In summary

Franchise owners and employees are seeking an amendment to AB 2257 that would clarify AB 5 and recognize the structure of franchisees.

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By Shoukat Ali, Special to CalMatters

Shoukat Ali is a Los Angeles businessman and retail franchise owner,

I bought my first 7-Eleven store in 1978, when my wife and I were in our early 20s. We have created employment for hundreds of Californians. For many, in fact, it was a good stable job with us that provided opportunity for an optimistic future, something not easily found in many of the communities where our businesses are located.  

Franchising is a good model for entrepreneurs to succeed in the retail business. By partnering with a well-known and established brand, there is consistency and stability that brings prosperity to both parties and to all those we employ.  

According to the International Franchise Association, there are more than 75,000 franchise locations in California. These successful and lawfully operated small businesses support more than 725,000 jobs and are often located in lower-income, high-minority communities. 

It is a system that I have seen work for more than 40 years. 

AB 5, an issue widely known as “Dynamex,” however has upended that stability and thrown California’s franchisees’ future into uncertainty. 

Signed into law by Gov. Gavin Newsom in 2019 and operative Jan. 1, 2020, AB 5 was intended to limit the use of independent contractors in the gig economy. The broad language however has wreaked uncertainty upon franchising here in California by potentially turning franchisee business owners like myself into employees of the corporation we franchise from. 

As a long-time independent business owner, this is a radical step backward from the successful model on which I have built my livelihood, and family legacy. Franchises weren’t supposed to be mixed up in the gig economy issue, and while the unintended risk to franchisees has gotten little media attention, the concerns raised by California’s franchise business owners are ballooning.  

Underscoring the seriousness of the AB 5 threat to franchising, 7-Eleven’s corporate headquarters recently announced that it was halting all new franchise opportunities in California while “the legislative process plays out.” 

Some industries, also unintentionally impacted by AB 5 in a negative way, obtained a “carve out” of the application of AB 5 last year, and even more are seeking additional exemptions and clarification this legislative session.

The Legislature is currently deliberating on Assembly Bill 2257, introduced by Assemblywoman Lorena Gonzalez, a Democrat from San Diego, which further clarifies the intent AB 5. Franchise owners and employees are actively seeking an amendment to AB 2257 that recognizes the structure of franchisees, thus ensuring the economic success of franchise owners and employees. 

The consequences to inaction are severe. Without clarification, family businesses may be lost up and down the state. Franchise owners won’t have the opportunity to expand and will no longer have the freedom to run their business. 

This is fixable, and the Legislature has the power to protect the franchise model in California.  Please do so.

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