- Associated Press - Thursday, August 14, 2014

SACRAMENTO, Calif. (AP) - A bill that generated spirited debate over the leverage corporations such as McDonald’s and Subway can hold over their franchise owners narrowly passed the Assembly on Thursday.

SB610 would make it harder for corporations to cancel franchise agreements and would add requirements that must be met when a franchisee’s business is sold. The debate spilling across party lines is fueled by intense lobbying from two sides: unions teaming up with franchisees, and business groups that say restricting corporate control could lead to lower food standards, dirty bathrooms and closed stores.

The legislation strikes at the balance of power between franchisees that profit from the reputation of major brands, which in turn mandate how the businesses operate. It heads to the Senate after passing on a 41-27 vote, the minimum needed.

The bill first introduced last year by Sen. Hannah-Beth Jackson, D-Santa Barbara, was inspired by stories of small-business owners who say they had their livelihoods taken away.

“Some larger out-of-state corporations are using minor contract violations to seize their businesses and terminate their contracts and in many instances turn them over to somebody else for more profitable business terms,” said Jackson, who narrowed the bill to win Assembly support.

The bill creates a higher standard for canceling a franchise agreement early, which supporters say gives them the same rights during contract disputes as other businesses in California. At least eight other states, including Connecticut and Nebraska, have a similar standard in place, according to Jackson’s office.

Other provisions would protect franchisees from having their ownership transferred with little notice and make it easier to sell the business.

Opponents of the bill say the state shouldn’t meddle in private contracts, arguing that the existing system works to protect internationally recognized brands from rogue business owners.

“They go into that field as a franchisee with their eyes open,” said Assemblyman Donald Wagner, R-Irvine. “We are not talking here about contracts that are convoluted and written in lots of legalese that they can’t understand.”

The International Franchise Association says it will continue its fight against the bill, which has included Web videos saying the bill undermines California’s economic recovery.

“This bill without question will undermine franchise growth in California, lead to frivolous, unnecessary and costly litigation, reduced product quality, harm brand integrity,” Steve Caldeira, the organization’s president and CEO, said in a statement.

They will be challenged by powerful worker groups, including the Service Employees International Union, which has been organizing fast-food worker strikes across the U.S.

Assemblywoman Lorena Gonzalez, D-San Diego, noted that franchisees are also limited in what they can pay workers under existing regimes.

“We are talking about small businesses … who have been under the thumb of master corporations,” said Gonzalez, a longtime labor advocate. “There is something fundamentally wrong with the relationship as we accept it.”


Fenit Nirappil can be reached at https://www.twitter.com/FenitN .

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