Amended in Assembly June 30, 2014

Amended in Assembly June 10, 2014

Amended in Assembly June 24, 2013

Amended in Senate May 9, 2013

Amended in Senate April 8, 2013

Senate Bill No. 610

Introduced by Senator Jackson

February 22, 2013

An act to amend Sections 20010, 20020, begin delete 20025, end delete 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 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.

begin delete

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.

end delete begin delete

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.

end delete

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 begin delete instead end delete require a franchisor that terminates or fails to begin delete renew end delete begin insert allow the sale, transfer, or assignment of end insert 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 or to waive the implied covenant of good faith and fair dealing
is contrary to public policy and void.

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 and Franchisees

 

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 begin insert ,
provided the person is qualified end insert . 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.

SEC. 3.  

Section 20020 of the Business and Professions Code
is amended to read:

20020.  

Except as otherwise provided by this chapter, a
franchisor shall not terminate a franchise prior to the expiration
of its term, except upon a substantial and material breach on the
part of the franchisee of a lawful requirement of the franchise
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.

begin delete

SEC. 4.  

Section 20025 of the Business and Professions Code
is amended to read:

20025.  

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 under 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 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 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 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 shall not
seek to enforce any covenant of the nonrenewed franchisee not to
compete with the franchisor or franchisees of the franchisor; or

(c) Termination 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.

end delete

begin delete SEC. 5. end delete
begin insert SEC. 4. end insert   

Section 20035 of the Business and Professions Code
is amended to read:

20035.  

begin insert (a) end insert begin insert   end insert In the event a franchisor terminates or fails to
begin delete renew end delete begin insert allow the sale, transfer, or assignment of end insert a franchise other
than in accordance with the provisions of this chapter, the
franchisor shall 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.

begin insert

(b) In the event a franchisor 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 that have no value to the
franchisor in the business that it franchises.

end insert