For 11 years I’ve worked to help Fresno-based Deli Delicious open new locations by leveraging the franchise business model. Along the way, we’ve opened 53 franchise restaurants across the state, including three Colorado Grill restaurants of my own. In addition, we’ve created scores of new business owners and new jobs from Sacramento to Bakersfield while providing business consulting services to dozens of budding entrepreneurs and disadvantaged individuals to help them realize their dream of business ownership.
But if some politicians in Sacramento get their way, these new business owners will soon be demoted.
Why? As part of a legal battle involving Uber and Lyft, the courts and the state Legislature are trying to change California’s employment rules. Specifically, they’re trying to say that franchise business owners like the ones at Deli Delicious are actually “employees" of our brand. Not only does that fundamentally misunderstand the franchise model, it jeopardizes thousands of small businesses and jobs across the state.
Here’s how the franchise business model works. Established brands like Deli Delicious contract with local business owners, or franchisees, who license the rights to use the brand company’s name. For the brand, it’s an effective way to expand the company and ensure consistent quality. For the local business owner, it’s much easier than starting a company from scratch.
If that doesn’t sound like Uber and Lyft, that’s because it isn’t. But earlier this year, a group of judges on the 9th Circuit declared that we’re basically no different — and therefore, our franchisees never owned their business, regardless of what their contracts say. According to them, those independently owned businesses actually belong to us. A fast-moving Assembly bill, AB 5, would make this a permanent part of California law.
This isn’t just wrong. It’s insulting to California’s tens of thousands of franchise owners who are suddenly facing a demotion. If the Legislature doesn’t amend its bill, California franchises from hotels to gyms to restaurants are looking at massive changes to their business model — and not for the better.
These changes are completely unnecessary. The franchise system works just fine for the 77,000-plus franchise businesses in California. Over three-quarters of a million workers depend on franchising for jobs, and we cumulatively account for nearly $70 billion in statewide economic activity, as of 2018.
Those numbers show that franchising works. So why is California shaking things up?
It makes even less sense when you look at what the new system would force on us. For example, the state would require the “employer” — the franchisor, or brand — to make sure franchise owners take a lunch break or work less than six hours a day to compensate. The franchisor would also be required to have a heavier hand in operations and hiring, taking away business decisions that have always been up to the store owner.
The only way we could avoid this new system would be to pass a complicated legal test. Yet this test, among other things, would require every franchise business to be “free from control and direction” from their brand, preventing us from maintaining the quality standards customers expect. Yet federal and California law — including a state Supreme Court ruling less than five years ago — require that franchises enforce those standards. That means my every franchise business is confronted with a legal Catch-22.
California’s small businesses depend on well-established, common-sense laws — and there’s no need to change them. AB 5, if passed, will create huge disruptions for California franchise small businesses and the communities they serve, burying us under an avalanche of red tape. It’ll hold back hiring, stop small businesses from expanding, and limit a business model that’s proven to work.
Luckily, there’s a simple solution: the Assembly can simply exempt well-established franchise businesses like mine from this bill. That will allow locally owned California small businesses like the ones we create to continue hiring Californians and giving back to the communities we love.
It’s not easy being a small business owner, but it’s a challenge our franchise owners are proud to face every day. Tens of thousands of California franchise business owners want to keep serving their customers, keep helping their employees, and keep their business strong. That’ll be much harder if California demotes them.
Ali Nekumanesh is the executive vice president of Deli Delicious, a Fresno-based restaurant franchise.