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California Legislature Rejects Attempt to Undermine Franchise Contracts

The defeat of SB 610 for 2013 represents a strong signal to proponents of this type of legislation in California and elsewhere: The industry remains united in opposition.

In the last two calendar years, there have been several pieces of legislation introduced in state legislatures that would fundamentally harm the franchising business model. In California, Maine, Massachusetts, Michigan and Rhode Island, proponents have touted these bills as “fair franchising” efforts needed to “level the playing field.” But they have been outright rejected or placed into a holding pattern by legislatures that ultimately see these efforts for what they are − attempts by an isolated franchise owner looking to rewrite the terms of his or her contract by means of legislation.

It is simple to get a piece of legislation introduced. There are more than 7,000 state legislators, and it only takes one to introduce a bill. And if one is a franchise small-business owner bending a legislator’s ear about the plight small-business owners face, it is not difficult to influence a legislator looking to be viewed as a “voice for small business.” After all, what legislator wouldn’t want to help small-business owners “grow their businesses and create jobs?”

But it is another thing entirely to pass legislation that would rewrite the laws governing a highly complex and regulated business model such as franchising – one that is renowned for creating one out of every eight jobs in America.

Scant Support for Detrimental Legislation

Just last month, Calif. Senate Bill 610, a detrimental piece of franchise legislation touted under the guise of creating “good faith and fair dealing” between franchisors and franchisees, was defeated for the year. It became clear there was scant support for the bill the night before a hearing and vote on the bill was set to take place.

After hearing from both sides, lawmakers in California recognized the basic tenet of the franchise model is the contract, and both franchisees and franchisors need to work to adhere to the terms of the contract for the model to thrive. Franchising remains the most viable way to own and operate a small business for many Americans, and legislators didn’t want to upset the apple cart to appease a few isolated grievances when there are processes already in place within those systems, and the courts, to address them.

Making Franchising’s Case

How did California legislators come to this realization that franchising didn’t need additional regulation? The decision to pull the bill was the culmination of an effective, integrated public affairs campaign spearheaded by the International Franchise Association on behalf of the franchise industry. Also contributing to the effort were long-standing relationships built through years of solid, effective grassroots advocacy. It demonstrates the importance of getting franchisees and franchisors to engage on key issues − to make calls, write letters, send emails and meet with their legislators seeking support for IFA’s position.

“California legislators should be focused on policies that encourage job creation and economic growth, not inhibit growth or give franchise businesses additional concern about expanding in the state,” stated Saunda Kitchen, CFE, IFA’s Franchisee Forum chairwoman and owner of Mr. Rooter of Sonoma County in a letter to the Business, Professions and Consumer Protection Committee Chairwoman Susan Bonilla in July. “There is no demonstrable need for additional legislation regulating the franchise industry in California.”

It quickly became clear California legislators understood SB 610 was a solution to a problem that did not exist.

“SB 610 would … negatively impact franchising in the State of California,” said Matthew Patinkin, franchisee of Auntie Anne’s in San Francisco. “Not only would this bill create added risk to opening new franchises, it would affect business at franchises already in operation by compromising the consistency and brand standards currently in place.”

During June and July, when the legislature was in recess, IFA’s grassroots team in California identified and engaged hundreds of franchisees and franchisors in committee members’ districts who opposed the bill. It quickly became clear California legislators understood SB 610 was a solution to a problem that did not exist.

IFA’s campaign included a variety of methods to reach lawmakers, including hundreds of letters delivered to committee members, in-district meetings during the July recess, opinion articles by franchisors and franchisees, and editorials opposing the bill in key publications. The campaign reached a seminal moment on Aug. 7 as an IFA-led delegation of 20 franchisees and franchisors, including members of IFA’s Franchisee Forum who were led by Kitchen in Sacramento to lobby against SB 610.
Legislators recognized SB 610 was being promulgated by a vocal minority of franchisees seeking to undermine brand integrity by allowing substandard operators to remain in operation. This in turn hurts franchise brands and the equity and investment of both franchisors and franchisees, not only in California, but also throughout entire franchise systems.

IFA has built a strong coalition and grassroots operation to ensure the bill does not move forward in its current form in 2014. The defeat of SB 610 for this year represents a strong signal to proponents of this type of legislation in California and elsewhere that the industry remains united in opposition. Such legislation will undermine the franchise business model, driving a wedge between franchisors and franchisees by propping up the underperforming few at the expense of the large majority of franchisors and franchisees in our industry who work day-in and day-out in strong partnership.

Matt Haller is vice president, public affairs and chief of staff to the president & CEO of the International Franchise Association. Find him at via the directory.

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