The food franchise industry is unique in that investors are equipped with the tools necessary to run successful locations and given some flexibility in how to operate their stores. The rights of franchisees have grown even stronger thanks to a new law in California, SB 610, passed into law on August 15, that limits a franchisor's ability to cut ties with investors. The bill also preserves the rights of owners to sell their franchise licenses to other small business owners.
Opposing viewpoints
Organizations like the International Franchising Association and the American Association of Franchisors and Dealers strongly opposed the new law, says Entrepreneur. Franchisors argued that the law would make companies that attempt to cut ties with underperforming stores more vulnerable to litigation. Likewise, lobbyists opposing the law said the legislation would limit the franchisor's right to protect its brand, says MSNBC.
Franchisees and labor rights activists have applauded the measure as a step in the right direction for the entire industry. The legislation slightly balances the power dynamic between franchisors and franchisees and may set a precedent that could repeated in other states. Supporters of "fair franchising" laws argue that increasing the rights of franchise owners will allow them greater flexibility in improving worker conditions, according to Bloomberg Businessweek. Several states, including Hawaii and Washington, have already passed similar legislation.
The rise of the franchisee
The passage of SB 610 may not come to a surprise to those who have followed recent court battles concerning the rights of franchisees. A recent amendment to Seattle's minimum wage law reclassified franchise chains as large businesses and will force stores to meet new payment standards for their employees. Likewise, the National Labor Relations Board recently determined that franchisors must act as co-employers in lawsuits involving franchisees.
Recent changes to franchising laws on the state level may eventually translate to new national standards. Opponents of the legislation argued that the laws would make California less attractive to investors, but the increased freedom being given to potential franchise owners may in fact have the opposite effect. Increased franchisee independence, for example, should create more protection for franchisees from corporate meddling. Regardless, investors should research how changes to franchising law will impact their long-term risks for opening franchises.