NCASEF Legislative Priorities

California Governor Signs Fair Franchising Legis­­lation

jas dhillon

Jaspreet Dhillon

Board Member, FOA of Greater Los Angeles
President, California 7-Eleven Franchisee PAC

On October 11, franchisees in the State of California got a big boost when Governor Jerry Brown signed Assembly Bill 525—also known as the California Franchise Relations Act—into law. As per our NCASEF legal counsel Eric Karp, with the bill becoming law California franchise business owners now have the strongest protections in the country. The Coalition of Franchisee Associations (CFA) sponsored the bill and the International Franchise Association (IFA), which represents franchisors, opposed it.

“As a result of Assembly Bill 525, the California Franchise Relations Act (CFRA), California franchisees now have the strongest protections in the country with respect to the termination of franchise agreements.”

The law revises the rights and responsibilities of franchisors and franchisees under the existing California Franchise Relations Act (CFRA) with respect to the termination of franchise agreements. Specifically, the law provides franchisees protection from the following:

Early Termination of the Franchisee Agreement: It changed the standard by which the franchisors can terminate the agreement from “good cause,” which is anything that is legal, to the failure of the franchisee to substantially comply with the Agreement. It also, increases the cure period to 60 days from the current 30 days. The law further states that upon a lawful termination or non-renewal the franchisee is to be compensated for all inventory, supplies, equipment, fixtures and furnishings purchased—or in the case of 7-Eleven Franchisee, paid for minus depreciation.

Sale and Transfer Protection: Changes the process from subjective to objective. Franchisors are supposed to have a uniform standard for everyone and applied consistently throughout.

Unlawful Termination and Non-Renewal: The law added new language that provides franchisees the fair market value of the franchised business if the franchisor violates the new law.

“The process was a long, hard-fought battle between franchisees and franchisors through their representatives, the CFA and IFA.”

The process to get the bill passed and signed was a long, hard fought battle between franchisees and franchisors through their representatives, the CFA and IFA. It all started in 2012, when Congressman Jared Huffman, then a California Assembly member, introduced Assembly Bill 2035. The bill was all-encompassing and would have fixed most, if not all, of our problems. Unfortunately, because it was a very comprehensive bill, it could not even make its way out of the Business and Professions Committee in the Assembly. The Committee had 11 members and we needed 6 yes votes—we received 5 yeses, 4 noes and 2 abstentions.

The bill died without even getting voted on the Assembly floor, let alone the Senate. The next year we came back with a pared down Senate Bill 610 introduced by California Senator Hannah-Beth Jackson. The bill took two long years, but eventually made its way through both the Senate and Assembly and landed at the Governor’s desk. California 7-Eleven franchisees came out so strongly to support the bill that inside the halls and corridors of the State Capitol in Sacramento the measure became known as the 7-Eleven bill. Unfortunately, Governor Brown vetoed the bill in late September of 2014.

Finally, this year AB 525, which was co-authored by Majority Leader Chris Holden, Speaker Toni Atkins, and Republican Caucus Chair Scott Wilk, was introduced. With bi-partisan authors and backed by the Speaker, the bill moved rather quickly through both Houses and eventually passed unanimously after the IFA withdrew their opposition to the bill. Steve Caldeira, the President and CEO of IFA, decided to withdrew their opposition after realizing that the bill had broad bi-partisan support this time around, and eventually it cost him his job at the IFA.

There is now a federal bill introduced by Congressman Keith Ellison from Minnesota working its way through Capitol Hill. Congressman Ellison used to work at the franchise law firm of Dady and Gardner. Not wanting to lose momentum, the CFA has recently helped introduce a bill in Pennsylvania, and wants to utilize its learnings in California to successfully pass fair franchising laws in other states across the country.