Last month, California Governor Jerry Brown signed a bill that amends the California Franchise Relationship law to provide more protections to franchisees in regards to termination, defaults, transfers, and the remedies for franchisees in the event their franchise agreement is unlawfully terminated. The amendment will apply to franchise agreements entered into, or renewed, on or after January 1, 2016.
Twenty-four states have some form of a “franchise relationship” law like California’s, which governs the contractual relationship between franchisors and franchisees. The purpose behind franchise relationship laws is to provide protection to the franchisee due to the unequal bargaining power that exists between the parties. These laws typically regulate such topics as termination, renewal, and competition by the franchisor, to name a few. Of those twenty-four states, fifteen states take franchisee protection a step further and require franchisors to register the franchise with the state before they will be permitted to offer franchises for sale.
State franchise laws differ from state to state and so it is important for you to know whether or not the state you are operating in has state franchise laws and, if so, to understand what protections the laws provide to franchisees and what additional requirements exist for franchisors. Regardless, the franchisor is always required to comply with the federal franchise law which mandates that certain disclosures be made in the Franchise Disclosure Document.
Interested in learning more about different types of franchise laws? Listen in as Josh testified before the Oregon Legislature regarding a bill the state is working on that would be the first of its kind across the country, a Franchisee Bill of Rights!