time at his sandwich shops, asks the state's franchise owners to become involved with Assembly Bill 1141. "Franchisees in California need to contact their state representative," he says. "Meet with them, either in the district or in the Capitol. Invite them to your business to show how you have invested in your business and the community, and that you create jobs in their district. Let your representative know how AB-1141 will begin to provide you the protections that give you incentive to invest even more in your business, or to expand your business."

"The law WILL NOT be passed without franchisee engagement in the process," says Miller.


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