Editorial: Franchise bill would send the wrong message to California businesses

Judging from the rhetoric, you might think state Sen. Hannah-Beth Jackson (D-Santa Barbara) was proposing to radically shift the balance of power in the world of franchised restaurants, stores and hotels. Instead, SB 610, the bill Jackson guided through the Legislature, would write into law the kind of protections that franchise buyers already receive from courts or in typical industry practices. Yet the measure would still send a potentially damaging message to businesses about California’s willingness to demand changes in contracts for the sake of favored interest groups.

California set rules for the sale of franchises in 1970, followed in 1980 by a law governing the relationship between a chain’s corporate headquarters and its franchise operators. Jackson’s bill, which passed on Aug. 21, would make it easier for operators to sell their franchises, bar chains from terminating operators over trivial disputes and provide them more relief if they were wrongfully terminated.

Proponents of the bill, including a trade group for franchise operators and the Service Employees International Union, say it offers important protections for operators, whose contracts give them only a temporary right to do business under the chain’s name, and who must implement whatever changes the chain may impose along the way. Opponents, led by a trade association for the franchise industry, counter that the measure would lead to more lawsuits and uncertainty about both sides’ rights, which would discourage chains from operating in California.

In reality, the sometimes tortured language of SB 610 wouldn’t add much to the protections courts have already established for franchise operators, lawyers active in the field say. Today, chains don’t have the right to terminate operators for trivial reasons, and if that happens, an operator can recover any losses in court. In addition, operators that are stymied by their corporate headquarters when trying to sell their franchise can win damages in court if they can prove the chain acted improperly.

Nevertheless, lawmakers should be leery of rewriting contracts struck between willing buyers and willing sellers. No one is forced to buy a franchise. And the involvement of the SEIU suggests that at least some lawmakers see SB 610 as a way to organize workers, not to protect operators from harm. As modest as the bill is, it would do more than just ensure that chains and operators act in good faith. For that reason, Gov. Jerry Brown should veto it.

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