Undeterred by last year’s disappointments, franchisees in the Golden State have regrouped this year and mounted a new offensive designed at passing franchisee favorable legislation in California. Last year, Assembly Bill 2305,The Level Playing Field for Small Businesses Act of 2012 (the “2012 Act”), was introduced in the California Assembly. The 2012 Act sought to revise California’s Franchise Investment Law and Franchise Relations Act (the “CFIL & FRA”) to provide greater protections for franchisees. But, to the chagrin of many franchise owners, the 2012 Act failed to move forward from Committee on a very close vote after many franchisors, business groups and franchise experts argued it was nebulous, unenforceable and bad for business.
Three new franchise protection bills were recently introduced. The most far-reaching, AB 1141, the California Small Business Investment Protection Act, aims to revise the CFIL & FRA to: 1) provide franchisees greater freedom to transfer their businesses, 2) require automatic renewal of franchise agreements absent a material breach, 3) protect franchisees from unreasonable terminations, 4) require the parties deal with each other in “good faith” and 5) provide franchisees the right to assemble in trade groups without fear of retaliation. Another, SB 610, if passed, would require parties to franchise agreements deal with each other in “good faith” and prohibit franchisors from restricting the right of franchisees to participate in franchisee associations.
Like last year, several large franchisors and related groups, including the International Franchise Association, have expressed serious concerns about AB 1141, and say they are worried about unintended consequences that would impede the growth of the franchising industry and hurt business in California. With so much at stake, we’re expecting another fiery debate, and we will keep you updated.