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Fast Food Companies Just Lost A Really Big Fight In California

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Delivering a blow to McDonald's and other fast-food chain owners, the California State Assembly on Thursday passed a bill that would expand the rights of franchisees in their dealings with the brands under whose names they operate.

The measure, known as SB 610, would make it more difficult for major food and retail corporations to terminate the contracts of their franchisees. Backed by a group of vocal franchisees as well as a prominent labor union, the bill drew strong opposition from trade groups like the International Franchise Association and the California Chamber of Commerce.

The legislation passed the Democratic-controlled assembly by a vote of 41 to 27. It now heads to the state Senate, where an earlier version passed last year.

Under the bill, a brand like 7-Eleven or McDonald's could not revoke a franchise agreement without a "substantial and material breach" of that agreement. The bill would also clarify a franchisee's right to join an independent franchise association without fear of retaliation by the brand, and it would give franchisees more leeway in how they can sell their businesses.

Supporters of the proposal, including the American Association of Franchisees and Dealers, contend that it would protect franchisees from being put out of business without good reason.

"When it really comes down to it, we're talking about small business owners who've had arbitrary interpretation used to pick at their operation and, in some instances, drive them out of business," Assembly Member Chris R. Holden, a Democrat, said on the floor ahead of the vote. "It's not fair."

Other lawmakers argued that the measure would undermine brand quality by allowing sub-par franchisees to continue to operate.

"Underperforming operators will be able to get by with potentially substandard practices," said Assembly Member Travis Allen, a Republican. "It's all about quality control. ... This bill would potentially erode that."

In the runup to the vote, the bill drew support from an unusual alliance between franchisees and representatives of low-wage workers -- in particular, the Service Employees International Union, which has helped orchestrate the recent fast-food strikes in cities throughout the country. As the argument goes, better treatment of franchisees will lead to better treatment of the workers they employ.

Christopher Calhoun, spokesman for SEIU California, told HuffPost via email that the bill would "bring stability" to franchisees so they could "share these gains with their workers."

"Increasingly we are seeing franchisees and workers facing a similar challenge," Calhoun said. "[A] fundamental power imbalance enables multinational corporations to haul down billions at the expense of both workers and franchise owners."

The bill has been closely watched by major franchisers because of the way it could tilt the balance of power in their industries, especially if states beyond California move to adopt similar laws.

In a separate setback for the big fast-food companies, a top official with the National Labor Relations Board made a determination earlier this month that McDonald's could be considered a "joint employer" alongside a franchisee when it comes to labor law violations. Companies like McDonald's typically enjoy a legal insulation from the liabilities of their franchisees, even though they obviously exercise a good deal of control over how those businesses are run.

The decision by the NLRB's general counsel could make large franchisers partly accountable for the working conditions in all their stores, as well as help unions negotiate terms with fast-food companies that would make it easier for workers to unionize. (More than 80 percent of McDonald's stores are run by franchisees rather than the company.)

Robert Cresanti, head of government affairs for the International Franchise Association, told HuffPost that the NLRB determination and the California bill are part of an ongoing attack on companies that use the franchise model.

"The industry has got multiple fronts opened up against it," Cresanti said. "To us, it is a clear, concerted and orchestrated effort that goes right at the throat of our industry."

As for SEIU, he said, "They've taken the franchise model into their crosshairs."

But Jaspreet Dhillon, a 7-Eleven owner in California, said that the proposed legislation would give franchisees much-needed protections, while its practical impact wouldn't be onerous for the brands.

"In California now, if a company wants to get rid of a franchisee, they can do that. It's very easy, even if the franchisee hasn't done anything wrong," said Dhillon, who has been running his 7-Eleven for 16 years. "So this is very important. Right now, the franchisees don't have that protection."

Dhillon noted the story of a California McDonald's franchisee, Kathryn Slater-Carter, who told The Washington Post that her family ran into financial turmoil when the company declined to renew one of her franchises. She also said that when she complained to the company that discounted meals were eating into her profit margins, she was told, "Just pay your employees less."

Given such an experience, Dhillon said he was relieved to see labor groups like SEIU standing alongside the very franchisees who are often castigated over industry labor practices.

"I'm glad they finally woke up," Dhillon said of labor groups. "We want to take care of our workers. We want to be able to pay them more money. ... But for them to get the living wage they want, they have to make sure we're healthy, too."

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