California Gov. Jerry Brown vetoed legislation Monday designed to offer franchisees more protection against what some described as predatory practices by franchisors.
State lawmakers approved Senate Bill 610 in August. The bill attempted to clarify the relationship between franchisors and franchisees, allowing small business operators to sell or transfer their business without fear of interference or retribution.
The bill would also have limited termination of franchise agreements only to “substantial or material breaches.” Under existing law, terminations are allowed for “good cause.”
In his veto statement, Gov. Brown said the standard for termination outlined by the bill was “new and untested,” and that changing the standard would “significantly impact California’s vast franchise industry that relies on the certainty of well-settled laws.”
The governor said he is open to reforming the state’s Franchise Regulations Act if more protection for franchise operators is needed.
“I need, however, a better explanation of the scope of the problem so I am certain that the solution crafted will fix those problems and not create new ones,” he wrote.
Brown added that he was concerned that the parties in support and opposing the bill had such diametrically different views.
“Given the polarized positions, it is in the best interest of all that a concerted effort be made to reach a more collaborative solution,” he wrote.
Steve Caldeira, president and chief executive of the International Franchise Association, which opposed the bill, applauded the veto, saying in a statement: “the legislation would have created unnecessary and unclear new regulations on franchisees across the state and would have also led to an excess of unnecessary and costly litigation in California.”
Keith Miller, chairman of the Coalition of Franchisee Associations, which lobbied in support of the protections, said Gov. Brown’s veto, “ignored the small business franchise owners in the state,” but he said franchise operators were inspired by the progress the legislation made “against great odds.”
“We look forward to potentially eight to 10 states introducing legislation in 2015 aimed at protecting franchisee rights and equity,” he said.
According to the Sacramento Bee, which cites state disclosure documents, Brown’s wife owns more than $1 million in stock in the San Diego-based franchisor Jack in the Box Inc., parent to both the Jack in the Box quick-service brand and Qdoba Mexican Grill.
Contact Lisa Jennings at [email protected].
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