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Franchisees Win in California Assembly!!

Sacramento capitol dome
Sacramento capitol dome. photo/thomas hawk

SACRAMENTO – California's assembly voted Thursday morning to pass a bill that aims to strengthen good faith and fair dealing between franchisors and franchisees. The final tally was 41 ayes and 27 nays.

Senate Bill 610 has now been passed by the Senate Judiciary Committee, a full vote on the Senate floor, the Assembly Judiciary Committee, the Assembly Business, Professions and Consumer Protection Committee and now a full vote on the Assembly floor.

The International Franchise Association (IFA) and its allies, such as the California Chamber of Commerce, opposed the bill. The organization built websites, placed advertisements and organized mass rallies at the capitol. There were opinion pieces written in the local press opposing the bill.

But this time around, the franchisees did too.

To the observer, franchise owners seem to be learning exponentially, at least for the time being, outsmarting and outmatching the know-how and raw power of the deeply connected and pocketed IFA, a Washington, D.C.-based lobbying association formed over half a century ago by franchisors.

Kathryn Slater-Carter, who is part of a second-generation of family members that own a McDonald's franchise in Northern California, points out her opponents' might. "There were over 20 lobbyists and other opponents," she observes. For the past few weeks Slater-Carter has marched up and down the halls of Sacramento to chat with Assembly members, meet staffers and even give a nod to workers in the state capitol. She describes that some 40 people who were vying for the attention of lawmakers had gathered around a monitor when it came time for the final vote count. "When the vote hit 41, enough for passage of the bill, you could hear a pin drop within that group," says Slater-Carter.

Battle between David and Goliath
Source: OpenSecrets on Asian American Hotel Owners Assn, Coalition of
Franchisee Assns and Int'l Franchise Assn.

Are franchisee efforts for protections in various states such as California, Maine, Pennsylvania, New Hampshire and others bleeding the IFA dry?

Consider this: For the first time since the 2005 to 2006 political cycle, the IFA spent more in the 2013 to 2014 political cycle, $935,700, than it raised in political action committee (PAC) funds, according to OpenSecrets.org. In fairness, it should be pointed out that there are still three more months to raise funds for candidates running in the November election. And the group has already shown it is capable of raising more funds. During the highly charged presidential election cycle of 2012, the IFA was able to gather $1.2 million.

Sponsor pleased

California's Senate Bill 610 was authored by Senator Hannah-Beth Jackson (D-District 19, Santa Barbara). The American Association of Franchisees and Dealers, based in San Diego, was the sponsor of the bill. In California an organization can sponsor a bill.

Robert Purvin, chair of the Franchisees and Dealers association, said within minutes of the victory, "Today marked a small but significant victory for franchisees everywhere. But the bigger concern is the amount of resources thrust upon us to defeat what was really basic fairness legislation. The need for franchisees to organize has never been greater."

Before the bill's passage, the International Franchise Association's chief executive officer Steve Caldeira stated that the language used to stop franchisors from terminating franchisees in bad faith "is more vague and obscure in its definition than any other state franchise law."

That point spread quickly and created doubt and buzz among lawmakers Wednesday morning.

Within minutes of hearing the argument, some of the country's top franchisee attorneys compiled a list of other states that actually have similar language. Advocates circulated it to lawmakers. That list seems to have stemmed the tide of lawmakers not voting for the bill.

The assembly floor debate

Assemblyman Donald Wagner (R-Tustin) opposing SB610

Advocates think this is a small, incremental change. They say that defining good faith will dampen a world of franchise torts gone wild. Opponents argue that it's the other way around and the end of a way of life.

On the floor of the assembly, Donald Wagner (R-Tustin) urged his colleagues to vote no. He pointed out that there is no need for additional law. Franchisees simply need to live up to their obligations. "If you don't like the deal, don't sign up for it. But if you do sign up, live by your contract," stated the assemblyman. 

He added that if the bill passed, franchising firms would shy away and the Golden State's economy would be tarnished.

But Assemblyman Scott Wilk (R-Santa Clarita) asked his colleagues, particularly his fellow Republicans, to support Senate Bill 610. "All SB-610 does is take an incremental step to fix the California Franchise Relations Act." He added, "Today we have a chance to help the little guy."

The bill passed. Now it heads to the Senate again and then on to the Governor's office to be signed into law.

Strange bedfellows

Of concern to some Republicans and even a few Democrat lawmakers was the alarm of labor union involvement in pushing for fairer franchise laws. Claimed Caldeira of the IFA, "There has been a blatant misinformation campaign being promulgated by the unions, led by the Service Employees International Union (SEIU), regarding language in this bill compared to franchise law in other states."

Assemblyman Scott Wilk (R-Santa Clarita) supporting SB610

Keith Miller, chairman of the Coalition of Franchisee Associations (CFA), replies that politics often creates strange bedfellows. "What is important is the actual language in the bill, not who is supporting it," he says. "The unions are fighting for higher wages for workers. They understand that franchisors are protecting their profits at the expense of slim profit margins for franchisees. Unless this trend is changed, franchisees will be unable to pay higher wages for their workers. That is why they support Senate Bill 610."

No matter who is supporting the bill, Caldeira thinks it is a bad one. "This bill without question will undermine franchise growth in California, lead to frivolous, unnecessary and costly litigation, reduce product quality, harm brand integrity," declares the IFA chief executive. "What's more, it will reduce equity for the hard-working franchisees that create much-needed jobs in a state still working its way through a difficult economy under the leadership of Governor Jerry Brown."

The elected chairman of the CFA has a different take. Miller says the Assembly's approval of the bill today will not only provide more balance and fairness for franchisees, but also be a boon to the economy. "California franchisees are striving to be a part of California's economic future and the Assembly's 'yes' vote on SB 610 brings us one step closer to stabilizing our small businesses so we can continue serving the needs of California's communities and providing jobs that build our economy and provide for families," says the multi-unit owner of sandwich shops around Sacramento.

As the two sides vow to fight on, Kathryn Slater-Carter thinks that what is at the heart of such vehement opposition to good faith and minimal termination protection is essentially a struggle to keep power. "Franchisors are accustomed to be, and demand to remain, the legislator, judge, jury and executioner regarding franchised businesses," she states.

Despite the few Davids that this time managed to halt a Goliath power broker, the International Franchise Association wants it known that it and its alliance of lobbying groups are not going to let up. "Our coalition intends to vigorously lobby to defeat it," vows CEO Steve Caldeira in an email.

Still, supporters of the bill are energized. They aren't about to let up either.

"That's one small step for franchisees, one giant leap for fairness," quips Bay Area attorney Peter Lagarias, mimicking the words of the first man, Neil Armstrong, when he first set foot on the moon.


Related reading:

Reporting on the passage of SB610 in the California Assembly:

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About Don Sniegowski

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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.