California's legislature may have just drastically changed the way franchises are able to do business in the state. On Friday, the State Assembly approved a law making it harder for franchisor companies like the McDonald's Corporation to terminate franchising agreements with the smaller business owners who run their franchises. An altered version of the proposed law, SB 610, had already been approved by the State Senate last year. The bill will now return to the Senate for final approval.
Business organizations like the International Franchise Association (IFA) and the California Chamber of Commerce had urged the legislature not to pass the law, saying it would obstruct franchisors' ability to maintain a consistent level of quality across all of its franchised locations. But a coalition of franchisees argued the bill would provide their small businesses with much-needed protections against domination by large corporations.
The labor union SEIU also supported the bill, apparently hoping that franchisees would be more willing to increase wages and benefits for their workers if doing so didn't put them under threat of having their franchising agreements ended. The organization Fight For 15, which represents protesting fast food workers and receives support from SEIU, praised SB 610 in a statement released shortly after the Assembly's vote.
"Fast-food workers and franchisees have a common interest in holding corporations accountable," said Fight For 15 members in the statement. "Franchisors’ dominance over franchisees makes it tough for franchisees to run a stable business. A small business dominated by a multinational corporation makes it hard on both owner-operators and workers."
Meanwhile, the IFA blamed an SEIU-led "blatant misinformation campaign" for the law's passage and said it would do violence to California's business climate.
“SB 610, particularly the termination language, is more vague and obscure in its definition than any other state franchise law," said IFA president and CEO Steve Caldeira in a statement. "This bill without question will undermine franchise growth in California, lead to frivolous, unnecessary and costly litigation, reduced product quality, harm brand integrity."