130930-Jerry-Brown

Governor Jerry Brown

It’s easy to see why backers of California’s historic Fair Franchising Bill feel a bit like the 2007 New England Patriots. You may remember that team that went 18-0 before losing the Super Bowl to the New York Giants.

The Coalition of Franchisee Associations, which counts as its members franchisee associations from Dunkin’ Donuts, Subway, Domino’s, 7-11 and other franchise systems, made it to the big game, battling hard to push the bill through the California Legislature in the teeth of fierce opposition.

The big franchisors came out hard against the proposal, which seeks to protect franchisees from having their franchise agreements arbitrarily cancelled and make it easier for them to sell their businesses and harvest their equity.

According to CFA Chairman Keith Miller, the opposition gained traction by grossly distorting the facts of the bill, and alleging it would open the door to unionization and cost thousands of jobs. “We fought against high odds in California to get as far as we did.”

The bill finally made it to Governor Jerry Brown’s desk, where it sat, unsigned, for 29 days. On the 30th day , Brown vetoed the measure.

“We are the 2007 Patriots – we went undefeated the whole season and then lost the Super Bowl,” says Miller.

In the wake of the Golden State setback, franchisee leaders will huddle to discuss their strategy moving forward. The plan, however, is to regroup, not retreat.

The CFA plans to push ahead with efforts to pass fair franchising bills in several other states. These range from pursuing proposals already in the legislative mix to introducing new bills—a process that can take some time.

Miller and other top franchise association leaders are also reviewing what happened in California to determine how best to revive the legislation.

In announcing his veto, Brown argued the proposal was “changing the standard” by which franchise agreements can be cancelled and would “significantly impact California’s vast franchise industry that relies on the certainty of well-settled laws.”

Brown did leave the door open ever so slightly to revisiting the issue later, but noted, in light of the “diametrically opposed views,” both sides would need to demonstrate a “collaborative effort” for any deal to materialize.

Most tellingly, perhaps, Brown said he wasn’t convinced there was a big enough problem to warrant a revision of the law.

“We are gathering and looking at all the intelligence and analyzing why Governor Brown vetoed the bill,” says John Gordon, DDIFO’s restaurant analyst and the principal of Pacific Management Consulting Group. “We have had hundreds of franchisees in California who have written and gone to meet with their legislators. Certainly no one here is happy with this.”

With California off the table for the moment, fair franchising supporters are now turning their attentions to Maine, Massachusetts, New Hampshire and Pennsylvania where proposals are already on the table. Those proposals, however, appear more complicated than California’s bill, which totaled just two pages.

They take, what observers are calling, a kitchen sink approach—proposing to remedy a wide range of injustices beyond simply protecting franchise owners from unfair termination and protecting their right to sell.

The Massachusetts proposal would free franchise owners from having to stay open for late-night and early morning hours and give them more control over pricing. The Maine bill called for any franchisor that set up a competing restaurant to compensate franchisees of its existing brand for losses.

The sponsors of the Maine bill were forced to streamline it down to five main points by The Joint Standing Committee on Labor, Commerce, Research and Economic Development. It was then defeated in the Senate and sent to another committee for more study.

The latest proposal to float in Pennsylvania sported 10 different provisions, including the threat of criminal penalties should a violation of the “responsible franchise practices” occur.

New Hampshire is considering refiling its bill for Fair Franchising and the CFA is in talks with franchise owners in other states interested in trying to pass fair franchising bills.

“This really is a state-by-state situation,” says Gordon.

While the CFA is not prepared to name the additional states where franchise owners will be pushing legislation, Miller says the organization’s first goal is to build a solid base of support—before dashing off a proposal.

“It’s easy to introduce a bill; the hard part is getting [lawmakers] to take it seriously,” says Miller. “We try harder and harder to work and make sure we have a group of franchisees from multiple brands committed to supporting a bill and working on it before it is introduced.”

The demise of the California proposal, may prove a cautionary tale for groups in other states pushing fair franchising bills. In other words, don’t get too fancy or draw up a wish list of demands.

Even though California’s bill was relatively simple (and just two pages), opponents framed the issue as a total revamp of existing franchise laws that would kill jobs and open the door to unions. And, Miller says, the opposition was able to confuse franchise owners through a misinformation campaign. Many franchisees, Miller says, never bothered to read the actual bill.

Miller cited this example of an email from an opposition group representing several major franchisors. The email warns of a “grave threat” supposedly posed by the fair franchising bill.

The legislation would open the door to unionization of the franchises, harm brand standards, erode franchisee equity and enable franchise contracts to exist in perpetuity. If passed, SB 610 will negatively impact jobs, franchise businesses will close and existing contracts will become embroiled in costly litigation. This legislation must be stopped! We need your support to take action now!

Miller recounted a phone call from one franchise owner who received the email. “He told me, ‘I got one of your emails and read the bill. I couldn’t find any correlation between the actual bill and the talking points I was given by my franchisor.’” Misinformation at its best.

During this battle, the CFA also realized they were outgunned financially. Miller estimates opponents spent more than a million dollars on advertising and lobbying, while franchise owners spent ten percent as much.

The decision by one of California’s largest unions, the Service Employees International Union, or SEIU, to back the fair franchising bill also proved to be a mixed blessing. While the union’s support was critical in winning over California lawmakers, it also exposed franchise owners to further attacks from fair franchising opponents.

“We got the crap beat out of us because the SEIU got very involved,” says Miller. “They came to us, wanting to support our bill; it’s not like we sent out an invitation.”

If the bill is to have any success during Brown’s administration, the language will have to be changed. In his veto, the governor said he was concerned the bill would fundamentally change a franchising system that got its start in California and that has been so successful.

Specifically, according to Gordon, Brown took issue with the wording “standard and material breach” referencing what franchisors would have to prove before being able to terminate a franchisee agreement.

“They (substantial and material) are very well known words in the judicial sphere. We thought those were extremely solid words.” But, Brown apparently didn’t object to the phrase for “good cause.”

Gordon says that’s a term franchisees can live with. Now, if they can only get Governor Brown to live with it.