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San Jose franchisees say state bill will put them out of business

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Brian Hom’s work at Vitality Bowl is a labor of love and an ode to his son.

Hom, 64, bought the franchise in 2016 because he was inspired by the company’s mission to provide allergy-free food options. It’s an issue near and dear to his heart. His eldest son died after going into anaphylactic shock during a family vacation. They were celebrating his high school graduation and 18th birthday in Cabo San Lucas, Mexico.

“It was tragic and I became a food allergy advocate ever since,” Hom told San José Spotlight. He led walks in San Jose, raised hundreds of thousands of dollars and helped write a federal law mandating schools to keep epi-pens on campus.

And when he learned about Vitality Bowl, he and his wife spent roughly $800,000 to operate two locations in San Jose.

Now he fears his business may be upended by a state bill advancing in the Legislature.

Assembly Bill 257, co-authored by local Assemblyman Evan Low, envisions a state-appointed council to create standards for the fast-food industry, ranging from working conditions to wages. It would also make corporations jointly liable with their franchisees to comply with the law.

While labor advocates say it will grant workers better protections and pay, Hom and others say it could actually hurt workers by driving up food prices on those who are already struggling with soaring costs of food, gas and housing. They also worry it could lead to restaurant closures and an elimination of jobs. It was introduced in early 2021 and approved by the Assembly in January. Last week, the bill passed out of the Senate Judiciary Committee and now heads to the appropriations committee.

“I’m all for helping people with minimum wage and stuff, but this bill goes beyond just increasing wages,” Hom said. “It’s gonna hurt. I don’t know if I will still be in business.”

Hom said he invested in a franchise because he wanted to run his own business, but now the state will take away his autonomy by having an outside council make decisions for him.

Right now, a franchisee has control over the hiring of staff and determining wages and benefits. Under AB 257, a council appointed by the state will negotiate and recommend industry-wide pay standards and working conditions.

“I think the people who support this bill don’t realize this will also hurt them,” Hom said. “Our biggest expense is labor and if I can’t afford to hire people, that’s less jobs.”

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Business leaders warned the bill could hurt many minorities and immigrants who turn to restaurants and small businesses to find upward mobility. In San Jose, many franchisees are from minority populations, and 62% of small business owners are women or people of color.

“Oftentimes the opinion is that franchisees are the company logo above them, that they’re the McDonald’s or the Wendy’s,” Derrick Seaver, president and CEO of the San Jose Chamber of Commerce, told San José Spotlight. “In most instances, these are small business folks. They just chose the franchise route.”

Many aspiring business owners turn to a franchise because it already has name recognition. They can run their own McDonald’s, for example, by purchasing a license and paying a down-payment for the location. It can cost upwards of $250,000.

Some labor attorneys say franchisees don’t have much autonomy now. In addition to paying royalties and marketing fees, they have to follow certain rules on menu pricing and where they buy ingredients. In some cases the only way to eke a profit is oftentimes from labor costs, and that could incentivize things like wage theft.

AB 257 allows the franchisee’s parent company to be held accountable for wage theft because the franchisor could also be sued. Right now, only a franchisee can be held liable.

But Seaver worries the bill could open the door for baseless litigation.

“It just becomes a regulatory burden that doesn’t really achieve the desired result of AB 257,” Seaver said.

The Stop AB 257 Coalition, comprised of chamber of commerce groups and restaurant associations across the state, said higher costs from the regulations will ultimately trickle down to consumers. Consumers and small business owners are already dealing with rising costs from record inflation.

“In California, we already have the strongest worker protection and workplace safety laws on the books of any state in the country,” the coalition said in a statement. “Instead of passing a measure that makes food affordability more out of reach for working Californians, legislators should instead focus on bolstering the state agencies responsible for upholding the state’s labor and wage laws.”

Contact Jana Kadah at jana@sanjosespotlight.com or @Jana_Kadah on Twitter.

The post San Jose franchisees say state bill will put them out of business appeared first on San José Spotlight.

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