BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 525|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: AB 525
Author: Holden (D), Atkins (D), Dodd (D), and Wilk (R)
Amended: 8/24/15 in Senate
Vote: 21
SENATE BUS, PROF. & ECON. DEV. COMMITTEE: 6-1, 6/29/15
AYES: Hill, Block, Hernandez, Jackson, Mendoza, Wieckowski
NOES: Bates
NO VOTE RECORDED: Berryhill, Galgiani
SENATE JUDICIARY COMMITTEE: 7-0, 7/14/15
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
ASSEMBLY FLOOR: 56-12, 5/14/15 - See last page for vote
SUBJECT: Franchise relations: renewal and termination
SOURCE: Coalition of Franchisee Associations
DIGEST: This bill revises the rights and responsibilities of
franchisors and franchisees, as currently specified in the
California Franchise Relations Act (CFRA), as to the termination
of a franchise agreement, compensation to the franchisee
pursuant to a termination or nonrenewal of the franchise
agreement, and the sale, transfer or assignment of a franchise
by the franchisee and makes other minor and clarifying changes.
Senate Floor Amendments of 8/24/15 address an issue regarding
cross-contracts for a gas franchise and convenience store,
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compensation for franchisees, and the selling and transferring
of a franchise; and make technical and clarifying changes.
ANALYSIS:
Existing law:
1) Establishes the CFRA which governs the renewal, termination,
transfer, and all other conditions and provisions made
pursuant to franchise agreements. (Business and Professions
Code (BPC) § 20000 et seq.)
2) Defines a franchise as a contract or agreement, either
expressed or implied, whether oral or written, between two or
more persons, as specified. (BPC § 20001 (a), (b) and (c))
3) Excludes from the definition of a franchise those governed by
the Petroleum Marketing Practices Act (PMPA), lease
departments, licenses, or concessions at or with a general
merchandise retail establishment, and a cooperatively
operated nonprofit organization. (BPC § 20001 (d))
4) Specifies that a "franchisee" is a person to whom a franchise
is granted and a "franchisor" is a person who grants or has
granted a franchise. (BPC § 20002, § 20003)
5) Establishes that the provisions under the CFRA apply to any
franchise where either the franchisee is domiciled in this
state or the franchised business is or has been operated in
this state. (BPC § 20015)
6) Prohibits termination of a franchise agreement prior to the end
of the term, except for good cause which includes failure to
comply with any lawful requirement of the franchise agreement
after written notice and a reasonable opportunity (no more
than 30 days) to cure the failure. (BPC § 20020)
7) Authorizes the immediate termination of a franchise agreement
without notice or an opportunity to cure in cases of
bankruptcy, abandonment, mutual agreement, material
misrepresentation; failure to comply with any federal or
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local law applicable to the operation of the franchise;
repeated noncompliance after cure; seizure of the premises by
a governmental entity or creditor; conviction of a felony or
relevant misdemeanor; failure to pay franchisee fees within
five days of overdue notice; and imminent danger to public
health or safety. (BPC § 20021)
8) Requires a franchisor to notify the franchisee of its intention
not to renew a contract at least 180 days prior to the
expiration of the franchise under specified circumstances,
during which time the franchisee may attempt to find a
purchaser acceptable to the franchisor that meets their
current requirements regarding new franchises or for renewal
franchises. Provides that nothing shall prohibit a
franchisor from exercising a right of first refusal to
purchase the franchisee's business. (BPC § 20025)
9) Provides that no franchisor shall deny the surviving spouse,
heirs, or estate of a deceased franchisee or the majority of
shareholder of the franchisee the opportunity to participate
in the ownership of the franchise under specified conditions.
(BPC § 20027)
10)Requires a franchisor that terminates or fails to renew a
franchise without complying with the CFRA to offer to
repurchase the franchisee's resalable current inventory at
the lower of the fair wholesale market value or the price
paid by the franchisee. (BPC § 20035)
11)Provides that the franchisor may offset against any repurchase
offer made pursuant to Item #11 above, any sums owed the
franchisor or its subsidiaries by the franchisee pursuant to
the franchise or any ancillary agreement.
(BPC § 20036)
12)Provides that nothing under the CFRA shall limit the right of a
franchisor and franchisee to agree before or after a dispute
has arisen to binding arbitration of claims under the CFRA,
as specified. (BPC § 20040)
13)Defines "relevant geographic market area" as this state or a
standard metropolitan statistical area within this state
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which has been established by the United States Office of
Management and Budget. (BPC § 20999)
14)Establishes the California Franchise Investment Law - which
governs financial disclosures and registration requirements
with the Department of Business Oversight. (Corporations
Code § 31000 et seq.)
This bill:
1) Provides that no franchisor may terminate a franchise prior to
the expiration of its term except for good cause, but that
good cause, as specified, shall be limited to the failure of
the franchisee to substantially comply with the lawful
requirements imposed upon the franchisee by the franchise
agreement and that the franchisee must be given notice at
least 60 days (rather than the current 30 days or less) in
advance of the termination to cure the failure. The period to
exercise the right to cure shall not exceed 75 days unless
there is a separate agreement between the franchisor and
franchisee to extend the time.
