Dan Morain: A McDavid and Goliath story
08/31/2014 12:00 AM
09/10/2014 11:58 PM
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Sometimes, little people decide to take a stand.
Kathryn Slater-Carter and her husband, Ed, thought McDonald’s was a family business. Her father opened his first franchise in 1971. She and Ed took it over soon after they got out of college in 1977 and opened a second one in the San Francisco suburb of Daly City. Their children grew up in McDonald’s.
“We’ve always supported the McDonald’s brand,” she said.
A few years ago, McDonald’s informed her and her husband that it would not be renewing its franchise agreement for one of the restaurants, a profitable shop in a mall in Daly City.
She went to a lawyer, who told her she had no recourse. She and her husband had no choice but to close it, lay off 30 workers, and sell the equipment for scrap, fetching all of $2,500.
“I got ticked off; it was wrong,” she said.
Slater-Carter went to a legislator, who carried a bill to help. It failed two years ago. She went to another legislator this year. After one of the toughest lobby fights of the session, lawmakers approved Senate Bill 610 by Sen. Hannah-Beth Jackson, D-Santa Barbara, by the narrowest of margins earlier this month. Gov. Jerry Brown hasn’t said whether he will sign it.
Slater-Carter’s fight is a variation on an old storyline. David knocked out Goliath. Lilliputians tied up Gulliver. The theme has been playing out a lot lately in the Capitol.
Workers got sick of getting canned for being sick, and unions pushed a bill this year to force all employers to provide three days of sick leave a year, a reasonable step. Workers got stiffed on their pay, and a union pushed a bill to let them place liens on their bosses, an overreach, but understandable.
Slater-Carter’s bill would give franchise owners protections against corporate decisions not to renew franchise arrangements. The bill says franchise parents would need to display good faith and fair dealing. The bill seeks to make clear that operators have the right to associate with one another, and spells out procedures allowing franchise operators to sell their stores.
Modest though it is, Slater-Carter’s bill challenges a huge industry that generates billions of dollars. McDonald’s had $28 billion last year in revenue. The legislation would alter the relationship between 83,000 franchises in California, and such corporate parents as McDonald’s, Burger King, Sir Speedy, Sizzler and AAMCO.
“It is a drastic change for us,” said Robert Cresanti, who oversees lobbying for the International Franchise Association, a trade group in Washington, D.C. He worries the bill would open the franchise corporations to more lawsuits and to union organizing.
Organized labor sided with franchise operators, at least the ones who backed the legislation, believing that if corporate rules are loosened, fast-food operators might be able to charge more for burgers, and ultimately pay a living wage. Perhaps, too, unions could organize fast-food workers, something they’ve long sought.
“The crux of it is the imbalance of power,” Angie Wei, lobbyist for the California Labor Federation, said of the reason for labor’s support.
Josh Pane, a former Sacramento city councilman who is a lobbyist and represents Slater-Carter, delved into that history of the current franchise law and found it dates back to Brown’s first go-round as governor, in 1980.
Legislation sponsored by the International Franchise Association had begun as a measure intended to protect franchise operators. By the time the Legislature amended it, however, it no longer cured “the abuses but instead sanctions many of them,” a lawyer for franchise operators wrote in a 1980 letter urging a veto.
Brown might or might not have had a notion that he should veto it. But lawmakers had approved the 1980 legislation by a vetoproof two-thirds majority. Rather than sign the bill, Brown took the unusual step of letting the bill become law without his signature.
“It is all about the little guy,” Pane said. “Most of America and California is built by the little guy. They are the ones we should help. That’s all. It’s not much more complicated than that.”
Senate Bill 610 would not have gotten out of the Assembly without support from Assemblyman Scott Wilk, a Santa Clarita Republican, the only Republican who voted for it.
“It is big business, it’s big labor, and it’s big government around here,” Wilk told me. “No one represents the little guy. We don’t take into account the guy who makes the economy run.”
Wilk took a position contrary to franchise corporations even though he had taken $3,500 in campaign donations from McDonald’s earlier this year. He told me he “heard whispers” that he was “in trouble” as a result of the vote.
“Whatever,” he said. “I’m not here to represent K Street. I’m here to represent my constituents.”
Then there is Burger King. The fast-food chain is incorporated in Delaware, which imposes few rules on corporations, and is headquartered in Florida, which has no state income tax, and is owned by a private equity firm based in Brazil.
BK, which is run by a chief executive who is 34, announced it is merging with the Canadian doughnut and coffee chain Tim Horton’s and will relocate to Canada, where the corporate tax rate is 15 percent, compared to 35 percent in this country.
The corporation was founded here. American consumers eat its Triple Whoppers, with their gut-busting 1,150 calories, and the franchises pay their tribute to Delaware, Florida, Brazil, Ontario, or wherever. Wall Street loved the move. Burger King stock shot to above $32 from less than $20 a year ago. The rest of us should be disgusted.
Kathryn Slater-Carter’s fast-food restaurant isn’t owned by a cost-cutting private equity firm, and her CEO isn’t dodging taxes by merging with a Canadian doughnut chain.
But she felt pushed around and fought back. Mice do roar sometimes, for the good of the rest of us.
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