California Assembly Bill 525, passed into law in 2015 applies to franchise agreements entered into or renewed on or after January 1, 2016. It expands and provides new protections for franchisees. Franchisees subject to California now benefit from the following provisions:
1. A franchisor may not terminate a franchise agreement for minor infractions; but may terminate only if the franchisee failed to substantially comply with lawful requirements imposed on the franchisee by the franchise agreement. The franchisor must give notice and at least 60 days opportunity to cure the default.
Exceptions: in certain severe events, such as franchisee bankruptcy or abandonment of the franchise business, a franchisor may give notice of immediate termination without an opportunity to cure.
2. On termination or non-renewal of a franchise, the franchisor must buy from the franchisee all inventory, supplies, equipment, fixtures, and furnishing purchased or paid for by the franchisee under the terms of the franchise agreement. The franchisor must pay for the items at the price paid, minus depreciation, and must buy any items the franchisee purchased from the franchisor or its approved suppliers and sources.
Exceptions: The franchisor need not buy items that were personalized, or that the franchisee was not contractually required to purchase. The franchisor need not purchase anything in certain situations, such as where a) termination or non-renewal is mutually agreed with the franchisee, b) the franchisor allows the franchisee to remain in the principal place of the franchise business, or c) termination or non-renewal is due to the franchisor's "nondiscriminatory decision" to completely withdraw from all franchise activity in the relevant geographic market area where the franchise is located.
3. A franchisor may not prevent a franchisee from selling or transferring the franchise to someone else, so long as that party would qualify under the franchisor's then-existing standards for the approval of new or renewing franchisees.
Exceptions: A franchisor may refuse to consent to a transfer or sale if the franchisee and buyer, transferee, or assignee do not comply with the transfer conditions specified in the franchise agreement. Also, the franchisor may still have a contractual right of first refusal, allowing it to purchase the franchise itself before allowing it to be transferred or sold to an outside party.
With these new laws in effect, added onto already existing protections for franchisees in the context of termination and nonrenewal, California is among the nation's most franchisee-friendly states.
Source: California Assembly Bill 525
