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Why Fast-food Franchisees May Be the Next to Quit California

Why Fast-food Franchisees May Be the Next to Quit California

Why Fast-food Franchisees May Be the Next to Quit California

Alex Johnson, a second-generation small business owner in California, has spent decades building his fast-food franchise empire with dedication and success. However, recent legislative changes and proposed labor laws have put his business model and independence at risk.

This article explores the challenges faced by thousands of franchise owners like Alex, who find themselves caught in the crosshairs of California’s evolving labor regulations and union pressure.

The Impact of California’s Labor Laws

In 2021, California lawmakers passed the “FAST Act,” establishing an unelected board with the power to unilaterally increase the minimum wage and impose labor rules specifically targeting the fast-food industry.

This law affects not only major national brands but also small business owners like Alex, who operate fast-food franchises. Notably, the law exempts unionized businesses, leading to allegations that franchisees are being coerced into unionization.

Small Business Owners Fight Back

Alex Johnson and over a million California voters rallied against the FAST Act, successfully securing a November 2024 referendum to potentially repeal the law. In response, unions have intensified their efforts to undermine franchisees, leading to the introduction of Assembly Bill 1228.

This bill seeks to enforce the “joint employer standard,” holding larger companies responsible for their franchisees’ operations. However, critics argue that this move is unnecessary, as wage claims against quick-service restaurants represent less than 2% of total claims in California.

Unintended Consequences of the Joint Employer Standard

While proponents of the joint employer standard claim it aims to address labor violations and improve working conditions, its implementation would have far-reaching consequences. Franchise owners, who are already responsible for pay and working conditions, would face increased litigation and administrative costs.

Furthermore, the standard would erode the independence of franchisees, paving the way for larger companies to exert control over their operations. Ultimately, this threatens the livelihoods of both new and longstanding small business owners.

The Union’s Motivation

Labor unions, particularly the Service Employees International Union (SEIU), have long targeted the fast-food industry. SEIU’s president, Mary Kay Henry, openly acknowledged that Assembly Bill 1228 is a response to the referendum challenging the FAST Act.

By consolidating thousands of small businesses under a few corporate umbrellas, unions and trial lawyers gain increased organizational power and the ability to pursue legal action against fast-food brands.

The Devastating Impact on Franchisees

The joint employer standard poses a significant threat to the franchise model in California. A recent survey by the International Franchise Association revealed that 98% of franchisees in the state believe they will lose their independence if Assembly Bill 1228 becomes law.

The majority of respondents also stated that they would not have pursued small business ownership under these circumstances. Inevitably, higher costs will be passed on to consumers, and many franchisees anticipate reducing employees’ hours or even cutting jobs.

The Uncertain Future

Franchise owners like Alex Johnson initially had hopes of surviving the challenges brought on by the FAST Act. However, the introduction of joint liability and the subsequent increase in costs have shattered those hopes.

The tweet below says “So let me be very clear: The @USDOL stands with you. The Biden-Harris administration stands with you…And you have a president who has vowed to be the most pro-worker pro-union president in history.” 

With dwindling profit margins and corporate entities exerting greater control, the once-thriving independence of franchise ownership becomes unattainable. As a result, many franchisees are exploring opportunities outside of California, such as Nevada, to maintain their small business ventures.

The Broader Implications

While Nevada may provide temporary relief for small business owners like Alex, the SEIU’s plans to export California’s labor laws to other states and advocate for federal mandates raise concerns.

With over 800,000 small business owners potentially affected, including minority and women entrepreneurs, the consequences could be far-reaching. Despite their resilience, these job creators may face an uphill battle as the SEIU and its allies continue their nationwide campaign.

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