BILL NUMBER: SB 610 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JUNE 10, 2014
AMENDED IN ASSEMBLY JUNE 24, 2013
AMENDED IN SENATE MAY 9, 2013
AMENDED IN SENATE APRIL 8, 2013
INTRODUCED BY Senator Jackson
FEBRUARY 22, 2013
An act to amend Sections 20010, 20020, 20025, and 20035 of,
and to add Article 2.5 (commencing with Section 20016) to
Chapter 5.5 of Division 8 of , the Business and
Professions Code, relating to franchises.
LEGISLATIVE COUNSEL'S DIGEST
SB 610, as amended, Jackson. Franchises.
The California Franchise Relations Act sets forth certain
requirements related to the termination, nonrenewal, and transfer of
franchises between a franchisor, subfranchisor, and franchisee, as
those terms are defined. Existing law provides that any condition
purporting to bind any person to waive compliance with the act is
contrary to public policy and void.
This bill would require these parties to deal with each other in
good faith, as defined, and prohibit a franchisor or subfranchisor
from restricting the right of a franchisee to join or participate in
an association of franchisees to the extent the restriction is
prohibited by existing law. The bill would authorize a franchisee to
bring an action against a franchisor or subfranchisor who offers to
sell, sells, fails to renew or transfer, or terminates a franchise in
violation of these provisions for temporary and permanent injunctive
relief, and damages caused thereby, or for rescission or other
relief deemed appropriate by the court. The bill would additionally
authorize a court in its discretion to award reasonable costs and
attorney's fees to a prevailing plaintiff. The bill would also
authorize a franchisor or subfranchisor who becomes liable to make
payments for a violation of these provisions to recover contributions
from any person who, if sued separately, would also have been liable
to make the same payments. The bill would prohibit a franchisor or
subfranchisor from requiring a franchisee to waive its rights as a
condition of doing business with the franchisor or subfranchisor, and
would provide that any waiver that is required as a condition of
doing business shall be presumed unenforceable. The bill would
authorize a franchisor or subfranchisor to enforce a waiver of rights
under these provisions only if the waiver is knowing, voluntary, and
not made as a condition of doing business with the franchisor or
subfranchisor.
This bill would provide that a condition of a franchise agreement
requiring the franchisee to waive the implied covenant of good faith
and fair dealing is contrary to public policy and void. The bill
would prohibit a franchise agreement from restricting the right of a
franchisee to join or participate in an association of franchisees to
the extent the restriction is prohibited by existing law. The bill
would prohibit a franchise agreement from preventing a franchisee
from selling or transferring a franchise or a part of the interest of
a franchise to another person, except as provided. The bill would
prohibit a franchise agreement from giving a franchisee a right to
sell, transfer, or assign the franchise, or a right thereunder,
without the consent of the franchisor, as provided. The bill would
prohibit a franchise agreement from allowing the transferring
franchisee to fail to notify the franchisor of the franchisee's
decision to sell, transfer, or assign the franchise, as provided.
Existing law prohibits a franchisor from terminating a franchise
agreement prior to the expiration of its term, except for good cause,
as defined, and upon the occurrence of specified events.
This bill would prohibit a franchisor from terminating a franchise
agreement prior to the expiration of its term unless there is a
substantial and material breach on the part of the franchisee of a
lawful requirement of the franchise agreement, except as otherwise
provided.
Existing law prohibits a franchisor from failing to renew a
franchise agreement unless the franchisor provides the franchisee at
least 180 days prior written notice of its intention not to renew and
specified conditions are met.
This bill would additionally condition a franchisor's failure to
renew a franchise agreement upon a substantial and material breach on
the part of the franchisee of a lawful requirement of the franchise
agreement and would require the franchisor to offer the franchisee
either a renewal of the franchise agreement under terms then being
offered to new franchisees or under existing terms.
Existing law requires a franchisor that terminates or fails to
renew a franchise, other than in accordance with specified provisions
of law, to offer to repurchase from the franchisee the franchisee's
resalable current inventory, as specified.
This bill would instead require a franchisor that terminates or
fails to renew a franchise, other than in accordance with specified
provisions of law, to, at the election of the franchisee, either
reinstate the franchisee and pay specified damages or pay to the
franchisee the fair market value of the franchise and franchise
assets, as provided.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 20010 of the
Business and Professions Code is amended to read:
20010. Any condition, stipulation , or provision
purporting to bind any person to waive compliance with any provision
of this law o r to waive the implied covenant of good
faith and fair dealing is contrary to public policy and void.
