Franchise Brands and Owners Ask California Legislature to Amend AB-5

SACRAMENTO, California, Aug. 27 -- The International Franchise Association issued the following news release:

* * *

- 160 Franchise Brands Sign Letter and Dozens of Franchise Owners Today Met with California Lawmakers to ask for AB-5 Exemption

* * *

160 franchise brands and more than 50 California franchise owners today requested an exemption for established franchise businesses from Assembly Bill 5, or AB-5.

Through its codification and wide-ranging application of the so-called ABC Test, AB-5 would effectively turn franchising - where an independent owner licenses a brand name and an operating system from an established brand - into a corporate model, where the independent owners and their employees are effectively absorbed into a single company.

In a letter to legislators, the brands state, "IFA members are gravely concerned that, if enacted as currently drafted, AB-5 could mean the death of the franchise model in California, with devastating economic consequences," based on their belief that "the 'ABC test' for employee status which would be adopted under AB-5 fails to recognize the unique nature of the franchise model."

Letter signatories included international franchise brands like McDonald's, Marriott, and 7-11, as well as brands and associations headquartered in California like the California Hotel and Lodging Association, The UPS Store, and Deli Delicious.

"While the intent of AB-5 to hold companies improperly classifying employees as independent contractors is reasonable, if not amended, the bill would effectively eradicate the longstanding viability of the franchise business model in California, from hotels to gymto home health care," said Matt Haller, Senior Vice President for Government Relations and Public Affairs at the International Franchise Association.

Implementation of AB-5 without consideration of the franchise model threatens these businesses and the jobs they create in California. To protect their small businesses and employees in California, the owners of local franchises such as Fast Signs, Mr. Rooter, Home Helpers, Express Employment and others today visited the state Capitol to meet with legislators and ask them to consider a common-sense exemption from the "ABC test" for franchise businesses.

California's nearly 76,000 franchise businesses employ nearly 729,000 people and create nearly $70 billion in economic output. A State Senate vote on AB-5 is expected in early September.

Please click here (https://u7061146.ct.sendgrid.net/wf/click?upn=G62jSYfZdO-2F12d8lSllQB48w8N-2BNr-2Fp87pZtho7hCsksvEppZmX5xitFDkzKr-2B-2FbHhFRD6NFXyFV7L7K2R9KXEDRS6p1N-2BxCLJ-2FUabae3GAYfOp9CBXyXDBXl5i9qkqOyTizs7klTt8NsI4CLRhCOg-3D-3D_gUynL8PSrto9PMYxmqok4bFONQVBIY6z3kSnriEPDDkMGBZfLP5TxEMi7zpGbQrbKEIu4aaKjvW-2BtoEMDiXVipwaz54JTlD1ubBE-2FH-2Fn1xWkzU4yClBhfyv0-2BWFtTtHw6433E1DHDGszx3z-2FLCgF4CemH1bgdQ1FdPfL47hyp0REa3s22sPYWOKs-2Fp4PpRG8HERTqLDvEyp9OSsE5HwBGQ6pFtVOUcyZSIVqZ58fpLT5NuJFhmQ7Zj5l0KiTxRFgQlDC-2Fz4UgsuoQI7narCIMgo3RyCXcbgkk7am3NgWiawYcjXYH4c3KdtwJ4Abb8EuJwIY-2FAovXexQek00vfzw0fWVvGjl8IhtRWtgXQJfRFI-3D) to view the brands' letter.

* * *

To: Honorable Members of the California State Legislature

Re: Assembly Bill 5

Dear Assembly Members and Senators:

We are writing to request your support of an IFA-proposed amendment to Assembly Bill 5 (A.B. 5). The narrowly tailored and limited amendment will provide an exception for legitimate franchisors and franchisees who are lawfully operating franchises under state and federal franchise law. IFA members are gravely concerned that, if enacted as currently drafted, A.B. 5 could mean the death of the franchise model in California, with devastating economic consequences. In California alone, there are more than 75,000 franchise locations supporting 728,000 jobs.

Specifically, we believe that the "ABC test" for employee status which would be adopted under A.B. 5 fails to recognize the unique nature of the franchise model - a model which the Supreme Court of California has recognized raises particular policy concerns where liability for a franchise's employees is at issue; the analysis of which must account for contemporary economic realities.

Prong A of the ABC test - which requires a hiring entity to show that a worker is free from its direction and control - fails to account for the fundamental nature of how the franchise model works (and is required to be maintained under state and federal franchise law). To lawfully and successfully maintain franchises, a franchisor is required to exert a certain degree of control over the operations and business practices of its franchises. Indeed, the California Commissioner of Corporations has stated that if these controls are not exercised, a business cannot operate as a franchise. We fear that these legally required controls will be used as a basis for imposing liability on franchisors for their franchisee's employees under the ABC test.

With respect to "Prong B" of the ABC test, we are similarly concerned. The reasoning of the California Supreme Court in the Dynamex case that adopted the ABC Test (and which forms the basis for A.B. 5) may lead one to conclude that its intent is to ensure a well-structured and managed franchisor in California will be unable to meet Prong B of the test, simply due to the nature of franchising. We maintain there are powerful reasons to believe this should not be the case. While franchisors and franchisees share a common brand, they operate in different and distinct industries; own independent companies; and, derive their revenue (their "course of business") in very different manners. That notwithstanding, given the court's decision, however flawed its reasoning on this point, a failure to address this concern is likely to result in the failure of many small businesses, the loss of jobs, litigation, market confusion and risk to the consumers in California.

