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California Franchise Relations Act

A new bill in California that recently passed the California Senate may offer new protections for franchisees. The change comes as a result of decades of perceived unfairness to franchisors. With the new law, state legislators hope to level the playing field.

This past February, Senator Hannah-Beth Jackson (D-Santa Barbara) introduced California Senate Bill 610, today referred to as the “good faith franchising bill.” The bill amends the current California Franchise Relations Act to include additional protections for franchisees.

Jackson stressed the need for the new bill stating that, “(R)ight now, virtually all power in these business relationships rest with the franchisor.” The bill passed through the California Senate Judiciary Committee this past April.

The main parts of the new bill outline “good faith” and association participation provisions.

New language included mandates both parties, franchisor and franchisee, to deal in “good faith” for contract negotiations. The bill defines “good faith” to mean handling negotiations in an honest manner and within “reasonable commercial standards of fair dealing in the trade.”

Existing common law in many jurisdictions currently imposes a requirement that individuals must deal in good faith when entering into any contract, but the explicit language of this law would provide a heightened statutory security.

The bill also gives franchise owners the ability to seek legal recourse in the event that a franchisor fails to negotiate fairly regarding the sale, renewal, transfer or termination of a franchise. Franchisees will be able to bring an action for damages, rescission or “other relief deemed appropriate by the court.”

Additional language is included that protects the rights of franchisees to collectively participate in an association without retribution.

The bill now heads to the California State Assembly for review and vote. Thousands of franchisees are expected to offer their support as the bill makes its way through.

Although pushback is anticipated, the bill is predicted to pass the Assembly and head to California Governor Brown where it will likely be signed into law.

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