Fast food fights: California state bill targets franchising model

California’s legislature has taken a super-sized step toward reshaping how fast food restaurants and other franchised companies operate within the state. The State Assembly on Thursday approved Assembly Bill 525 — also known as the Franchise Bill of Rights — by a bipartisan vote of 54-10.

The proposed law, which will now be considered by the state Senate, would constrain the ability of franchisor companies such as McDonald’s to terminate their business relationships with the franchisees who operate many store locations.

A franchisor would need to prove the franchisee had failed to “substantially comply with the franchise agreement after being given notice of at least 60 days in advance and a reasonable opportunity to cure the failure.”

The measure has received significant support from the Service Employees International Union (SEIU), and with good reason: By altering the relationship between franchisors and franchisees, AB 525 could indirectly bolster labor’s efforts to organize fast food workers by constraining the ability of franchisors to intervene in franchises.

SEIU is the main institutional backer of the Fight for $15 campaign to organize low-wage service sector employees, and its California branch has been effusive in its praise for the Assembly bill.

“SEIU California recognizes the Assembly members who supported AB 525 to correct the flaws in a franchise system that is stacked against workers and franchised businesses alike,” SEIU California President Laphonza Butler said in  a statement issued Thursday. “California workers have joined hundreds of franchisees in supporting AB 525 in order to give franchisees a fair shot to built businesses and invest in good California jobs."

The franchisor-franchisee relationship has long been one of the key obstacles to worker organizing in fast food and related industries. Under the franchise model, an entity such as McDonald’s Corp. can say that it does not employ the vast majority of McDonald’s workers, and therefore bears no legal responsibility for their working conditions.

Labor advocates, on the other hand, contend that such franchisors wield enough power over those conditions to be considered “joint employers,” with shared legal responsibility. The joint employer standard is now being litigated in federal court, with the National Labor Relations Board (NLRB) taking the side of organized labor.

McDonald’s in particular has been accused of closely monitoring its franchisees’ labor costs and informing at least one of them that its workers are being overcompensated. AB 525 could indirectly boost fast food organizing by making it easier for franchisees to resist top-down pressure, said Seattle University School of Law professor Charlotte Garden.

"It looks like the bill is aimed at making sure that franchises that build up their businesses don't have them ripped out from under them without good cause by the franchisor," Garden said by email. "That will ultimately put franchises in a stronger bargaining position, which could help them resist increases in franchise fees. More money in franchises' pockets means that there's greater opportunity for workers to meaningfully bargain even without the franchisor at the table."

The industry group International Franchise Association (IFA) opposes AB 525. Spokesman Matt Haller told Al Jazeera by email that franchising agreements already have rules in place strictly governing termination, and that SEIU is supporting the legislation as a ploy to “drive a wedge between franchisees and franchisors."

Haller argued that franchisees are already generally satisfied with their franchising agreements, citing a 2015 survey from the Franchise Business Review that found 80.7 percent of franchisees rate their satisfaction with their franchise as “good” or better. A survey from FranchiseGrade.com, whose research has been touted by SEIU, found just 49 percent satisfaction.

This is not the first time California has considered a measure guarding franchisees against the termination of their franchising agreements. Last year, Gov. Jerry Brown, a Democrat, vetoed a similar measure, called Senate Bill 610.

An analysis of new the legislation from the Assembly's judiciary committee says AB 525 addresses Brown's concerns about SB 610 by applying a clearer legal test for when franchisors can terminate agreements.

"My office has held several productive meetings with the administration, and we are hoping that this year's measure will win the governor's approval," Democratic Assembly member Chris Holden, who introduced AB 525, said in a statement provided to Al Jazeera.