Franchise Industry Resolves California Conflict, Paving the Way for Law Protecting Franchisee Rights

4 min read

Looks like franchisors, franchisees and labor activists can find common ground in California after all.

The International Franchise Association (IFA) and the Coalition of Franchisee Associations (CFA) announced Tuesday that the organizations had reached a compromise on California's Assembly Bill 525, legislation intended to protect and expand franchisee rights. After agreeing on a series of amendments, the IFA dropped its opposition to the bill in a joint letter to Assembly Speaker Toni Atkins (D-San Diego) and the bill's author, Assemblyman Chris Holden (D-Pasadena). The CFA has been lobbying for a franchisee rights bill in California for more than a year.

"While neither organization is fully pleased with the bill's substance, both IFA and CFA made significant concessions in a good faith effort to reach a workable common-sense compromise," the organizations wrote in the joint letter.

The amendments primarily focus on "clarifying" language, removing terms that the IFA worried could be used to prevent franchisors from terminating franchisees who failed to meet established quality standards. At the same time, the CFA attempted to maintain language that held franchisors accountable for transparent treatment of franchisees.

Related: 10 Franchises Reveal What They Look for in a Franchisee

For example, in one section the organizations decided to remove the word "reasonable" to describe the standards franchisees must meet. The organizations decided that the phrase "reasonable standards" would lead to confusion, and instead emphasized the importance of detailing the relevant standards, whatever they may be, in the case of a franchised location transfer.

The amendments come nearly a year after California Gov. Jerry Brown vetoed an earlier version of the bill last August, saying it substantially altered the relationship between franchisees and franchisors. At the time, the governor said that while he was open to reform, it was "in the best interest of all that a concerted effort be made to reach a more collaborative solution."

Two weeks ago, the bill cleared the Senate Business and Professions Committee. It is now in the hands of the Senate Judiciary. 

The IFA specified that it and the CFA alone were responsible for reaching the compromise. However, while unmentioned in the joint letter and called out by the IFA for spreading allegedly misleading information, the SEIU also had a hand in the evolution of the legislation. The labor union, best known recently for its work to raise minimum wage, backed the bill through advertisements and a website supporting the site.

Related: 10 Questions to Ask When Franchising Your Business

"Workers are proud of this agreement that allows the historic bill of rights for franchisees to move forward," Tia Orr, senior legislative director of the SEIU California State Council, said in a statement. "It protects franchisees in California against unfair terminations and loss of their investment, a significant first step, and one that the IFA agreed to only because workers were at the table politically to insist on change."

Even though the IFA is dropping opposition and acknowledged franchisee concerns, the organization says change may come at a price.

"I believe, in talking to franchisee and franchisor attorneys, that there will be increased litigation," Robert Cresanti, the IFA's executive vice president of public policy said in a media briefing on the topic. "Some will give franchisees a venue that they didn't have before. Some will be to clarify language that still is somewhat unclear. But, the end result that is pretty clear is we will see a franchise that costs one amount to get into in one of the other states, that will cost a significant percentage more in California."

Related: After a Fire, an Owner's Concern for His Employees Burns Bright

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