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What Protections Do I Have as a Franchisee in California?

On October 12, 2015, Governor Jerry Brown signed Assembly Bill 525 amending the California Franchise Relations Law (“CFRL”). The bill gave franchisees additional rights against termination of their franchises, provides significant remedies for terminations and non-renewals imposed improperly by franchisors “’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.’” California adopts new Franchisee Rights Bill, AB 525AAFD, Oct. 13, 2015, citing a Statement made by Keith Miller, Chairman, Coalition of Franchise Associations (“CFA”), Oct. 12, 2015.

The amendment signed by Governor Brown, was the result of five years of work by a number of organizations including the Service Employees International Union (“SEIU”) with the lion’s share of credit going to the CFA. Now, pursuant to California Business and Professions Code Section 20020, a franchisor may not terminate a franchise or refuse to renew that franchise unless good cause exists for that termination or non-renewal. Section 20020 further defines the term “good cause” as cause “limited to the failure of the franchisee to substantially comply with the lawful requirements imposed upon the franchisee by the franchise agreement after being given notice at least 60 days in advance of the termination and a reasonable opportunity, which in no event shall be less than 60 days from the date of the notice of noncompliance, to cure the failure.” Id.

While termination and non-renewal now require “good cause” and notice prior to the franchisor’s termination or non-renewal, certain events still  allow/permit no notice or opportunity to cure, including, without limitation:

  • The franchisee or the business to which the franchise relates “has been the subject of an order for relief in bankruptcy” or is insolvent.
    [Business and Professions Code Section 20021(a)]
  • The franchisee fails to operate the business for five consecutive days. [Business and Professions Code Section 20021(b)]
  • The franchisee’s fraud in acquiring the franchise. [Business and Professions Code Section 20021(d)]
  • “The franchisee is convicted of a felony or any other criminal misconduct which is relevant to the operation of the franchise.” [Business and Professions Code Section 20021(i)]
  • The franchisor’s “reasonable determination” that operation of the franchise will “result in an imminent danger to public health or safety.” [Business and Professions Code Section 20021(k)]

California Business and Professions Code Section 20022(a) further provides that the franchisor must purchase from the franchisee “at the value of price paid, minus depreciation, all inventory, supplies, equipment, fixtures, and furnishings purchased or paid for under the terms of the franchise agreement or any ancillary or collateral agreement by the franchisee to the franchisor or its approved suppliers and sources, that are, at the time of the notice of termination or nonrenewal, in the possession of the franchisee or used by the franchisee in the franchise business.” Of course, even this provision of the CFRL has its exceptions and the franchisor may not always be required to repurchase the enumerated items.

To understand the laws, rules, and regulations which will enable you to make informed decisions about your company, and how best to do business in California, you need the services of an attorney uniquely qualified to give you that advice. Michael Leonard, Esq. of San Diego Corporate Law, named Best of the Bar by the San Diego Business Journal in 2016, is that attorney. To schedule a consultation with Mr. Leonard to discuss any business-related matter, you can contact him by visiting San Diego Corporate Law or by telephone at (858) 483-9200.

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