Executive Summary
After passing all of the necessary committees in both the Assembly and the Senate, AB257 has been amended to remove joint employer liability from AB257. While there are numerous other changes that are focused on aspects of the Fast Food Sector Council will operate, this amendment removes the most significant threat to the franchise industry in the State of California.
Analysis
On August 25, 2022, the California Senate made multiple changes to AB257. While there are too many to identify that relate to the operations of the Fast Food Council (formally the Fast Food Sector Council), the most critical were the removal of the following paragraphs:
- In addition to the above, the FAST Recovery Act would require that fast food restaurant franchisor be responsible for ensuring that its franchisee comply with a variety of employment, worker, and public health and safety laws and orders, including those related to unfair business practices, employment discrimination, the California Retail Food Code, a range of labor regulations, emergency orders, and standards established by the council. The bill would require that a fast food restaurant franchisor be jointly and severally liable for violations of its franchisee, as specified, and would provide that specified laws may be enforced against a fast food restaurant franchisor to the same extent that they may be enforced against a franchisee. By expanding the application of crimes associated with employment, worker, and public health and safety laws, this bill would impose a state-mandated local program. Among other things, the bill would authorize a fast food restaurant franchisee to file an action against its franchisor for monetary or injunctive relief in connection with the terms of a franchise and the franchisee’s compliance with specified laws and orders. The bill would create presumptions in this regard and would provide for joint and several liability of the franchisor if the terms of a franchise are found to be a substantial factor in causing the franchisee to be liable.
- If a fast food restaurant franchisee is liable for a violation of any of the laws and orders set forth in subdivision (a), or any rules or regulations implementing these laws or orders, its franchisor shall be jointly and severally liable for any penalties or fines for the violation.
- The laws and orders set forth in subdivision (a), and any implementing rules and regulations implementing these laws and orders, may be enforced against a fast food restaurant franchisor to the same extent that they may be enforced against the fast food restaurant franchisor’s franchisee.
- A waiver of this section or Section 1473, or any agreement by a fast food restaurant franchisee to indemnify its fast food restaurant franchisor for liability under this section or Section 1473, is contrary to public policy and is void and unenforceable.
- If the terms of a franchise prevent or create a substantial barrier to a fast food restaurant franchisee’s compliance with the laws, orders, rules, and regulations set forth in subdivision (a) and their implementing rules and regulations, or any changes to them, including because the franchise does not provide for funds sufficient to allow the franchisee to comply with the laws, orders, rules, and regulations, or any changes to them, the fast food restaurant franchisee may file an action against its fast food restaurant franchisor for monetary or injunctive relief necessary to ensure compliance.
- There shall be a rebuttable presumption that any changes in the terms of a franchise that increase the costs of the franchise to the fast food restaurant franchisee create a substantial barrier to compliance with the laws and orders set forth in subdivision (a) and their implementing rules and regulations, or any changes to them.
- If a fast food restaurant franchisee shows by a preponderance of the evidence that the terms of its franchise were a substantial factor in causing any liability the franchisee has actually incurred under federal, state, or local law, the franchisor shall be jointly and severally liable for the portion of the liability to which the terms of the franchise contributed.
Looking Forward
Giving credit where it is due, Jeff Hanscom and his team at the International Franchise Association should be given credit for this eleventh hour change to AB257. While AB257 still has numerous problematic provisions–particularly as it relates to the pseudo-legislative power the Fast Food Council will be given–the joint-employer standard that AB257 included would have changed franchising in the State of California forever. All indications are that this issue will be taken up again in the near future but, for now, this should be a relief to California’s fast food franchisors and franchisees.
As always, our team stands ready to assist your business with all of its franchising needs. If you have questions or need assistance, please contact the authors listed below.
Thomas O’Connell – Tom O’Connell is a Shareholder at Buchalter APC, where he serves as Chair of the firm’s Franchise Law Practice and Chair of Litigation for the firm’s San Diego office.
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