What lawmakers need to know is the harm this legislation would inflict on one of the most successful startup business models – franchising.
By Matt Haller, special for CalMatters
Matt Haller is President and CEO of the International Franchise Association.
A CalMatters article outlining the FAST Recovery Act attempted to break down the pros and cons of the proposed legislation. The title posed the question: Is Assembly Bill 257 empower workers or does that amount to an excess of government power?
The bill, which once failed in the legislature, is a massive and unnecessary government intrusion.
However, the incalculable message about AB 257 is the damage this legislation will have on small businesses and small business owners in California.
Why is this important for the economy in general?
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 industries that include foodservice, 63% of employees work for small businesses.
Even California Governor Gavin Newsom understands the importance of small business – his recent post California map has made investing in small businesses a top priority by providing hundreds of millions of dollars in grants and tax breaks to small businesses.
What lawmakers need to know is the harm the legislation would impose on one of the most successful start-up business models – franchising. The franchise model, in which a brand and business are developed by a franchisor and a franchisee pays for the right to distribute the model’s products and services, is an age-old driver of success.
Franchises are known for providing unprecedented business opportunities for women, members of the LGBTQ-plus community, new immigrants and people of color – 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 recognized but just as important, local franchisees bring a significant portion of the economic benefits to their neighboring 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 hours and work part-time to manage household and family obligations.
In fact, new research shows that franchises offer better pay and more opportunities than similarly situated non-franchise businesses – paying 2-3% higher salaries, offering more than 65% of employees and 76% of franchise employees are offered vacation, vacation and sick leave.
Today the franchise system in California is under attack. Sponsored by the Service Employees International Union, the FAST Recovery Act overturns existing labor laws in favor of a new set of rules developed and enforced by 11 unelected political party appointees. It creates a second layer of unelected local councils in towns with more than 200,000 inhabitants.
It forces franchisors to strip franchisees of their 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 already known to the public. All of this suggests that 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 businesses most at risk. Food prices are up, indoor dining is often considered too risky and one patchwork of outdoor dining laws questioned even the most obvious restoration solutions. With waves of restaurants closing with the rise of the Omicron variant, California policymakers should support, not target, an industry that contributes to local economies.
It is not often that legislation proposed by the chairman of the appropriations committee and supported by the unions cannot pass its original house. However, in the 2021 legislative session, enough brave lawmakers realized the damage that would be wrought in their communities. Legislative attempts to dismantle the franchise model in California will hurt small business owners and local communities. Lawmakers should again reject the FAST Recovery Act.