California Small Business Investment Protection Act heads to Senate

The California Small Business Investment Protection Act cleared another hurdle on May 14, passing the State Assembly 56-12. The measure next moves to the California State Senate.

The bill’s coauthor, Assembly Majority Leader Chris Holden of Pasadena, said on the Assembly floor that the measure “is necessary because the existing legal protections that govern nearly every other contract agreement do not apply to franchise contracts.”

Referring to his earlier experience as a Subway franchisee, Holden added, “I would never have guessed that I had fewer legal protections than other contractual relationships,” noting that 75 percent of franchisees say they pledged their home, retirement savings, or other personal assets to purchase their business.

The bill, AB 525, protects franchisees against unfair terminations, allows franchisees to monetize their equity when franchisors refuse to renew franchise agreements and protects franchisees’ ability to sell or transfer their units.

One of six Republicans who voted for the bill, Los Angeles area Assembly member Chris Wilk, told fellow members, “when you become a franchisee, you are supposed to be a partner with that corporation, not an indentured servant, and this is a positive first step toward addressing the inequities between small businesses and these multinational corporations.”

Lobbying by franchisees clearly had an effect on the vote count. Assembly member Cheryl Brown of San Bernardino County said she had voted against last year’s franchisee rights bill, which Gov. Jerry Brown ultimately vetoed. However this year, her franchisee constituents made it clear that she needed to support the bill.