California Fast Food Workers March to Support Anti-Franchisor Legislation

According to the Los Angeles Times, fast-food workers at McDonald’s restaurants in Los Angeles, Oakland, Sacramento, San Diego and San Jose  intend to walk off their jobs on November 9 in support of the passage of California Assembly Bill 257, the Fast Food Accountability and Standards Recovery Act, also known as the Fast Recovery Act. The Act was originally introduced by Assembly Member Lorena Gonzalez in January 2021, approved by two Assembly Committees in April 2021, defeated by the full Assembly in June 2021, but up for reconsideration in January 2022.

As drafted, AB 257 would establish a Fast Food Sector Council (Council) that would have 11 members appointed by the Governor, the Speaker of the Assembly and the Senate Rules Committee, each for four year terms, to regulate the operation of independent and franchised fast food restaurants in California. Only four of the 11 members of the committee would be required to have fast food restaurant experience.

The Council would establish standards for minimum wages, maximum hours and other working conditions for fast food restaurant workers, fast food restaurant franchisees and fast food restaurant franchisors with 30 or more restaurants in the U.S. Under the Act, fast food restaurant franchisors would have to ensure that their franchisees comply with certain employment and worker public health and safety laws and would be jointly and severally liable for penalties or fines imposed because of violations of these laws by their franchisees.

Under AB 257, fast food restaurant franchisees would be permitted to file legal actions against their franchisors attacking the terms of their franchise agreements and their compliance with certain laws. Franchisors would be jointly and severally liable if the terms of a franchise agreement were found to be a substantial factor in causing the franchisees’ liability. Waivers and indemnification agreements given by fast food restaurant franchisees in favor of their franchisors would be contrary to public policy, void and unenforceable.

AB 257 appears to be invasive anti-franchisor legislation that would be nothing short of a disaster for California fast food franchisors, franchisees and their employees if passed by the Assembly. It is likely that following passage, fast food franchisors would cut back on their franchising activity in California, costing the state tax revenue and lost franchisee and employment opportunities.

Franchising is already regulated by federal and state law and affords new and current franchisees with adequate protection:

• The Federal Trade Commission’s Franchise Rule (16 C.F.R. § 436) forbids deceptive and unfair practices in the sale of franchises. The FTC Rule requires the pre-sale delivery of a Franchise Disclosure Document (FDD) to franchise candidates. An FDD must respond to 23 questions and dozens of sub-questions about the franchisor and the franchised business in a narrative “plain English” format to adequately inform franchise candidates about the risks inherent in a franchise opportunity.

• Applicable state franchise laws, including the law of California, regulate initial FDD registration and renewal registration filings, pre-sale FDD disclosure similar to the requirements of the FTC Rule and post-sale maintenance of the franchisor/franchisee relationship such as defaults, terminations, transfers and renewals. If a state does not have its own franchise laws, the FTC Rule governs franchising in that state.

The bill is supported by the Service Employees International Union (SEIU). The International Franchise Association (IFA), which protects and promotes franchising by educating lawmakers and the public about the franchise business model, remains strongly opposed to AB 257 and will be working with the California Restaurant Association and others who oppose it.

Barry Kurtz is a Certified Specialist in Franchise & Distribution Law, by the State Bar of California Board of Legal Specialization.