BUSINESS

Backed by SEIU, franchisees seek greater protection in contracts

Franchise owners say California legislation would protect them from unreasonable actions of giant franchisors
International Franchise Assn. says SEIU is meddling with the relationships between franchisors and franchisees
SEIU says California legislation that would help franchisees would benefit workers

Small-business franchises are fighting in the Legislature for more protection against giant corporations that dictate how they run their fast-food restaurants, convenience stores and a range of other services.

And backed by a powerful union, franchise legislation has emerged as one of the most hotly contested business measures of the year. Companies and labor unions are furiously lobbying lawmakers ahead of a final vote that could come as soon as Wednesday in the state Senate.

The bill, SB 610 by Sen. Hannah-Beth Jackson (D-Santa Barbara), seeks to better shield franchise owners from having their businesses taken from them by the corporate headquarters for what some individual stores say are too often minor contractual violations.

Backers — including some franchise owners, a small-business organization and the politically wired Service Employees International Union — describe the bill as a modest step toward putting independent store owners and their corporate chiefs on a more even legal standing. The bill also would stop franchisors from needlessly delaying or disapproving the sale or transfer of outlets by their owners.

The big-brand franchising companies say the current relationships between headquarters and outlets are working well, and that there's no need to change contracts.

The battle — a fairly equal match between the SEIU and the International Franchise Assn., a Washington trade group — is too close for Capitol oddsmakers to pick a winner. SB 610 passed the Assembly on Thursday with the minimum number of 41 aye votes. It cleared the Senate a first time in May with just one vote to spare.

Both sides describe the struggle as a dramatic change in the legal relationship that underpins the California franchise industry, which employs nearly 1 million workers statewide and generates $94 billion a year in revenue.

"It's a threat unlike we've ever seen," said Robert Cresanti, executive vice president for public policy of the franchise association. "It threatens to shatter the relationship between two independent companies."

The bill, if passed by the Senate and signed by the governor, could create tremendous legal uncertainty and lead to years of lawsuits over what it takes to terminate a franchise license, Cresanti said.

Gov. Jerry Brown has taken no public position on the bill.

Jas Dhillon, owner of a 7-Eleven convenience store in Reseda, said he was optimistic that Brown would see the merits of the legislation and opt to help franchisees.

Lopsided agreements with franchisors force owner-investors to "live in fear of the franchise czars," he said. "If they want to get us out, they can get us."

What's particularly insidious, he said, is a tactic called churning, in which companies find an excuse for canceling a franchise agreement and then resell the location at a much higher fee to new buyers.

The legislation is needed, said Scott Hauge, president of San Francisco-based Small Business California, to strengthen franchisees' legal standing against corporate behemoths such as McDonald's or Subway.

"We basically feel that the contract as it exists right now and the rules are pretty slanted to the franchisor," he said. "For the most part, it's take-it-or-leave-it. There are no negotiations."

Hauge acknowledged that there's nothing new about the tug of war between corporations that rely on the franchise model and the investors who operate their outlets.

But what's different in this year's legislative combat, he said, is the all-out effort by the SEIU, a heavy contributor to political campaigns and a top lobbying presence in the statehouse.

"This is a unique opportunity for us to work in a partnership with them," Hauge said. "This is kind of an unusual situation where small businesses and the unions, particularly SEIU, are both major backers."

For its part, the SEIU said it waded into the fray as a natural extension of its national campaign to raise the pay and improve conditions for fast-food workers.

"Many of the same problems that workers face are the same problems that franchisees face," said Christopher Calhoun, SEIU California's communications director. "Ultimately, I think that giving franchisees more power and control over small business is going to help workers in every way."

Industry spokesman Cresanti has a more cynical take on the union's effort.

The union, he said, has been heartened by a recent ruling by the general counsel of the National Labor Relations Board. The agency said McDonald's should be treated as a "joint employer" along with its franchisees in cases involving workplace conditions.

The SEIU "has taken on as an objective to break the back of franchising as an industry in regards to labor," he said. "To make that successful they have to fracture the relation of the franchisee and franchisor."

marc.lifsher@latimes.com

Twitter: @MarcLifsher

Copyright © 2015, Los Angeles Times
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