SECTION 1. SEC. 2. Article 2.5
(commencing with Section 20016) is added to Chapter 5.5 of Division 8
of the Business and Professions Code, to read:
Article 2.5. Relationships Between Franchisor or
Subfranchisor and Franchisees
20016. Without limiting the other provisions of this chapter, the
following specific rights and prohibitions shall govern the
relations between a franchisor, subfranchisor, and franchisee:
(a) (1) These parties shall deal with each other in good faith in
the performance and enforcement of the franchise agreement.
(2) "Good faith" for purposes of this subdivision means honesty in
fact and the observance of reasonable commercial standards of fair
dealing in the trade.
(b) A franchisor or subfranchisor shall not restrict
20016. It is unlawful for a franchise agreement
to do any of the following:
(a) Restrict the right of a
franchisee to join or participate in an association of franchisees to
the extent the restriction is prohibited by Section 31220 of the
Corporations Code.
(b) (1) Prevent a franchisee from selling or transferring a
franchise or a part of the interest of a franchise to another person.
A franchisee shall not, however, have the right to sell, transfer,
or assign the franchise, or a right thereunder, without the consent
of the franchisor except that the consent shall not be unreasonably
withheld.
(2) (A) Allow the transferring franchisee to fail, prior to the
sale, transfer, or assignment of a franchise or the sale, assignment,
or transfer of all, or substantially all, of the assets of the
franchised business or a controlling interest in the franchised
business to another person, to notify the franchisor of the
franchisee's decision to sell, transfer, or assign the franchise. The
notice shall be in writing and shall include all of the following:
(i) The proposed transferee's name and address.
(ii) A copy of all of the agreements relating to the sale,
assignment, or transfer of the franchised business or its assets.
(iii) The proposed transferee's application for approval to become
the successor franchisee. The application shall include forms and
related information generally utilized by the franchisor in reviewing
prospective franchisees, if those forms are readily made available
to existing franchisees. As soon as practicable after receipt of the
proposed transferee's application, the franchisor shall notify the
franchisee and the proposed transferee of information needed to make
the application complete.
(B) For the franchisor, to fail, on or before 60 days after the
receipt of all of the information required pursuant to subparagraph
(A), or as extended by a written agreement between the franchisor and
the franchisee, to notify the franchisee of the approval or the
disapproval of the sale, transfer, or assignment of the franchise.
The notice shall be in writing and shall be personally served or sent
by certified mail, return receipt requested, or by guaranteed
overnight delivery service that provides verification of delivery and
shall be directed to the franchisee. A proposed sale, assignment, or
transfer shall be deemed approved, unless disapproved by the
franchisor in the manner provided by this subdivision. If the
proposed sale, assignment, or transfer is disapproved, the franchisor
shall include in the notice of disapproval a statement setting forth
the reasons for the disapproval.
(3) In an action in which the franchisor's withholding of consent
under this subdivision is an issue, whether the withholding of
consent was unreasonable is a question of fact requiring
consideration of all the existing circumstances.
20017. (a) A franchisee may bring an action against a franchisor
or subfranchisor who offers to sell, sells, fails to renew or
transfer, or terminates a franchise in violation of Section 20016 for
temporary and permanent injunctive relief, and for damages caused
thereby, or for rescission or other relief deemed appropriate by the
court. In addition, the court may in its discretion award reasonable
costs and attorney's fees to a prevailing plaintiff.
(b) A franchisor or subfranchisor who becomes liable to make
payments under this section may recover contributions from any person
who, if sued separately, would have been liable to make the same
payments.
20018. A franchisor or subfranchisor shall not require that the
franchisee waive any right provided for in this article as a
condition of doing business with the franchisor or subfranchisor. Any
waiver by the franchisee of a right under this article shall be
knowing and voluntary, and not made a condition of doing business
with a franchisor or subfranchisor. Any waiver that is required as a
condition of doing business with a franchisor or subfranchisor shall
be presumed involuntary, unconscionable, against public policy, and
unenforceable. The franchisor or subfranchisor may enforce an
agreement regarding any waiver of rights under this article if the
franchisor or subfranchisor shows that the agreement was knowing,
voluntary, and not made a condition of doing business with the
franchisor or subfranchisor.
SEC. 3. Section 20020 of the Business
and Professions Code is amended to read:
20020. Except as otherwise provided by this chapter, no
a franchisor may shall
not terminate a franchise prior to the expiration of its term,
except for good cause. Good cause shall include, but not be
limited to, the failure of the franchisee to comply with any
upon a substantial and material breach on
the part of the franchisee of a lawful requirement of the
franchise agreement after being given notice thereof and a
reasonable opportunity, which in no event need be more than 30 days,
to cure the failure. agreement. If there is a
substantial and material breach of a lawful requirement of the
franchise agreement, the franchisor shall allow the franchisee 30
days to cure the failure before termination.
