Alex Johnson is the kind of entrepreneur who built California. A second-generation small business owner in the San Francisco Bay Area, he and his family run 10 fast-food franchises employing 140 people, most of them first-time job holders like disadvantaged youth and new immigrants. Alex’s family has spent 30 years growing their small business. They’ve never had to close a store.
But the good times are likely ending. He just signed a deal to run nine stores in neighboring Nevada. These may soon be the only stores he runs, because California’s leaders have launched an all-out attack on his business model.
Alex is one of 14,000 franchise owners who’ve been targeted for extinction by California’s leaders. Last year, lawmakers passed the “FAST Act,” creating an unelected board of bureaucrats with unilateral authority to raise the minimum wage by nearly seven dollars per hour and set other labor rules. It only covers the fast-food industry, affecting both mom-and-pop small business owners like Alex and the national brands that such entrepreneurs license as franchisees. Yet the council’s mandates won’t apply to unionized businesses. Franchisees are essentially being extorted into unionizing.
Small business owners and more than 1 million California voters like Alex fought back. They secured a November 2024 referendum that could repeal the law, which is paused until then. In retribution, now unions have pushed lawmakers to target franchisees with even worse attacks.
In February, Assemblymember Chris Holden, who authored the FAST Act, introduced a bill to mandate the so-called “joint employer standard.” Assembly Bill 1228–which passed the Assembly on May 31– would hold larger companies responsible for their franchisee’s operations, ostensibly to end labor violations like unpaid wages and poor working conditions. In the case of unpaid wages, this policy is a solution in search of a problem, since quick-service restaurants account for less than 2% of California wage claims–and franchisees less than 0.7%. It also makes no sense, since local franchise owners are responsible for pay and working conditions. Perversely, it would actually force larger companies to begin exerting control, taking away franchisees’ independence as small business owners.
Stopping labor law violations isn’t the point. By forcing thousands of small businesses under a handful of corporate umbrellas, unions and trial lawyers will find it easier to organize and sue fast-food brands. Mary Kay Henry, the head of the Service Employees International Union that has spent decades targeting the fast-food industry, took credit for the new bill. (The SEIU also spearheaded the FAST Act.) She made clear that it’s a response to the referendum, saying the SEIU is “operat[ing] on multiple fronts.”
Joint liability is the death knell of the franchise model. Since small businesses will be liable alongside the larger companies they franchise with, they’ll face significant litigation and administrative costs, hurting already slim profit margins. Worse still, the larger companies will take control of franchisees altogether and pursue a corporate ownership model in California, ending opportunities for new and longstanding small business owners.
A new survey from the International Franchise Association shows that 98% of California franchisees say they will no longer be independent small business owners if AB1228 becomes law. Nearly two-thirds say they would not have started a small business in the first place. And nearly 100% of franchisees expect to pass the resulting higher costs onto consumers–and nearly half think they’ll have to cut employees’ hours, if not jobs. While some argue the joint employer standard will level the playing field for franchisees, it will actually tilt it decisively against small businesses.
When the FAST Act passed, Alex felt there was a slim chance his small business could survive. He’s certain it won’t under joint liability. The soaring costs will squeeze already slim profit margins, and with a corporate entity taking more control, the independence that is the biggest draw of franchising will be gone. That’s why he’s putting his hope in Nevada, where he can still run a small business instead of becoming a cog in the corporate machine.
Will the Silver State turn out better than the Golden State? In the short term, yes. But Mary Kay Henry has already announced that the SEIU is taking California’s new laws to other states, while also pushing for federal mandates. The SEIU is also the biggest cheerleader for former California Labor Commissioner Julie Su’s stalled nomination to lead the U.S. Department of Labor, which could implement these harmful policies nationwide. Su’s allegiance is clear since she appeared via videoconference at a rally in support of the FAST Act last year.
If the union succeeds with this crusade, more than 800,000 small business owners could suffer, many of whom are minority and women entrepreneurs. Job creators like Alex can run for now, but perhaps not for long.
Matt Haller is president and CEO of the International Franchise Association.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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