In a move that is cloaked as a helping hand for small businesses, Governor Jerry Brown signed into law AB 525 on Oct. 12, 2015. However, this is a bill that will actually hurt small businesses in the long run.
Many of these small businesses that the bill is touted to be of benefit for are franchisee holders — one of the thousands of such franchise opportunities that exist across the state. The Small Business Franchise Protection Bill was pushed by supporters as a way for franchisees to be protected from the whims of franchisors. The International Franchise Association (IFA), however, strongly opposes the bill and is deeply troubled about the unforeseen consequences that could potentially put the livelihood of millions of Californians on the line.
As the employer of nearly one million employees within the state, the number of franchise locations in California totals more than 80,000. The IFA, as well as franchisors, are concerned that the relationship between franchisees and their franchisors could potentially be irreparably damaged. Some aspects of the bill introduce language that is ambivalent and unclear in regards to enforcing contracts. This vague language will open the avenue for an increase in lengthy and costly litigation.
Steve Caldeira, former president and CEO of IFA, said the organization is concerned about the increase in government oversight within an industry that has provided a steady increase in jobs across California — driving the economy’s recovery — while forming the backbone of the small business population.
The relationship between a franchisor and franchisee is built on the common goal of their mutual success. This bill, AB 525, threatens the very model of business that the franchise formula has perfected so well over the years. As a vital part of California’s economy, this bill also weakens the reliability and continuity that consumers within the state can expect to see when they engage in services and purchase products from a franchisee. Inconsistent consumer results while engaged with a franchise could mar the reputation of consistency and integrity that franchises enjoyed prior to the bill’s passage. Only time will tell the full extent of damage the bill will cause.