• Thu. Sep 22nd, 2022

California’s AB 257 threatens franchise business model

ByStephanie M. Akbar

Aug 19, 2022

This is a letter to the California Legislature opposing AB 257, the FAST Recovery Act, which would impose onerous new rules and restrictions on fast food restaurants in the state.

In 1988, my husband Gary Gardner and I founded Franchise Update Media, a publishing company that provides educational resources to franchisors and franchisees in the form of two print magazines and half a dozen online newsletters. line. We also publish listings of business opportunities and hold three annual conferences for the franchise community. We are both permanent California residents, living and working in San Jose.

As a long-time participant and observer of franchising, I am compelled to declare my strong opposition to AB 257 (the FAST Recovery Act) as currently written and scheduled for an upcoming vote in the State Senate. I believe his intentions to help employees are good, but in my opinion, and that of all the franchisors and franchisees I hear about daily, AB 257 will do more harm than good. As the saying goes, it’s a solution in search of a problem – and a solution that will likely create a whole host of new problems. To me, this seems fraught with unintended consequences, none of which are good.

You’ve no doubt heard all the financial arguments before, so I won’t repeat them here. Instead, I’m going to talk about what franchising is, the people I’ve come to know over almost 35 years in the business, and the damage this bill is likely to do to small business owners. successful businesses (franchisees).

In my years of being closely involved in franchising, I have come to know many people in the business. The overwhelming majority are great people, providing jobs, contributing to their communities and national charities, and providing on-the-job training and career paths to the people they hire, many of whom are starting their first ” true” job.

Before giving my reasons for opposing AB 257, I will say that I strongly support that fast food workers be treated fairly, honestly, legally, and earn fair wages at their jobs. The same is true for 99% of franchisors and franchisees. I’m not going to sugarcoat it: there are bad actors in franchising – as there are in any organization or industry. But more and more frankly, they are few and far between.

Penalizing an entire industry for the misbehavior of a very small minority would be reckless. Prosecute and punish offenders and celebrate and support the vast majority of good actors who offer jobs that allow their employees to pay rent or buy a house, feed and clothe their families, and contribute to the needy in cities and villages where they do Business.

So what is the franchise? I ask because in my encounters with people outside of the franchise (respectfully included politicians) it’s that most don’t really understand how the franchise works. I didn’t at first because, like most, I knew how the business model worked. At its essence, franchising is a system of distributing goods and services, ranging from pizza and poke bowls to home care and auto repair, from massages and gyms to haircuts and home repair. residence.

Under the franchise business model, franchisees are independent small business owners and not employees of their franchisor. Again they are independent business owners who pay franchise fees of tens of thousands of dollars for the right to use trademarks, operating system, products, logos, etc. of a brand. And while they receive initial training from their franchisor on how to run their business, they hire, train, manage and pay their employees out of their own pockets.

One of the biggest objections I have to AB 257 as it currently stands is that it would deprive people who have worked so hard for so long of owning their own businesses, making them look more like middle managers working for a corporation – which is the complete opposite reason why they became franchisees in the first place!

There’s a saying in franchising: “Doing it yourself doesn’t mean doing it yourself. What this means to me is that even though franchisees are business owners/independent contractors, they also know that their franchisor has their back if they need guidance or other guidance (but no direct control on their business). Yes, franchisees must follow the rules they agreed to when signing their franchise agreement, but they signed voluntarily and were as fully informed as the law allows and their own due diligence could prevail.

I strongly disagree with Sec. 2, which the bill appears to use as the basis for all that follows, the assertion (or rather the assumption) that:

“For years, the fast food industry has been plagued by abuse, low wages, few benefits and minimal job security, with California workers subject to high rates of violations employment, including wage theft, sexual harassment and discrimination, as well as increased health. and security risks.

The FTC’s Franchise Rule, originally enacted in 1978, revised in 2007, and currently under review, requires franchisors to provide potential franchisees with a Disclosure Document (the FDD) containing 23 specific franchise items. proposed, its officers and other franchisees in the system. The goal is full corporate disclosure to allow potential franchise buyers to strike a deal with their eyes wide open. It’s also why Gary and I started our business. In 1988, it was difficult to find reliable and reliable information on franchising. Since then, franchising has become widespread and many publications and companies now provide such information.

Franchisees are independent contractors. Following the tradition of the Great American Dream, franchisees invest their money in a proven business model. Some call it a “plug and play business”: just add 70 hours a week of sweating and sleepless nights. Franchising offers an ideal opportunity for entrepreneurial-minded immigrants to start as a fry cook, for example, move into management and eventually become franchisees, providing the same opportunities for others they have thrived on.

In fact, our company annually offers an American Dream Award to a franchisee who has come to the United States and built a successful franchise business. We feature them regularly in our magazines. If you want to know more about how these “good actors” take care of their employees, raise funds for flood victims, contribute to hospitals, charities, sports teams, etc., you can read more on our website. Their stories can inspire you and show you that there is another side to Sec’s assumptions. 2 of the addition, a huge setback.

With the growing national trend of fast food workers forming unions to protect their rights and advocate for better wages and benefits, from Starbucks to Chipotle, from Amazon to Apple, is this bill really necessary? Will the new levels of oversight help or hinder business growth in the state — and the taxes that will be lost as franchisors eschew California in growing numbers, a trend already well underway.

Another part of the bill that I strongly disagree with is the “joint and several” liability of franchisors for the actions of their franchisees. Excerpt from Legislative Counsel’s Digest on the state website where AB 257 is published:

“The bill would require a fast food franchiser to be jointly and severally liable for violations of its franchisee, as specified, and would provide that specified laws may be enforced against a fast food franchiser to the same extent as they may be enforced against a franchisee.

If passed, it would cut a hole right through the heart of the franchise’s business model. Businesses would close, thousands of people would lose their jobs, commercial real estate would languish, and an invaluable training ground for young Americans would be lost, among the many other disadvantages this provision could cause.

Again, the “arm’s length” relationship between franchisees and franchisors is especially important when it comes to hiring employees. Extreme example: A teenager spits in a taco, is filmed and the franchisor is jointly and severally liable? Huge payouts to settle lawsuits would exhaust a franchisor’s ability to support their entire system of small business owners, potentially shutting down hundreds of locations for the misbehavior of one disgruntled teenager. It’s wrong.

When you stop and think about it, the franchise business model is one of the best training grounds in this country for new hires. How many people do you know or have you heard of whose first job was in a fast food restaurant and who went on to succeed in business and life, raise a family and contribute to their community?

Through the fast food franchise, young people can work part-time, learn to cook, run a cash register, and master other skills they can use later in life. And perhaps most importantly, they can be coached by the franchisee or their managers in the “soft” skills of customer service and teamwork.

These are transferable skills. Thanks to the “flip burger”, many young people climb the ladder and become managers, and some become franchisees themselves, perpetuating the virtuous circle from which they benefited. Some use the skills they learned on the job and become contributing employees of corporations, while others start their own business, equipped with a solid foundation on how to make it successful – building on that. which they learned while working in a fast food restaurant.

In conclusion, please reconsider this bill. Learn more about who will be most directly affected if AB 257 becomes law. Find other, less harmful ways to protect fast food workers. As the saying goes, there’s more than one way to skin a cat or help fast food workers have a better life.

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