Revisions to California Franchise Relations Act give franchisees more leverage, and require franchisors to demonstrate higher standard of proof before terminations, LeClair Ryan attorney Thomas M. Pitegoff says in recent blog post
SACRAMENTO (12/7/15) — California has long been known as a state whose laws strongly protect franchisees, and now franchisees will have additional tools to protect against wrongdoing by franchisors, thanks to a recently signed state law, advises Thomas M. Pitegoff, counsel in national law firm LeClairRyan, which has offices in Sacramento, San Francisco and Los Angeles.
California Assembly Bill 525, which was signed into law in October by Governor Jerry Brown, substantially amends the California Franchise Relations Act (CFRA). It applies to franchise agreements entered into or renewed on or after January 1, 2016, he notes.
“Franchisors should consider more carefully any decision to terminate or refuse to renew a franchise in California,” says the New York-based Pitegoff, who focuses his practice on franchise law, business transactions, licensing and international business.
“The CFRA will prohibit a franchisor from terminating a franchise agreement unless the franchisor has good cause,” writes Pitegoff in a recent blog post at Franchise Alchemy, which focuses on franchise law, franchise agreements and related issues. ‘“Good cause’ will now mean that the franchisee has committed a ‘substantial and material breach’ of the franchise agreement.”
The stricter definition of “good cause” is likely to encourage franchisees to litigate, he adds. “It will be interesting to see whether the amended CFRA will discourage franchisors from expanding their franchise systems into California.”
The new CFRA also gives franchisees new remedies against a franchisor’s violation.
“If the franchisor terminates or fails to renew a franchise in violation of the law, the franchisee has the right to receive the fair market value of the franchised business and assets and any other damages caused by the violation of this chapter,” Pitegoff cautions. “A court may also grant preliminary and permanent injunctions for a violation or threatened violation of this chapter.”
The new law will also make it more difficult to prevent a franchisee from selling a franchise or an ownership interest in the business, Pitegoff notes. “But the franchisor retains any right of first refusal it may have under the franchise agreement, and the amended CFRA will specifically require the franchisee to give the franchisor prior written notice of any sale of the franchised business or any interest in the business.”
To read the full blog post, visit: www. franchisealchemy.com
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