IFA drops opposition to California franchisee rights bill

California franchisees moved a major step closer to protection against arbitrary terminations and other key reforms when the International Franchise Association agreed to stop opposing the California Small Business Investment Protection Act, AB 525.

The International Franchise Association reached an agreement with the Coalition of Franchisee Associations, a sponsor of the California franchisee rights bill, to drop its opposition, and the two groups released a joint letter on July 14. According to the letter, “both IFA and CFA made significant concessions in a good faith effort to reach a workable, common sense compromise on behalf of our industry’s nearly one million workers at 82,000 franchise locations which contribute $94 billion in economic output to California’s economy.”

As Nation’s Restaurant News wrote, the amendments franchisees accepted as part of the agreement are primarily “language clarifications” that keep “the main thrust of the legislation in place.”

The bill, if passed and signed, will:

  • Allow terminations only if franchisees fail to substantially comply with their franchise agreement. As the Business Journal put it, “In other words, franchisees could not be fired for minor or arbitrary violations.”
  • Requires franchisors to pay franchisees for some of their business assets – inventory, supplies, furnishings and fixtures – if the franchisor lawfully terminates or refuses to renew a franchisee.
  • Protects franchisees’ rights to sell their businesses to qualified buyers.

As reported by Entrepreneur, Tia Orr, senior legislative director of the Service Employees International Union California State Council, said that the bill “protects franchisees in California against unfair terminations and loss of their investment, a significant first step, and one that the IFA agreed to only because workers were at the table politically to insist on change.”

The Senate Judiciary Committee approved the bill by a unanimous 7-0 vote after a July 14, 2015 hearing. The full Senate is expected to vote on it in August. The legislation would then go back to the Assembly for approval of amendments made since that chamber approved the measure on May 15, and, then the bill will finally go to Governor Jerry Brown. The governor vetoed a similar bill last year, urging supporters and opponents to reach a “more collaborative solution.”