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 soon could give all franchisees greater protections, including stricter rules on when companies can terminate their agreements.
The moves highlight the tensions in what 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 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.
The California bill would amend a law to require companies to show there was a “substantial and material” breach before terminating a contract. It also would require companies to give a franchisee back their business or compensate them for its value if a contract was wrongfully terminated.
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.
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.
“If they can do this to me, they can do this to anyone,” she said.
Many states have no laws regarding the termination of franchisee agreements, and the ones that do vary in the protections they provide
Corporate cultures vary, of course, with some companies exerting more control than others, said Robert Purvin, CEO of the American Association of Franchisees and Dealers. At Subway, for instance, franchisees are in charge of buying supplies, so they know the company isn’t marking up prices.
Companies also often have advisory councils to give franchisees a voice.
Franchisers like Wendy’s get a percentage of restaurant sales no matter what. Franchisees, by contrast, have to think about ingredient costs and worry low prices can eat into their profits.
In 2009, Burger King franchisees sued the company over a $1 double cheeseburger they said they were losing money on. The lawsuit was settled after 3G Capital bought the chain and worked to mend fractured relations with franchisees.
In general, franchisees are better at running restaurants than companies because they have more invested in the business, said Jonathan Maze, editor of Restaurant Finance Monitor. Sometimes companies sell restaurants back to franchisees to boost their own performance.
