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California Bill Would Help Protect Franchisee Business Investments

Via Business Insider

LOS ANGELES – When Kathryn Slater-Carter learned her family would lose $1.5 million after McDonald’s Corp did not renew the franchise agreement on one of their restaurants in the San Francisco suburbs, she tried for a second time to change state law to protect franchisee investments.

That renewed effort may bear some fruit. California lawmakers in August passed the new bill she championed and Governor Jerry Brown has until Sept. 30 to sign or veto it.

At present, California law only requires franchisors that terminate or fail to renew a franchise agreement to offer to repurchase a franchisee’s inventory.

Among other things, the pending legislation known as SB 610 would require a franchisor that terminates an agreement without a material breach to compensate the franchisee for the fair value of their business, or to provide them an opportunity to sell.

The watered-down law passed by lawmakers would not have prevented the equity loss Slater-Carter says her family suffered when their McDonald’s restaurant in a Daly City, California, shopping mall was forced to close, but “it’s a start,” she said. The franchise agreement on her family’s one remaining Daly City restaurant expires in 2016.

A spokeswoman for McDonald’s said that the mall restaurant closed because the franchise and lease agreements each expired. She added that the company did not play a part in that timing.

Groups representing big companies and franchisees have clashed over the bill in what some experts say is one of California’s biggest business battles this year.

The International Franchise Association (IFA), a trade group representing McDonald’s and other well-funded franchisors, led the opposition. They warn that the legislation could weaken a franchisor’s ability to enforce brand standards, damage franchisee equity by protecting weak operators and result in frivolous lawsuits.

Supporters are a coalition that includes the American Association of Franchisees & Dealers and the Service Employees International Union, which has backed fast-food worker protests at franchisee-owned restaurants. They say changes are long overdue and that other states, including Washington, have stronger laws in place.

“It gives us a little bit of protection against termination and retaliation,” said Jaspreet Dhillon, chairman of the California 7-Eleven Franchisee Political Action Committee. “The bill won’t solve everything, but it allows us to sleep at night.”

Franchisor 7-Eleven Inc, owned by Tokyo-based Seven & I Holdings, in the last two years has been hit with roughly a dozen lawsuits in which franchisees alleged that it drummed up reasons to take away their convenience stores.

A 7-Eleven spokeswoman said those allegations are false and that the company ends relationships with the “few franchisees who violate the law or the franchise agreement” to protect other franchisees, employees and customers.

A 2012 franchisee protection bill spearheaded by Slater-Carter died in committee.

California Bill Would Help Protect Franchisee Business Investments [Business Insider]

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