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July 11, 2014

Leveling the Playing Field With the Likes of McDonald’s

by Kathryn Carter

Last Sunday at 7pm, the small business my family spent 30 years building was taken away from us. We lost our retirement security, dozens of our employees lost their jobs, and the government lost hundreds of thousands of dollars in tax revenue when McDonald’s forced us to close our franchised restaurant.

McDonald’s says it did not renew our franchise agreement because we did not attend corporate meetings, even though I was at nearly every one. But I think our restaurant’s closing had something to do with my public support for reform to put fairness into the franchise system, which the company opposes.

The arbitrary and unfair shuttering of our store shows the need for change in the laws that govern franchises. The Franchise Act, a bill now before the State Assembly, gives small business owners necessary protections to level the playing field between us and corporations like McDonald’s.

This law is needed now more than ever because the relationship between the large, multi-billion dollar franchisors and small business franchisees has become more one-sided over the past several years.

My father worked directly with McDonald’s founder Ray Kroc in the 1960s, and in 1971, Mr. Kroc gave my dad the chance to run a restaurant himself. My husband and I pooled everything we had to buy two of my father’s locations in the late 1980s, including the one we lost earlier this week.

When Mr. Kroc ran the company, business was done with honor, respect and a handshake deal. Today, franchise agreements are written to give nearly total control to the franchisor. Franchisees cannot alter the agreements, but there are thousands of pages of manuals, rules, procedures and processes that franchisors like McDonald’s can and do change at any time.

If a McDonald’s inspector finds that we are putting too much whipped cream on a hot chocolate or not enough ketchup on a burger or if we don’t use McDonald’s “recommended” systems for scheduling our employees, we could get a bad evaluation that could lead to us losing our business.

In addition to revoking franchise agreements midterm, McDonald’s can decide we don’t get to keep our stores when our agreement ends—they did this with us. That’s because we have no right to renew our franchise contract. McDonald’s alone gets to decide if we can continue in business.

The Franchise Act allows corporations to terminate small business franchises only if we commit substantial violations of our agreements. It would give us the right to renew our franchise agreements when they expire and sell our stores to qualified buyers – or pass them on to our children. We would also be allowed to freely associate with other franchise owners to make our collective voice heard without fearing retaliation.

If a franchise owner’s business is taken away, he or she stands to lose everything. Our business’ value was in the low seven figures. We put our savings, our personal integrity and years of our lives into making this restaurant successful.  We were relying on this store for a stable retirement, but we got nothing from the company upon its closure, and there is no fair process to appeal the company’s decision.

This is simply not right, and it’s why we need a change. This bill will not give us back the restaurant we lost, but it will help other small business owners by curbing large franchisors’ arbitrary and unfair practices. These are not sweeping changes, but would make a big difference to the hundreds-of-thousands of Californians whose livelihoods rely on franchised enterprises.

Kathryn Carter and her husband are the owners of a McDonald’s franchise in Daly City.

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