After passing with 10 favorable votes at the last committee hearing in the California Assembly, a bill formerly on hold from last year for insufficient support is set to move forward for a full assembly hearing where its success will be further decided.
Primary focus areas of the bill involve the covenant of good faith and fair dealing between franchisors and franchisees, a covenant that the bill aims to strengthen. Additional areas affected include the franchise resale right of franchisees coupled with the franchisor’s repurchase obligation should franchisors choose not to renew agreements based on the California Franchise Relations Act.
Terms and conditions surrounding how and when a franchisor can cancel a franchise are also impacted, as well as the rights of franchisees to sell, transfer, or assign their franchise interest to another party, a right which the bill aims to uphold as long as franchisors do not object for a reasonable purpose (with what may or may not be considered reasonable to undergo factual scrutiny based on all existing circumstances). The bill aims to make the process through which a franchisor approves or disproves the franchisee’s request one which involves written notification and certain deadline requirements related to communication between the two parties, including notice of disapproval to include specific reasons.
Another primary factor of the bill involves franchisee rights to become involved in an association of franchisees, with the focus on eliminating any potential inhibitory or prohibitory action on the part of franchisors where this action is in opposition to California Corporations Code 31220. Thus the freedom of franchisees to interact with an association of franchisees is said to be protected by the bill’s passing.
Those opposed to the bill doubt its value in light of the belief that franchisors and franchisees already have the ability to agree or disagree in a contractual manner as they wish. The bill is viewed as undue regulation that would stand to interfere with or harm potential new business activity, namely new franchise agreements. What will come to pass or not is yet to be seen as. Considering that 10% of nationwide franchise businesses are located in California, along with 1 million of the purported 8.5 million jobs available through franchising overall in the nation, how this bill turns out is certainly of interest to the U.S. franchise industry.