⚡ Get All Content for 20% Off ⚡

California Governor Vetoes Bill That Would Expand Franchisee Rights Franchisors and franchisees are divided over the veto of a California bill that would make it more difficult to terminate franchise agreements.

By Kate Taylor

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

False alarm for the California franchise industry: a bill intended to expand franchisee rights is being returned to the Senate unsigned by the governor.

California Gov. Jerry Brown vetoed SB 610 on Monday, saying the bill "alters the relationship between franchisors and franchisees." The bill would have made it significantly more difficult for a franchisor to terminate franchise agreements and prohibited agreements that prevent a franchisee from selling or transferring a franchise.

"The bill's changes would significantly impact California's vast franchise industry that relies on the certainty of well-settled laws," Brown said in a letter to the members of the California State Senate. Brown reports that he is open to reforming California Relations Act, but is not convinced at this point that the new bill would do anything more than create new problems for the industry.

"Additionally, the parties supporting and opposing this bill have diametrically different views," Brown's letter continues. "Given the polarized positions, it is in the best interest of all that a concerted effort be made to reach a more collaborative solution."

The party wholeheartedly in favor of the veto is the International Franchising Association (IFA), a trade group that argued the new bill would discourage franchisors from opening new locations in California and create unnecessary litigation in the franchise industry. Franchisors, the IFA argued, need to have the option to easily terminate subpar franchisees who are weakening a brand's reputation.

Related: Franchise Industry Strikes Back at NLRB's 'Joint Employer' Decision

"Franchise businesses employ nearly 1 million workers in California and generates $94 billion in revenue at over 82,000 franchise locations," IFA president Steve Caldeira said in a statement on Monday. "Governor Brown clearly recognized the importance of franchising to the state of California's ongoing economic recovery and rightly decided to choose economic opportunity and job growth over appeasing special interest groups, led by the Service Employees International Union (SEIU)."

The SEIU, best known recently for its financial backing of fast-food workers' strikes, has supported SB 610 through a number of radio ads as well as launching the website Franchise Fairness. While the IFA has been quick to note that some franchisees have stood with franchisors in opposing the bill, most franchise associations have supported the legislation. Pro-SB 610 organizations include the national Coalition of Franchisee Associations, American Association of Franchisees and Dealers (AAFD), the Coalition of Franchise Associations (CFA) and the Asian American Hotel Owners Association (AAHOA).

"California's small business franchisees are disappointed in Governor Browns' veto, but we are proud of the work we've done to bring this critical legislation this far," Kathryn Slater-Carter, a McDonald's franchisee who had one of her restaurants taken away by the company at the end of her franchise term, said in a statement. "The majority of Assembly members and Senators recognized that California's economy will be stronger when franchisees can operate under a fair system that rewards investment in California jobs."

One of the major reasons franchisees have supported SB 610 is because fears surrounding "churning," a ploy in which franchisors terminate franchise agreements for minor infractions and resell locations to turn a quick profit. In July, a group of 7-Eleven franchisees in California filed a lawsuit against their franchisor, claiming in part that certain South Asian franchisees had been forced out of the system as part of corporate 7-Eleven's profit scheme. The company attests that it did nothing wrong, and that the franchisees had been terminated due to violations of franchise agreements.

Related: Ex-Subway Franchisee Concocts a Bizarre $35 Million Blackmail Plot

SB 610 would have also granted franchisees the right to pass on their franchise to their children or to sell the location to qualified buyers, something that some companies do not allow in their franchise agreements. Additionally, the bill protected franchisees from corporate retaliation if they join franchisee associations, something franchisees allege many franchisors discourage.

The bill's supporters argue that its passage would actually be good for business in California. While the IFA has argued that the new legislature would drive businesses away from the state, supporters of the bill say the opposite is true. A report from the Pacific Management Consulting Group claims that states that have enacted legislation to protect franchisees have experienced 12 percent higher franchise growth in the last decade than states without laws that ensure a fair franchise relationship.

"This report shows that giving basic protections to franchisees actually improves the business climate in a state, and that only makes sense," John A. Gordon, the founder of Pacific Management Consulting Group, said in a statement last week. "It's the small-business owners who are investing, working to build the business, and really making the franchise model succeed."

Whether you support or oppose SB 610, it is clear that Governor Brown is right about one thing: the two sides' polarized views. Since franchisors and franchisees are theoretically working towards a common goal, their antagonism in California is a dark sign for an industry struggling to define the franchisee-franchisor relationship.

Related: In Sexual Harassment Case, California Rules Domino's Isn't Responsible for Misconduct

Kate Taylor

Reporter

Kate Taylor is a reporter at Business Insider. She was previously a reporter at Entrepreneur. Get in touch with tips and feedback on Twitter at @Kate_H_Taylor. 

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

The Remote Side Hustle a 43-Year-Old Musician Works on for 1 Hour a Day Earns Nearly $3,000 a Month: 'All From the Comfort of Home'

Sam Ziegler wanted to supplement his income as a professional drummer — then his tech skills and desire to help people came together.

Business News

Costco CFO Reveals Uncertain Fate of $1.50 Hot Dog and Soda Combo

CFO Richard Galanti reveals that the price will stay the same — but only "for a while."

Business News

The Most Unexpectedly Popular Side Hustle of the Decade Has Low Startup Costs and High Markups

A new report shows that vending machines are a popular investment — and the industry is set to grow up to $3 billion by 2031.

Marketing

Ever Wonder Why Certain Websites Rank Higher Than Yours? This SEO Expert Reveals The Secret to Dominating Search Results

It's often the smart use of SEO, now supercharged with AI, particularly in keyword optimization.

Business News

AI Is Impacting Jobs. Here Are the Gigs Affected the Most, According to an Analysis of 5 Million Upwork Postings

The researcher said in the report that freelance jobs were analyzed first because that market will likely see AI's immediate impact.

Leadership

Former Interrogator Shares 5 Behaviors Liars Exhibit and How to Handle Them

Five deceptive behaviors to look for and how to respond to those behaviors when you encounter them.