Small Business Investment Protection Act now law in California

CALIFORNIA STATEHOUSE

California now has one of the country’s strongest franchisee protection laws after Gov. Jerry Brown signed the Small Business Investment Protection Act earlier this month. The signature capped years of effort by franchisees to pass franchisee rights legislation in the Golden State.

“The law protects franchise owners from franchisors who seek to terminate their business on a whim or from franchisors who desire to take possession of a lucrative franchise without compensating the franchise owner,” wrote Don Sniegowski on franchisee news site Blue Mau Mau.

Under the new law:

  • It will be harder for franchisors to terminate franchisees, and franchisees will have more time to fix most violations before they can be terminated.
  • Franchisors will have to buy certain items from franchisees if they terminate or refuse to renew a franchise. This means franchisees will not lose every dollar they invested if a franchisor terminates or refuses to renew them.
  • Franchisees will have an easier time selling their units: Franchisors will have to approve proposed sales if the buyer is qualified and the franchisee follows the franchisor’s transfer process.

The Service Employees International Union joined forces with franchisees to press for the bill.

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NY Times urges ‘Fairness for Franchise Businesses and Workers’

browncrop

The New York Times is urging Calif. Gov. Jerry Brown to sign the Small Business Investment Protection Act (AB 525):

…developments in franchise law in recent decades have increasingly reduced the power of franchisees in dealings with their corporate parents. The result has been lower franchisee profits and lower worker pay, while corporate profits and executive compensation soar.

Worse, the imbalance of power has been largely impervious to reform, until now. A bill in California awaiting the signature of Gov. Jerry Brown would strengthen the legal rights of franchisees in the operation, sale and closing of their businesses.

The bill prohibits the most egregious corporate practices, including the termination of franchises for minor violations of the franchise agreement. Such terminations can ruin a franchisee, but benefit the corporate parent, by allowing the corporation to sell the franchisee’s location at a higher price to a new owner.

The Times notes that the problem goes far beyond California and mentions the petition to the Federal Trade Commission seeking an investigation into abusive franchisor practices. “By signing the California bill, the governor would help in the drive to improve profits and pay at franchise businesses and show the federal government where it needs to go at the national level.”

You can take action to make a difference for franchisee rights: Urge Gov.

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Franchisee burned by Planet Beach tanning chain

Franchisee burned by Planet Beach tanning chain

Shrinking spa chain Planet Beach is suing a Mississippi franchisee who allegedly walked away from her franchise, demanding royalties she would have paid if her tanning salon had stayed open. The company charges in court papers that Marie Porter “abandoned” her Biloxi unit and is demanding she pay royalties for the remaining nine years of her franchise agreement – plus attorney’s fees and “additional sums arising from and related to Defendants’ damage to Plaintiff’s brand and the resulting loss of goodwill.”

Porter is not alone in closing up shop. Although Planet Beach touts itself as “the future of the spa industry,” a wave of closures has hit its franchisees, who have shuttered 85 outlets in the last three years. That represents 30 percent of the chain’s 280 units at the start of 2012, according to the Planet Beach Franchise Disclosure Document.

The Wall Street Journal reported that the Small Business Administration had charged off over $10 million in loans to Planet Beach franchisees over a 10-year period. WeAreMainSt research also shows rising failure rates on SBA loans to franchised businesses. Please let us know what you think about the risks and financial pressures in your franchise system.

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California Legislature unanimously passes franchisee rights bill

senate vote tally08_27_2015

The California State Legislature has sent the California Small Business Investment Protection Act to Gov. Jerry Brown, and franchisees are urging the governor to sign it. The Assembly passed the measure 79-0 on Aug. 31 after the State Senate passed the bill 34-0 on August 28.

Noting bipartisan backing for the measure, Senator Hannah-Beth Jackson, D-Santa Barbara, said before the Senate vote that the bill will “help bring balance to the franchisee-franchisor relationship,” adding that it “provides needed protections against unwarranted actions by a franchisor.” Specifically, the bill, AB 525, strengthens protections against termination of franchisees; enhances franchisees’ ability to sell their businesses; and requires franchisor payments to franchisees if they do terminate or refuse to renew franchise agreements.

Overwhelming support for the bill prompted the franchisor lobby, the International Franchise Association, to stop its campaign against AB 525. The Coalition of Franchisee Associations and the IFA issued a joint letter stating that “the bill will further strengthen franchising as an engine for economic opportunity in California.”

Franchisees are signing onto a letter to Gov. Brown urging him to sign the Act. Brown vetoed a franchisee rights bill last year.

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