For these reasons, we urge you to support amending A.B. 5 to include this limited exclusion for franchised businesses, which excepts:

(x) A franchisee, as defined in Sections 31005-31006 of the California Franchise Investment Law, which shall not be deemed an employee of franchisor rather than an independent contractor unless a court of competent jurisdiction determines the franchisor exercises a type or degree of actual control over the franchisee or the franchisee's employees that is not customarily exercised by a franchisor for the purpose of protecting the franchisor's trademarks, servicemarks, and/or trade dress including but not limited to quality control of products and services.

This language allows courts to ensure that the franchising model is not misused as a tool for worker misclassification, while protecting the interest of franchisors who are required by state and federal franchise law to exercise a certain degree of control over their franchisees' operations. It is a common-sense solution that carefully balances the important interest in ensuring that workers are not misclassified with the unique nature and economic reality of the franchise model as recognized by the California Supreme Court.

We urge you to support IFA's proposed amendment to A.B. 5. Failure to do so threatens the fundamental viability of the franchise model in California. Thank you for your consideration.

Sincerely,

International Franchise Association

1HUDDLE

7-Eleven

Accurate Franchising

Aire Serv

Alliance Franchise Brands

Alta Mere

Always Best Care Senior Services

Amada Senior Care Franchise, Inc.

American Family Care

Arachadeck

Assisting Hands Home Care

At Your Side

Athletic Republic

Auntie Anne's

Aussie Pet Mobile

Ballard Brands

Blue Roof Association

Boardhouse Serious Sandwiches

BrandPoint Services

BrightStar Group Holdings, Inc.

Brightway Insurance

California Closets

California Hotel & Lodging Association

CarePatrol

Carvel

Cash Plus, Inc.

CertaPro

Choice Hotels International

Cinnabon

CITYROW

College Pro

College Pro Window Cleaning

ComForCare

Conserva Irrigation

Coverall

DCV Franchise Group

Deli Delicious

Denny's

Detail Garage

Dr. Nick's Transmissions

East Coast Wings + Grill

Eat Gather Love Epic Wings

Experimax

Express Employment Professionals

FASTSIGNS International

FirstService Brands

Fitness Machine Technicians

Five Star Painting

FlannelJax's

Floor Coverings International Focus Brands

Franchise Your Business

FranNet

Franworth

Fully Promoted

Garces

Gaspar Insurance

GetFried

Glass Doctor

Global Franchise Group

Go Mini's Moving & Portable Storage

Golden Corral

Great American Cookies

Great Clips

Hammer & Nails Grooming

Hand & Stone Franchise Corp.

Handyman Connection

Home Helpers Home Care

Home Instead Senior Care

Hot Dog on a Stick

Hotel Association of Los Angeles

i9 Sports Corporation

InXpress

Jamba Juice

Jani-King International, Inc.

Jewelry Repair Enterprises, Inc.

Jon Smith Subs

KFC

Lay Bare Franchising

Live Well Exercise Clinic

Long Beach Hospitality Alliance

Lumberjacks Restaurant

Lynx Franchising, LLC

ManageMowed

Marble Slab Creamery

Marriott International

McAlister's Deli

McDonald's Corporation

Metal Supermarkets

Milex Complete Auto Care

Moe's

Molly Maid

Monster Tree Service

Moran Family of Brands

Mosquito Joe

Mr. Appliance

Mr. Electric

Mr. Handyman

Mr. Rooter

Mr. Transmission

Multistate Transmissions

My Music Workshop

Neighborly

NerdsToGo

Network Lead Exchange

New Orleans Roast

Next Home, Inc.

Nextaff

NTY Franchise Company

Outdoor Lighting Perspectives

Outdoor Living Brands

Painting with a Twist

Paul Davis

PickUp USA Franchise Company, LLC

Pillar to Post Home Inspectors

Pizza Hut

PJ's Coffee of New Orleans

PMTD Restaurants

Pretzelmaker

PROSE Franchising, LLC

PuroClean

Rainbow International

Real Property Management

RedBox +

Renew Crew

Retro Fitness

Round Table Pizza

Salon's by JC

Schlotzsky's

Senior Care Authority

Signarama

SmartView Window Solutions

Sport Clips

SuperGreen Solutions

Surface Experts

Taco Bell

Tapioca Express

The Broken Yolk Cafe

The Flying Locksmiths

The Great Greek

The Grounds Guys

The Lash Lounge

The Original City Diner

The Spice and Tea Exchange

The Tutoring Center

The UPS Store

TLS

Transworld

Tropical Smoothie Cafe

United Franchise Group

Venture X

Vitality Bowls

Wanna Play Playcare

WaveMAX

Window Genie

Window World, Inc.

You've Got Maids

Yum! Brands

About the International Franchise Association

Celebrating 58 years of excellence, education and advocacy, the International Franchise Association is the world's oldest and largest organization representing franchising worldwide. IFA works through its government relations and public policy, media relations and educational programs to protect, enhance and promote franchising and the more than 733,000 franchise establishments that support nearly 7.6 million direct jobs, $674.3 billion of economic output for the U.S. economy and 2.5 percent of the Gross Domestic Product (GDP). IFA members include franchise companies in over 300 different business format categories, individual franchisees and companies that support the industry in marketing, law, technology and business development.