Earlier this month, the California assembly passed a new law that will affect franchisor agreements in California. Lawmakers attempted to pass a similar law last year that was designed to give franchisees more protection, but it was vetoed by the Governor. This time, it passed.
Chris Holden (D-Pasadena), co-author of the bill, said in a statement “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.” He said that without this new law, “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.”
The new law amends the California Franchise Relations Act, and makes it more difficult for large franchisors to terminate franchise agreements with small restaurant owners. It also gives franchisees 60 days to correct violations of franchise agreements, up from only 30 days previously. It also adds more detailed provisions about exactly how franchises can be terminated or transferred.
Both large franchisors and small franchisees should be aware of these changes and how they may affect existing franchise agreements. The new law goes into effect on January 1, 2016. It will apply to new franchise agreements, renewed franchise agreements, and franchises of an indefinite duration that may be terminated without cause.