By Mike Lee
When I opened my first franchise business, Mr. Rooter Plumbing of San Diego County, in 2012, I made the same considerations most entrepreneurs do when considering a major investment: What kind of foot traffic could I expect in our location? What were the estimated earnings? What was my responsibility as an employer? And, perhaps most importantly, what laws and regulations would govern my business?
At the time, I felt secure in my decision to invest in San Diego and build a locally-owned business. And my venture has done well — I created jobs that support 19 families in our area, and we provide a needed service to hundreds more.
But there was one consideration no one could have planned for when starting a small business: legislation that would practically kill our business model.
If you are an entrepreneur in the state of California, you are no doubt familiar with Assembly Bill 5, the proposed bill that seeks to protect workers in the gig economy. In fact, you may even benefit from this bill if you are a driver for Uber, a handyman providing services on TaskRabbit or a caregiver on Care.com. But if, like us, you are part of a franchise business, your livelihood is in danger.
This is because Assemblywoman Lorena Gonzalez‘ AB 5 is written so broadly that it creates unintended consequences for thousands of small businesses like ours and over 700,000 franchise jobs here in California. Namely, franchisees in our state will become employees of their franchisor. So why does this matter?
AB 5 includes an “ABC test” to determine employee status. For example, part B of the test requires employers to prove that a worker “performs work that is outside the usual course of the hiring entity’s business.” Since the very essence of franchising is the licensing of trademarks in order to replicate a brand’s proven business model, franchisees by definition operate in the same course of business as their franchisor. Implementation of this test without consideration of the franchise model means businesses like ours and the jobs they create could disappear in the state of California.
Because of this, AB 5, if passed, will create huge disruptions for franchise businesses and the communities they serve, burying them under an avalanche of red tape. It will hold back hiring, stop small businesses from expanding, and limit a business model that’s proven to work.
But worse than anything, by considering everyone an employee, the bill will demote franchise owners to franchisor employees. This means that the hard work and equity my family has built into our small business can be wiped away with some votes and a stroke of the pen in Sacramento.
For the nearly 80,000 other small business owners like us in California, AB 5 is a death knell to our livelihoods and those we support. This is why we are seeking an exemption to the bill that allows the franchise model to continue uninterrupted.
Along with the rest of the franchise community, we are asking our legislators to consider a simple fix to ensure the viability of our businesses. By adding a limited exemption for franchises, we can ensure the franchising model is not misused as a tool for worker misclassification, all the while protecting the interest of franchisees and franchisors who rely on their brand controls to market and operate their businesses. It is a common-sense solution that carefully balances the importance of proper worker classification with the unique economic reality of the franchise model.
We know our legislators are working every day to protect and support our fellow citizens — this is why we are hopeful our state Senators will consider this important exemption to AB 5. As written, it harms a business model that is critical to our local economies and could put families like ours out of business. We hope our leaders will recognize this threat and work to protect not only members of the gig economy, but the economic future of communities across the state.
Mike Lee is the owner Mr. Rooter Plumbing of San Diego County in Kearney Mesa.
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