A compromise bill that will make it more difficult for franchisors to terminate franchise agreements is heading to the governor’s desk in California.
State lawmakers approved Assembly Bill 525, authored by Assembly Majority Leader Chris Holden (D-Pasadena), Assembly Speaker Toni Atkins (D-San Diego), along with Assembly members Bill Dodd (D-Napa) and Scott Wilk (R-Santa Clarita) after supporters hammered out a compromise with opponents of the legislation. A revised version passed through the state Senate last week and won final approval from the Assembly on Monday with a vote of 71 to 0.
The compromise has the support of franchise operators, as well as the Service Employees International Union, or SEIU, and the International Franchise Association, or IFA.
The legislation redefines the terms related to the termination, nonrenewal and transfer of franchise businesses, and prevents franchisors from terminating a franchisee, except for good cause — after the franchise operator has been given reasonable notice and the opportunity to correct the problem within a certain period.
The goal was to establish more protections for franchise operators over what some described as predatory practices by franchisors. A version of the bill was vetoed by Gov. Jerry Brown last year after he expressed concerns about the bill’s language and questioned whether the protections were even necessary.
The new version addresses the IFA’s concerns that the legislation would result in more lawsuits.
“This bill represents a historic compromise between the franchisees who own businesses and struggle to stay profitable and the corporations that have promised to support them,” said Holden. “Following a multi-year stalemate, these amendments add clarity that decreases the potential for litigation and increases franchisor accountability.”