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Behind Big Macs, a drama over corporate control

By Candice Choi

Associated Press

Published: Wednesday, Sept. 3 2014 10:43 a.m. MDT

Kathryn Slater-Carter poses for photographs at a McDonald's restaurant she owns in Daly City, Calif., Tuesday, Sept. 2, 2014. Slater-Carter spearheaded a bill in California that could soon give franchisees greater protections in their dealings with franchisers. Around the country, union organizers are pushing to make McDonald's take responsibility for how workers are treated at its franchised restaurants.

Jeff Chiu, Associated Press

NEW YORK — Behind those Big Macs and Whoppers is a hidden drama over corporate control.

The fast-food industry is underpinned by an often tense relationship between companies like McDonald's and Burger King and the franchisees who run their restaurants. Few customers think about this when scarfing down burgers.

Around the country, union organizers are pushing to make McDonald's take responsibility for how workers are treated at its franchised restaurants. And in California, a bill could soon give all franchisees greater protections, including stricter rules on when companies can terminate their agreements.

The moves highlight the tensions in a business model that has long been considered an attractive way to start a business. In exchange for an upfront investment and ongoing fees, aspiring business owners get to capitalize on popular brands people trust. To protect their images, companies dictate terms like kitchen equipment, worker uniforms and menu offerings.

The problem, franchisee advocates say, is that companies can strip franchisees of their livelihoods for violating any contract terms, even if minor. That can leave franchisees feeling powerless and afraid to speak up.

"It's scary. People are kowtowed and they're worried," said Peter Lagarias, a lawyer in San Rafael, California, who represents franchisees.

GROWING TENSIONS

The California bill would amend a law to require companies to show there was a "substantial and material" breach before terminating a contract. An existing state law allows termination for "good cause," which can be any violation of the contract.

It would also require companies to give a franchisee back their business or compensate them for its value if a contract was wrongfully terminated. As it stands, companies only have to pay franchisees for store inventory, which would be a fraction of that amount.

Gov. Jerry Brown has not indicated whether he plans to sign the bill, which was passed by California's senate and assembly. He has until the end of September.

The International Franchise Association, which is backed by companies including McDonald's, says the bill would result in "countless frivolous lawsuits" and is unnecessary because franchisees can sue if they feel they've been treated unfairly. It notes franchisees are given 30 days to fix violations before a contract can be terminated.

McDonald's, which owns 19 percent of its more than 35,000 restaurants around the world and around 10 percent of those in the U.S., says the California bill could weaken a franchiser's ability to enforce standards.

Kathryn Slater-Carter, a McDonald's owner in California, said she spearheaded the bill after McDonald's decided not to renew the franchise agreement and lease on one of her two restaurants. She said McDonald's cited her husband's failure to attend meetings for not renewing the agreement, even though only she was required to attend. That left her unable to sell the business, which she estimates was worth $2 million.

"If they can do this to me, they can do this to anyone," she said.

McDonald's spokeswoman Lisa McComb said Slater-Carter's agreement and lease simply expired and that the company was not able to reach an agreement on a new lease with the landlord.

While the California bill hinges largely on a franchiser's right to enforce standards, companies are seeking to maintain a line of separation with their franchisees on another front.

Labor organizers are pushing to hold McDonald's accountable for working conditions at restaurants, citing the control the company exerts over franchisees. Both McDonald's and its franchisees have been named in lawsuits on behalf of workers.

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