Bill making it harder for corporations to end franchise agreements early wins narrow approval

MarketsAssociated Press

A bill that generated spirited debate over the leverage corporations such as McDonald's and Subway can hold over their franchise owners narrowly passed the Assembly on Thursday.

SB610 would make it harder for corporations to cancel franchise agreements and would add requirements that must be met when a franchisee's business is sold. The debate spilling across party lines is fueled by intense lobbying from two sides: unions teaming up with franchisees, and business groups that say restricting corporate control could lead to lower food standards, dirty bathrooms and closed stores.

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The bill authored by Sen. Hannah-Beth Jackson, D-Santa Barbara, was inspired by stories of small-business owners who say they had their livelihoods taken away.

"Franchise agreements are so one-sided," Kathryn Carter, who runs a McDonald's restaurant in Daly City, said in a statement. "Franchisees have virtually no say in the businesses we've risked our life savings and dedicated years of our lives to build."

The bill creates a higher standard for canceling a franchise agreement early, which supporters say gives them the same rights as other businesses in California. It contains other provisions to protect franchisees from having their business sold or transferred with little notice.

Opponents of the bill say the state shouldn't meddle in private contracts, arguing that the existing system works to protect internationally recognized brands from rogue business owners.

"The unusual power to enforce these contracts is the foundation of the success of franchisers, generally," said Assemblyman Ken Cooley, D-Rancho Cordova.

Jackson's office said the bill preserves a company's right to cancel a franchise agreement if a store operator is hurting the company's reputation.

The bill passed after several attempts Thursday on a 41-27 vote, the minimum needed. It now heads back to the Senate.