Brown vetoes bill that would have made it harder for corporations to end franchise agreements

MarketsAssociated Press

Gov. Jerry Brown said Monday that he has rejected legislation that would have made it harder for the corporate owners of brands such as McDonald's and Subway to cancel franchise agreements.

Brown said in a veto message that he is open to reforming franchise laws but SB610 took a new and untested approach.

Continue Reading Below

Sen. Hannah-Beth Jackson, D-Santa Barbara, said her bill responded to corporations unfairly yanking livelihoods from franchisees in order to restructure stores with more profitable terms. The legislation sparked a lobbying and advertising fight between labor and business interests that argued they need the power to protect their brands.

Corporations defending cancellations in contract disputes currently must show they have good cause. Backers of SB610 said that can include even minor violations of agreements. SB610 would have required a company to show a substantial and material breach, an approach Jackson's office said is already in place in other states.

Other provisions would have protected franchisees from having their ownership transferred with little notice and would have made it easier to sell the business.

Opponents of the legislation said the existing agreements, while tough, ensure profitable brands are protected from unsanitary or incompetent franchisees. In a statement welcoming the veto, the International Franchise Association said SB610 would have imposed unnecessary regulations and have led to costly litigation.

Union organizers, including the Services Employees International Union, have been pushing fast food companies to take responsibility for their workers. Backers of SB610 also said existing franchise law limited worker pay and benefits.

Brown noted the two sides' "diametrically different views" and called on them to come up with "a more collaborative solution."