A Reprieve for Franchise Business Model in California

California Assembly Bill 257, the Fast Food Accountability and Standards Recovery Act (FAST Recovery Act or AB 257) was defeated by the California Assembly on June 3, 2021. The bill was introduced by Assembly Member Lorena Gonzalez,  and had it passed, would have been a disaster for fast food franchisors, franchisees and their employees in California.

AB 257 needed only three more votes to become law. Assembly Member Gonzalez has filed a motion to have the FAST Recovery Act reconsidered so the bill may be back before the legislature in January 2022.

The bill would have established a Fast Food Sector Council (Council) that would have had 11 members appointed by the Governor, the Speaker of the Assembly and the Senate Rules Committee, each for four year terms.

The Council would have had the authority  to establish standards for minimum wages, maximum hours and other working conditions for fast food restaurant workers, fast food restaurant franchisees and fast food restaurant franchisors with 30 or more restaurants in the U.S.

Franchisors would have been required to review these standards at least once every three years and to issue, amend, or repeal fast food restaurant employment, health or safety standards as the Council believed appropriate. Additionally, fast food restaurant franchisors would have had to ensure that their franchisees comply with certain employment and worker public health and safety laws and would be jointly and severally liable for penalties or fines imposed because of violations of these laws by their franchisees.

Fast food restaurant franchisees would have been permitted to file legal actions against their franchisors attacking the terms of their franchise agreements and their compliance with certain laws and would have been jointly and severally liable if the terms of a franchise agreement were found to be a substantial factor in causing the franchisees’ liability. Waivers and indemnification agreements given by fast food restaurant franchisees in favor of their franchisors would have been contrary to public policy, void and unenforceable.

The bill was supported by the Service Employees International Union (SEIU). The International Franchise Association (IFA), which protects and promotes franchising by educating lawmakers and the public about the franchise business model, was strongly opposed to AB 257 and worked with the California Restaurant Association and others to oppose it.

Barry Kurtz is a Certified Specialist in Franchise & Distribution Law as designated by the State Bar of California Board of Legal Specialization.