Future of California Franchise Industry Up in the Air

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Summary: Franchises all across the state of California are anxiously awaiting the vote of the State Assembly today on a bill introduced in the State Senate that would put limitations on what franchisors can do regarding contracts with franchisees. 

Senate Bill 610 has been approved by the California Senate, but has yet to be approved by the State Assembly. It could be approved as early as today, according to MSNBC.

  

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The bill would make it harder for franchisor companies to end agreements with franchisees.

Franchisors would be prevented from ending licensing agreements with franchisees under the bill if it were to become law. The franchisor would have to demonstrate that a “substantial and material breach … of a lawful requirement” of the agreement occurred.

Another aspect of the bill centers around the right of franchisees joining franchisee associations. Franchisors would not be allowed to prevent this from happening if the bill is passed into law. Franchisors will not be permitted to prevent franchisees from selling their franchises under the proposed bill, but the franchisor must still provide consent for the sale to occur.

IFA senior vice president Matt Haller said that his organization is worried the new bill will make it more difficult for a franchisor to ends its ties with a franchisee. There are some franchisees who are worried about the bill as well.

For example, Saunda Kitchen owns a Mr. Rooter plumbing franchise in Santa Rosa. She is concerned about brand equity.

“My biggest argument is about brand equity, that franchisors can’t maintain a consistent level of authority for enforcing what I work so hard to protect myself,” she said. “If they can’t protect those brand standards, that makes me lose my brand equity that I’ve worked for over 20 years to maintain.”

The entire future of the franchise industry in the state of California hinges on the Assembly vote.