Legislature Undermining Consumer Confidence with Attack on Franchise Industry

Host of The Cowboy Libertarian Radio Talk Show in Sacramento

Consistency is the hallmark of any successful business.

When I spend money at my favorite hotel, store or restaurant chain I expect the same level of quality and service – whether I’m in Sacramento or any other city.

A vast majority of chains are built around the consistency provided by the franchise model.

One of the pioneers and most successful proponents of the franchise model was Ray Kroc who in 1955 convinced two brothers that their busy little drive-in restaurant in San Bernardino could be replicated across the nation. The two McDonald brothers bought into Kroc’s idea and in three years they had sold 100 million hamburgers.

The franchise model is simple. Take McDonalds. When Kroc had expanded the business as much as he could locally he became a “franchisor” and founded McDonalds Systems which sought out entrepreneurs who wanted to be in business for themselves as “franchisees”.

But as Kroc told them they would not be working for McDonalds as employees but for themselves with McDonalds corporate providing them with the tools to be successful.

As Kroc said, “In business for yourself, but not by yourself”. His system was widely copied and improved over the years as competition grew.

This model allowed thousands of franchisees around the world to start their own business. It has been especially successful in helping minority businesspeople realize their dreams of being their own boss.

How does it work?

Franchisees engage in a contractual relationship with the franchisor. While most people only relate franchising to fast food restaurants, this model has been successful for a wide array of household names, including Marriott, Charles Schwab, Mr. Rooter, SportClips, California Closets, Sylvan Learning, Sir Speedy Printing, Merry Maids, AAMCO and Jiffy Lube.

By definition, these companies are successful because they have adopted consistent standards and policies – all of which are spelled out in their contracts.

The importance of adhering to these brand standards is paramount. When a franchisee goes rogue and starts freelancing its operations, changing the standards consumers expect or worse, put the consumer at risk, the brand is endangered and that impacts every franchisee in the system.

We all remember the damage to Jack-In-the Box franchisees, a California based franchise system when undercooked meat at a franchisee owned location in Washington state caused the death of several children.

One bad franchisee tarnished the whole brand forcing the franchisor to step in and do damage control to protect the other franchisees.

When situations like this arise the franchisee is given time to fix the problems. When they don’t, the franchisor has the power to take over the franchise, resell it or shut it down.

That’s how it should be. Violate the terms of the contract or suffer the consequences as spelled out in that contract.

But apparently the California Legislature wants to overturn centuries of contract law to do the bidding of a small number of franchisees who wish to deviate from the contracts they signed and sell products they are not authorized to sell.

AB 525 is yet another example of a solution in search of a problem.

Any problem that may or may not exist between franchisors and franchisees should be worked out between the two parties. The Legislature needs to keep their big noses out of this disagreement and not enshrine in law new rules that will have a negative impact not just on businesses but on the sanctity of contracts.

If lawmakers pass this narrowly focused legislation just to curry favor and no doubt campaign contributions from a small group of disgruntled franchisees they will have taken the first step down the slippery slope that will eventually lead to chaos and frivolous litigation in all contracts.

Governor Brown wisely vetoed a similar measure last year stating that the proponents had not adequately demonstrated that a serious problem existed that required a legislative fix. He urged all parties to continue to work together.

The franchising industry has been more than willing to do so. But in true tone-deaf fashion, lawmakers appear as if they can’t be bothered with the Governor’s prudent counsel.

Message to the Legislature: Keep your hands off my Big Mac!

Patrick Dorinson is a writer, radio talk show host and commentator who has worked over the last 25 year for Republicans and Democrats in both politics and government. 

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