Yesterday California’s assembly passed Senate Bill 610 amending the California Franchise Relations Act (Act) to make it more difficult for franchisors to terminate or fail to renew franchisees.  SB610 was passed by the California senate last year and now goes back to the senate for final approval.

The fate of SB610 has been closely monitored during this summer of seemingly non-stop hits against large franchisors.  After the NLRB General Counsel’s office opined that McDonald’s can be a joint employer with its franchisees and Seattle implemented a minimum wage law treating small business franchisees as large franchise systems, this is yet another blow to franchisors.   The International Franchise Association and the California Chamber of Commerce fought a hard campaign against the bill but it wasn’t enough.

If the California senate gives final approval, the Act will be amended to make it unlawful for a franchise agreement to:

  1. restrict the right of a franchisee to join a franchisee association;
  2. prohibit a franchisee from transferring a franchise to a qualified person or allow a franchisor to unreasonably withhold consent to a transfer;
  3. terminate a franchisee prior to the expiration of its term, except upon a substantial and material breach on the part of the franchisee of a lawful requirement of the franchise agreement; and
  4. terminate a franchisee for a  substantial and material breach without allowing 30 days to cure the breach.

Opponents to SB610 quickly point out that the proposed law is unclear and restricts a franchisors ability to protect its goodwill, name and brand.  I agree.   Does anyone know what will constitute a ”substantial and material breach?”  Is it fair for a franchise system to be forced to accept a transferee that may not be good fit despite being otherwise technically “qualified?”  These and many other issues are likely to arise if SB610 becomes law.

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