What lawmakers should know is the harm this legislation would levy on one of the most successful startup business models – franchising.
By Matt Haller, Special to CalMatters
Matt Haller is president and CEO of International Franchise Association.
A CalMatters’ article describing the FAST Recovery Act attempted to break down the pros and cons of the proposed legislation. The headline posed the question: Does Assembly Bill 257 empower workers or does it equate to government overreach?
The bill, which failed once in the Legislature, is a massive and unnecessary government intrusion.
However, the untold message about AB 257 is the damage this legislation will have on small businesses and small-business owners in California.
Why is that important to the broader economy?
There are more than 4.1 million small businesses in California, according to the Small Business Administration. California small businesses employed 7.1 million people, or 48.8% of the private workforce. In areas that include food services, 63% of employees work for small businesses.
Even California Gov. Gavin Newsom understands the importance of small business – his recently released California Blueprint made investing in small businesses a top priority by offering hundreds of millions in grants and tax breaks to small businesses.
What lawmakers should know is the harm the legislation would levy on one of the most successful startup business models – franchising. The franchise model, whereby a brand and business are developed by a franchisor and a franchisee pays for the right to distribute products and services in the model, is a time-honored success driver.
Franchises are known to give women, members of the LGBTQ-plus community, new immigrants and people of color unprecedented business-owning opportunities – 60% of California restaurants are owned by people of color. From auto repair to childcare, the franchise model meets customer needs with a known and trusted brand.
Less acknowledged but also important, local franchisees deliver a large share of economic benefits to their nearby community. Local franchisees pay taxes and fees and support countless civic organizations. Nationally, approximately 7.5 million people work for a franchise business. Workers, many of whom are entering the workforce for the first time, can maintain flexible schedules and work part time to manage home and family obligations.
In fact, new research shows franchises offer better pay and more opportunity than similarly situated non-franchised businesses – paying 2-3% higher wages, offering more than 65% of employee’s health insurance, and 76% of franchise employees are offered vacation, holiday and sick leave.
Today, the franchise system in California is under attack. Sponsored by the Service Employees International Union, the FAST Recovery Act sets aside existing labor laws in favor of a new set of rules developed and enforced by 11 unelected political appointees. It creates a second layer of local unelected councils in cities larger than 200,000 residents.
It requires franchisors to strip franchisees of autonomy and reduce franchisees from independent business owners to corporate middle managers. It also restricts new entrepreneurs who want to be in business for themselves but not by themselves, and benefit from a brand that is already known to the public. All this suggests there is something wrong with California’s existing – and comprehensive – regulations and enforcement.
As we enter a third year of the pandemic, restaurants are among the most at-risk businesses. Food prices are rising, indoor dining is often deemed too risky and a patchwork of outdoor dining laws have cast even the most obvious dining solutions into doubt. With waves of restaurants closing once again with the rise of the Omicron variant, California policymakers should be supporting, not targeting an industry that contributes to local economies.
It is not often that legislation proposed by the chair of the Appropriations Committee and backed by unions cannot pass its house of origin. However, in the 2021 legislative session, enough brave lawmakers became aware of the damage that would be caused in their community. Legislative attempts to dismantle the franchise model in California will harm small business owners and local communities. Legislators should again reject the FAST Recovery Act.