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California adopts new Franchisee Rights Bill, AB 525

Posted on Date: Oct 13, 2015

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What a difference a year makes! Just 12 months following his disappointing veto of fair franchising legislation SB610 Governor Jerry Brown signed a new, toned down, franchise bill on Oct. 12th that amends the California Franchise Relationship law in important ways.

Assembly Bill 525 was introduced this year by a bipartisan group of Assembly Members: Chris Holden (D-Pasadena), Bill Dodd (D-Napa), and Scott Wilk (R-Santa Clarita). The bill was sponsored and aggressively supported by the Coalition of Franchise Associations (CFA), with support from several franchisee associations and labor unions. Major credit for pushing passage of the bill goes to the CFA and the Service Employees International Union (SEIU).

On October 12, 2015, CFA Chairman, Keith Miller, issued the following statement: “We are excited to tell you that Governor Brown signed AB-525 into law today. This journey started almost five years ago, when then Assemblyman Jared Huffman introduced a comprehensive franchise bill. While not everything wished for was achieved, the legislation signed today is a significant achievement. It will give franchisees more rights against termination. It will add transparency to the transfer process. It will put meaningful remedies for improper terminations or non-renewals. And most importantly, it acknowledges that franchisees own the equipment and fixtures they purchased for their business, and that franchisors must purchase them to take possession upon termination or expiration of the franchise agreement.”

Originally opposed by the International Franchise Association (IFA) and several franchisors and chambers of commerce, the CFA and the IFA took a mature approach and negotiated amendments to the legislation that made the legislation acceptable to all concerned. Consequently, the IFA’s coalition withdrew its opposition, and the bill passed both the California Assembly and Senate unanimously in August. This year, Governor Brown did not disappoint, and signed the bill on October 12.

What is AB-525?

AB-525 is a bill that focuses primarily on making it more difficult for franchisors to terminate franchisees without a just cause. Chris Holden, one of the Assembly Members who introduced the bill said, “As a former small business franchise owner, I can tell you that the one-sided nature of a franchise relationship quickly becomes apparent after signing these documents. Right now, it’s easy for a company to get rid of a franchisee whether they’ve done anything wrong or not. These small business owners invest substantial time and money into the enterprise and deserve to be protected.”

While it fails to achieve the level playing field in franchising that was sought last year in SB 610 which would have created an affirmative duty of good faith in franchise relationships, ABA -525 addresses some key inadequacies in the California Franchise Relationship law. Key provisions in the new law make it harder for franchisors to terminate franchisees, seek to protect and enhance franchisee renewal rights, confirm franchisee ownership of key assets of a franchised business, and provide greatly improved remedies for violations of the improved California Franchise Relationship law.

Unfortunately, the law fails to address important franchisee concerns and retains the validity of commonly oppressive franchise agreements. Most importantly, AB-525 fails to address the duty of good faith in franchise relationships, fails to address opportunistic behavior by franchisors (especially regarding approved and mandated suppliers), fails to empower franchisee associations, and fails to provide a realistic and meaningful statute of limitations giving franchisees a reasonable time within which to address grievances.

Notwithstanding the deficiencies of the legislation, AB-525 is a significant step forward for franchisees, is remarkable in a bipartisan unanimous passage, and significant credit goes to the CFA in securing passage and the Governor’s signature. Look for Chairman Purvin’s op-ed which accompanies this post.

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