2) Specifies that one of the reasons for an immediate notice of
termination of the franchise without an opportunity to cure,
is if the franchisee fails, for a period of 10 days after
notification of noncompliance, to comply with any federal,
state, or local law or regulation, including, but not limited
to, all health, safety, building, and labor laws or
regulations applicable to the operation of the franchise.
3) Provides for the immediate termination of a convenience store
only if a contract's provisions link both the fueling
franchise and convenience store and if the PMPA/fueling
breach is lawful (either not contested or upheld in court).
4) Requires a franchisor, upon lawful termination or nonrenewal of
a franchise, to purchase from the franchisee at the value of
price paid, minus depreciation, all inventory, supplies,
equipment, fixtures, and furnishings purchased or paid for
under the terms of the franchise agreement or any ancillary
or collateral agreement by the franchisee to the franchisor
or its approved suppliers and sources, that are, at the time
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of the notice of termination or nonrenewal, are in the
possession of the franchisee or currently used in the
franchise business; additionally, provides the franchisor the
right to receive clear title to and possession of all items
purchased from the franchisee, as specified.
5) Provides that a franchisor is not required to purchase any
personalized items, inventory, supplies, equipment, fixtures,
or furnishings not reasonably required to conduct the
operation of the franchise business in accordance with the
franchise agreement or any ancillary or collateral agreement
or to which the franchisee, at the cessation of operation of
the franchise business by the franchisee, cannot lawfully, or
does not, grant the franchisor clear title and possession
upon the franchisor's payment to the franchisee for the
inventory, supplies, equipment, fixtures, or furnishings.
6) Provides that the franchisor is not required to compensate the
franchisee as specified, when the franchisee declines a bona
fide offer of renewal from the franchisor or if the
franchisor does not prevent the franchisee from retaining
control of the principal place of the franchise business.
7) Provides that franchisor is not required to compensate the
franchisee as specified, if termination or nonrenewal of a
franchise is due to publically announced and
non-discriminatory decision by the franchisor to completely
withdraw from all franchise activity within the "relevant
geographic market area" in which the franchise is located.
For the purpose of this section "relevant geographic market
area" shall have the same meaning as in BPC § 20999 (p).
8) Provides that the franchisor is not required to compensate the
franchisee if the franchisor and franchisee mutually agree in
writing to terminate or not renew the franchise.
9) Provides that the franchisor does not have to compensate the
franchisee for any inventory, supplies, equipment, fixtures,
or furnishings that are sold by the franchisee between the
date of the notice of termination or renewal, and the
cessation of operation of the franchise business, by the
franchisee, pursuant to the termination or nonrenewal.
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10)Provides that, upon termination or nonrenewal of a franchise, a
franchisor may offset against the amounts owed to a
franchisee by any amounts owed by the franchisee to the
franchisor.
11)Deems it unlawful for a franchisor to prevent a franchisee from
selling or transferring a franchise, all or substantially all
of the assets of the franchise business, or a controlling or
noncontrolling interest in the franchise business, to another
person provided that the person is qualified under the
franchisor's then-existing standards for the approval of new
or renewing franchisees, these standards to be made available
to the franchisee, as provided in BPC § 20029, and to be
consistently applied to similarly situated franchisees
operating within the franchise brand and the franchisee and
the buyer, transferee, or assignee comply with the transfer
conditions specified in the franchise agreement.
12)Provides that a franchisee does not have the right to sell
transfer, or assign the franchise, all or substantially all
of the assets of the franchise business, or a controlling or
noncontrolling interest in the franchise business, without
the written consent of the franchisor, except that the
consent shall not be withheld unless the buyer, transferee,
or assignee does not meet the standards for new or renewing
franchisees, as specified, or the franchisee and the buyer,
transferee, or assignee do not comply with the transfer
conditions specified in the franchise agreement.
13)Allows a franchisor to exercise the right of first refusal to
purchase a franchise, all or substantially all of the assets
of a franchise business, or a controlling or noncontrolling
interest in a franchise business after receipt of a bona fide
offer from a proposed purchaser to purchase the franchise,
assets, and interest; additionally provides that any
franchisor exercising the right of first refusal must offer
the seller payment at least equal to the value offered in the
bona fide offer.
14)Defines "franchise business" specified in Items #11-13 above,
as a legal entity that is a party to a franchise agreement
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15)Requires the franchisee, prior to the sale, assignment, or
transfer of a franchise, all or substantially all of the
assets of a franchise business, or a controlling or
noncontrolling interest in the franchise business, to another
person, to notify the franchisor of the franchisee's intent
to sell, transfer, or assign the franchise, all or
substantially all of the assets of the franchise business, or
the controlling or noncontrolling interest in the franchise
business, as specified.
