Sacramento: Assemblymember Chris Holden and Assembly Speaker Toni Atkins have introduced legislation to defend the rights of small business owners by providing more protection to franchise operators who fear losing their businesses to powerful corporations. AB 525 will make it more difficult for major chains to unfairly terminate the contracts of their franchisees.
“Under existing law, franchisees lack even basic contract protections afforded to nearly every other type of contract, from construction to home mortgages to employment,” said Assemblymember Holden. “These small business owners invest in a franchise because it can provide for their family and future generations. Franchise corporations should not be able to use their dominance to rob franchisees of their livelihood without good reason. They should not be able to destroy someone’s future by hiding behind an unjust contract and weak state laws.”
AB 525 will clarify the current vague and one-sided law to close loopholes and prohibit a corporation from closing a franchise business unless there has been a substantial violation of the contract, the law or local regulations. It also allows franchisees to keep the equity they invested in the event of termination.
“Franchises are a great way for Californians to start small businesses, provide for their families, and employ workers from their communities,” said Speaker Atkins. “Unfortunately, loopholes in state law leave individual franchisees vulnerable to unfair practices from huge corporations. AB 525 closes corporate loopholes and helps California franchisees keep their doors open. AB 525 also helps franchisees maintain a more predictable profit margin, which can allow the small business owner to hire more employees or grant higher wages.”
Holden’s AB 525 is similar to the strong franchise laws in New Jersey, Wisconsin, Nebraska and other states with thriving franchises. It also builds on last year’s SB 610 (Jackson) which was approved in the Legislature but was vetoed by Governor Brown, who left open the possibility of reforming the franchise laws in the future. Addressing the Governor’s concerns, AB 525 clarifies the legal standards required in the legislation to make the law easy to implement in the courts and fair for the franchises.