The famous quote from the Terminator, California’s former Governor Arnold Schwarzenegger, might as well apply to “Level the Playing Field for the Small Businesses Act,” legislation that failed to pass in California in 2012. As predicted, legislation is now pending in California that picks up on the 2012 effort to expand California’s existing franchise laws.
2013’s version is called the “California Small Business Investment Protection Act.” The 2013 version is based upon the same underlying principle as its predecessor, that the franchise relationship is inherently unfair, pitting the naïve small business owner against the sophisticated corporate giant. This comparison is tired and dated. The reality is that in 2013, the franchisor is more likely to be a small business with a solid concept and lean infrastructure that is looking to partner with smart business owners to seize upon opportunity. While I want to assume the authors of the pending legislation have good intentions supported by valid business concerns, the following section gives me pause;
“As opposed to corporate entities that are franchisors and most often reside outside California, franchisees are the local small business owners who personally fund the franchise brand development, sales, use and income tax, and who invest in building, equipment, pay leases, and other spill over investments. Franchisees invest their substantial assets, take loans sometimes secured by their family homes, and enter into long-term commercial leases and other obligations while looking to their franchise businesses for their livelihoods.”
While this is sometimes a true statement, it implies that franchisors are not “small business owners” who “personally fund” the development of a franchise system. While many trial lawyers may be drooling at the prospect of this new legislation, I don’t believe the business community will benefit.