Impending Doom for Franchise Business Model in California?

Barry Kurtz | Shareholder

May 25, 2021

California Assembly Bill 257, the Fast Food Accountability and Standards Recovery Act is currently pending in the California Legislature, introduced by Assembly Member Lorena Gonzalez.

Also known as the FAST Recovery Act, Gonzalez introduced AB 257 in January 2021 – it was approved in April 2021 by two Assembly Committees. Gonzalez explained on Twitter, “Today, we introduced the #FASTRecovery Act to ensure fast food workers can shape their own workplace standards & hold employers accountable w/out fear of retaliation. . . .”

But if adopted, the bill could destroy the franchise business model for fast food restaurants in California.

The bill 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.

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. Franchisors would be required to review these standards at least once every three years and to issue, amend, or repeal fast food restaurant employment, health or safety standards as the Council believes appropriate.

The Act would also authorize California counties and cities with populations of 200,000 or more to establish Local Fast Food Sector Councils that would provide recommendations to the state Council on these standards.

But wait, there’s more. 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.

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.

In a nutshell, the bill would allow the political party then in power in Sacramento to appoint 11 non-elected officials, only four of whom would have fast food restaurant experience, to regulate the operation of independent and franchised fast food restaurants in California. This could be nothing short of a disaster for fast food franchisors, franchisees and their employees.

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, is strongly opposed to AB257 and is working with the California Restaurant Association and others to oppose it.

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

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