Government intrusions pending on franchisors and franchisees | Lewitt Hackman

Assembly Bill 257 and Senate Bill 1247 are currently pending before the California Legislature. Their passage could impinge on the ability of franchisors and franchisees to do business in California.

BA 257

On June 28, 2022, the California Senate Judiciary Committee advanced the fast law (AB 257) in the Senate Credit Committee. Proponents of the law say the bill will address alleged rampant abuse of fast food employees by their franchisee-employers and franchisors, which, in reality, is rare in the industry.

Opponents of the law claim that it will inject politics and government bureaucracy into the private franchisor/franchisee relationship and associate franchisors with the employees of their franchisees even when franchisors, by contract, generally have no control, nor rights or obligations related to hiring, dismissal, training, establish remuneration, compliance with salary and hourly requirements, personnel policies, benefits, record keeping, supervision or discipline of their franchisees’ employees.

If AB 257 becomes law:

  • A Fast Food Industry Council (Council) of 11 unelected members appointed by the Governor, Speaker of the Assembly and the Senate Rules Committee will be established to regulate the operation of fast food restaurants in California. Only four members would need fast food experience.
  • The Board will be required to standardize minimum wages, maximum hours and other working conditions for fast food workers at franchisees and restaurant franchisors with 30 or more restaurants in the United States.
  • Fast food franchisers will be required to monitor their franchisees’ compliance with certain employment and worker public health and safety laws.
  • Joint and several liability will be imposed on fast food franchisers for penalties or fines resulting from their franchisees’ violation of employment and worker public health and safety laws.
  • Fast food franchisees will be allowed to take legal action against their franchisors attacking certain provisions of their franchise agreements.
  • Waiver and indemnification clauses in franchise agreements in favor of franchisors will be contrary to public order, void and unenforceable.

If passed, AB 257 will harm California fast food franchisers, franchisees and their employees. It is likely that after the switch, fast food franchisers would reduce their franchising business in California, costing state tax revenue and lost franchisees and job opportunities, and hampering business recovery. California restaurant industry after COVID-19. The California Senate Appropriations Committee has announced that it will consider AB 257 on August 1, 2022.

SB 1247

The California Franchise Investment Act (CFIL) currently requires franchisors to disclose the existence and amount of any discount or other benefit that the franchisor receives following the purchase of products or services by its franchisees from a supplier at possible franchisees in their franchise disclosure documents.

SB 1247 would require franchisors and their affiliates to report to its existing California Franchisees, upon request by a Franchisee and within 120 days of their fiscal year end, any discount or other benefit received by the Franchisor from any entity with which the Franchisee does business under the franchise business.

In many cases, franchisors collect and retain rebates generated from the purchase of products or services by their franchisees from designated vendors and deposit these funds into the franchise systems marketing fund to be used for the benefit of all franchisees. Currently, franchisors are not required to inform their franchisees of the value of discounts or other benefits they provide to their franchisors when their franchisees assign or waive their right to discounts or other benefits generated from purchases of products or services. of their suppliers by their franchisees.

SB 1247 would amend the CFIL to provide that franchisors will violate the CFIL if they require their franchisees to sign any agreement providing for the assignment or waiver of the franchisees’ right to receive discounts or other benefits as a result of the purchase by their franchisees of products or services in the State unless the agreement indicates the potential or present gross value of this right. If the actual gross value of the right is unknown, franchisors should include a reasonable estimate of value based on the average value for similarly located franchises.

The bill was passed by the California Senate and referred to the Assembly Appropriations Committee on June 28, 2022.

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