Americans love a small-business success story, but not every small business is a mom-and-pop bakery or a stand-alone hair salon. Many are franchises. The franchise model of pairing local entrepreneurs with national brands has created millions of jobs in dozens of industries nationwide. But labor unions and trial lawyers are pushing state legislators in Alabama and elsewhere to change longstanding rules governing franchise arrangements, upending the business model and hurting companies, customers and communities.
I own 18 Kentucky Fried Chicken and Taco Bell locations employing 750 people across Alabama and Georgia. I’ve seen firsthand that franchising works. It allows entrepreneurs to launch small businesses while benefiting from valuable brand recognition and a tried-and-true set of business practices.
The franchise model isn’t broken, but that hasn’t stopped progressive activists from looking for ways to fix it. The Coalition of Franchisee Associations and the Service Employees International Union have been trying for four years to convince lawmakers around the country the system is unfair. The Protect Alabama Small Business Act passed the state Senate earlier this month with the CFA’s support. The group has pushed nearly identical franchise-reform bills in four other states.
If the bill passes the Alabama House and becomes law, it would limit the types of contracts brands and local businesses could sign. The state would be in a position to dictate when and why national brands could sever ties with franchisees. Franchisees who violate the terms of a contract—or even commit a felony—would be largely immune from immediate action by the company whose name hangs above the door. The law would be applied retroactively, meaning Alabama’s 12,000 franchise owners could see their contracts rewritten overnight.
Unions back the bill because it weakens the franchise industry, a longtime target for their organization efforts. The new system would drive up the cost of franchising, making national brands less likely to strike deals with local businesses. Unions imagine these brands would opt to open and operate local stores themselves. This would make employees easier to organize, and give the unions a toehold in right-to-work states like Alabama. More likely, national brands will choose to leave the state, setting Alabama back economically.
By making it harder for brands and franchisees to part ways, the legislation creates new opportunities for lawsuits alleging breach of contract and other offenses. Many brands will settle—even when they’re in the right—rather than deal with a slew of bogus claims and bad press.
But while unions and lawyers win, most others lose—including job seekers and entrepreneurs. Market research firm FRANdata estimates the new law would kill 4,500 jobs and 400 franchise businesses in Alabama over the next four years. The final tally would be more than $300 million in lost economic activity. If the unions and trial lawyers get their way, this devastation will spread to all 50 states.
Legislatures in Florida, Maine and New Hampshire all killed versions of CFA’s franchise bill. Lawmakers in California passed their version of the bill in 2014 but then-Gov. Jerry Brown vetoed it. “The bill’s changes would significantly impact California’s vast franchise industry that relies on the certainty of well-settled laws,” he wrote in a statement.
In Alabama, the bill was rushed through the Senate, but the House is taking a more thoughtful approach. Unfortunately, two House hearings failed to derail it, and it’s possible the legislation enjoys the support of a majority of lawmakers. While Gov. Kay Ivey hasn’t indicated whether she’ll sign the law, her veto can be overridden with a simple majority.
The Protect Alabama Small Business Act is a solution in search of problem that doesn’t exist. Homegrown franchise operators such as Chicken Salad Chick and Taziki’s Mediterranean Cafe have already signaled their opposition to the bill, as have nearly 100 brands that operate franchises in the state. Most important, customers aren’t complaining.
Alabama’s House could vote as early as next week. It should put a stop to the union-backed effort to interfere in this classic American success story.
Mr. Barr is chairman of PMTD Restaurants and chairman of the International Franchise Association.
