Majority Leader Holden’s ‘Franchise Bill of Rights’ Legislation Passes Key Senate Committee (AB 525)

Monday, June 29, 2015

Sacramento – Assemblymember Chris Holden’s (D-Pasadena) legislation to protect the rights of small business franchise owners has been approved in Senate Business, Professions and Economic Development Committee. The vote was 6 to 1 in favor.

AB 525 makes it more difficult for major chains to unfairly terminate their franchise operators. The measure will update 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 and sell the business to a qualified new owner.

“As a former small business franchise owner, I can tell you that the one-sided nature of a franchise relationship quickly becomes apparent after signing a franchise agreement,” testified Assemblymember Holden. “This bill will help prevent these small business owners from losing their establishments for “ticky-tacky” violations that should not lead to termination, but often does.”

Specifically, AB 525 changes the standard for which a franchisee can be terminated from “good cause” to “substantial compliance”. Substantial compliance is found in the franchise law of five other states.

The measure is jointly authored with Assembly Speaker Toni Atkins, Assemblymembers Bill Dodd (D-Napa) and Scott Wilk (R-Santa Clarita). The bill now goes to Senate Judiciary.