16)Requires the franchisor to notify the franchisee of the
approval or disapproval of the sale, assignment, or transfer
of the franchise within 60 days, as specified.
17)Provides that a proposed sale, assignment or transfer shall be
deemed approved, unless disapproved by the franchisor by
providing notice as specified and 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.
18)Provides that in any action in which the franchisor's
disapproval of a sale, assignment or transfer is an issue,
the reasonableness of the franchisor's decision shall be a
question of fact requiring consideration of all circumstances
and that the finder of fact may be an arbitrator as specified
in the franchise agreement and satisfies the requirements of
BPC § 20040. Provides, however, that nothing shall prohibit
summary judgment when the reasonableness of transfer approval
or disapproval can be decided as a matter of law.
19)Provides that a franchisor is not required to exercise a right
of first refusal pursuant to the sale, assignment, or
transfer of the franchised business; additionally provides
that a franchisor is not required to exercise the right of
first refusal to purchase a franchise all or substantially
all of the assets of a franchise business, or a controlling
or noncontrolling interest in a franchise business after
receipt of a bona fide offer from a proposed purchaser to
purchase the franchise, assets, or interest. Any franchisor
exercising the contractual right of first refusal shall offer
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the seller payment at least equal to the value offered in the
bona fide offer.
20)Provides that in the event a franchisor terminates or fails to
renew a franchisee in violation of provisions of the CFRA ,
the franchisee shall be entitled to receive from the
franchisor the fair market value of the franchised business
and franchise assets and any other damages caused by the
violation of this chapter.
21)Provides that a court may grant preliminary and permanent
injunctions for a violation or threatened violation of the
CFRA.
22)Provides that the franchisor may offset against any remedies,
as specified, any prior recovery by the franchisee pursuant
to BPC Section 20022 and any sums owed the franchisor or its
subsidiaries by the franchisee pursuant to the franchise or
any ancillary agreement.
23)Provides that the provisions of this chapter shall apply only
to franchises granted or renewed on or after January 1, 1981,
or to franchises of an indefinite duration that may be
terminated by the franchisee or franchisor without cause,
except as specified.
24)Provides that the amendments to this chapter made by the act
adding this subdivision shall apply only to franchise
agreements entered into or renewed on or after January 1,
2016, or to franchises of an indefinite duration that may be
terminated by the franchisee or franchisor without cause.
25)Makes other technical and clarifying changes.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified8/25/15)
Coalition of Franchisee Associations (source)
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California Association for Micro Enterprise Opportunity
California Beer and Beverage Distributors
California Fair Franchise Association
California Labor Federation
Dunkin Donuts Independent Franchise Owners
EA Independent Franchisee Association
East Valley Business Legislative Advocacy Committee
Independent Organization of Little Caesar Franchisees
Lagarias& Napell, LLP
North American Association of Subway Franchisees
Pacific Advocacy
Pacific Management Consulting Group
Plumbing Heating Cooling Contractors Association of California
Service Employees International Union
Slater Associates
Small Business California
Small Business Majority
10 individual business owners and representatives and
franchisees
OPPOSITION: (Verified8/25/15)
None received
ARGUMENTS IN SUPPORT: The Coalition of Franchisee
Associations (CFA) is the sponsor of this bill and explains that
across the country, millions of small business owners embrace
the entrepreneurial spirit and support their local communities
by opening their own franchise. These businesses are their
livelihood, supporting their family and the families of their
employees. However, contracts with franchisors, the franchise
agreement, allow franchisors to take away that livelihood for
any reason, with all the equity the franchisee invested into it
and without recourse for the franchisee. According to CFA, this
bill will clarify state law to specify that a franchisor can
terminate a franchise, but only when there are serious and
substantial violations of contract. It will also allow these
small business owners to sell their business to legitimate
buyers or family members, prevent franchisors from terminating a
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franchise without any opportunity to cure, and allow franchisees
to renew their contracts pending compliance so as to continue
their financial and personal investment in the franchise.
ASSEMBLY FLOOR: 56-12, 5/14/15
AYES: Alejo, Bloom, Bonilla, Bonta, Brown, Burke, Calderon,
Campos, Chang, Chau, Chiu, Chu, Cooley, Cooper, Dababneh,
Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia,
Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández,
Holden, Irwin, Jones-Sawyer, Levine, Linder, Lopez, Low,
Mayes, McCarty, Medina, Mullin, Nazarian, O'Donnell,
Patterson, Quirk, Rendon, Ridley-Thomas, Rodriguez, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Weber, Wilk, Williams,
Wood, Atkins
NOES: Travis Allen, Baker, Brough, Chávez, Beth Gaines, Grove,
Kim, Lackey, Obernolte, Perea, Salas, Wagner
NO VOTE RECORDED: Achadjian, Bigelow, Dahle, Gallagher, Hadley,
Harper, Jones, Maienschein, Mathis, Melendez, Olsen, Waldron
Prepared by:Mark Mendoza / B., P. & E.D. / (916) 651-4104
8/26/15 12:15:08
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