SEC. 4. Section 20025 of the Business
and Professions Code is amended to read:
20025. No franchisor may fail to renew a franchise
unless such Unless there has been a substantial and
material breach on the part of the franchisee of a lawful requirement
of the franchise agreement, the franchisor shall offer to the
franchisee either a renewal of the franchise agreement under terms
then being offered to new franchisees or und er existing
terms. If the franchisor has claimed a substantial and material
breach on the part of the franchisee of a lawful requirement of the
franchise agreement, the franchisor provides
shall provide the franchisee at least 180 days prior
written notice of its intention not to renew; and
(a) During the 180 days prior to expiration of the franchise the
franchisor permits shall permit the
franchisee to sell his business to a purchaser meeting the franchisor'
s then current requirements for granting new franchises, or if the
franchisor is not granting a significant number of new franchises,
the then current requirements for granting renewal franchises; or
(b) (1) The refusal to renew is shall
not be for the purpose of converting the franchisee'
s business premises to operation by employees or agents of the
franchisor for such franchisor's own account, provided, that nothing
in this paragraph shall prohibit a franchisor from exercising a right
of first refusal to purchase the franchisee's business; and
(2) Upon expiration of the franchise, the franchisor
agrees shall not to seek to
enforce any covenant of the nonrenewed franchisee not to compete with
the franchisor or franchisees of the franchisor; or
(c) Termination would be is
permitted pursuant to Section 20020 or 20021; or
(d) The franchisee and the franchisor agree not to renew the
franchise; or
(e) The franchisor withdraws from distributing its products or
services through franchises in the geographic market served by the
franchisee, provided that:
(1) Upon expiration of the franchise, the franchisor agrees not to
seek to enforce any covenant of the nonrenewed franchisee not to
compete with the franchisor or franchisees of the franchisor; and
(2) The failure to renew is not for the purpose of converting the
business conducted by the franchisee pursuant to the franchise
agreement to operation by employees or agents of the franchisor for
such franchisor's own account; and
(3) Where the franchisor determines to sell, transfer, or assign
its interest in a marketing premises occupied by a franchisee whose
franchise agreement is not renewed pursuant to this paragraph:
(A) The franchisor, during the 180-day period after giving notice
offers such franchisee a right of first refusal of at least 30 days'
duration of a bona fide offer, made by another to purchase such
franchisor's interest in such premises; or
(B) In the case of the sale, transfer, or assignment to another
person of the franchisor's interest in one or more other controlled
marketing premises, such other person in good faith offers the
franchisee a franchise on substantially the same terms and conditions
currently being offered by such other person to other franchisees;
or
(f) The franchisor and the franchisee fail to agree to changes or
additions to the terms and conditions of the franchise agreement, if
such changes or additions would result in renewal of the franchise
agreement on substantially the same terms and conditions on which the
franchisor is then customarily granting renewal franchises, or if
the franchisor is not then granting a significant number of renewal
franchises, the terms and conditions on which the franchisor is then
customarily granting original franchises. The franchisor may give the
franchisee written notice of a date which is at least 30 days from
the date of such notice, on or before which a proposed written
agreement of the terms and conditions of the renewal franchise shall
be accepted in writing by the franchisee. Such notice, when given not
less than 180 days before the end of the franchise term, may state
that in the event of failure of such acceptance by the franchisee,
the notice shall be deemed a notice of intention not to renew at the
end of the franchise term.
SEC. 5. Section 20035 of the Business
and Professions Code is amended to read:
20035. In the event a franchisor terminates or fails to renew a
franchise other than in accordance with the provisions of this
chapter, the franchisor shall offer to repurchase from the
franchisee the franchisee's resalable current inventory meeting the
franchisor's present standards that is required by the franchise
agreement or commercial practice and held for use or sale in the
franchised business at the lower of the fair wholesale market value
or the price paid by the franchisee. The franchisor shall not be
liable for offering to purchase personalized items which have no
value to the franchisor in the business which it franchises.
reinstate the franchisee in accordance with
the provisions of this chapter and shall pay all damages caused
thereby, or, at the election of the franchisee, shall pay to the
franchisee the fair market value of the franchise and franchise
assets. A court shall be entitled to grant preliminary and permanent
injunctions for violations of this chapter.