Franchising refers to a business model where a franchisor (individual or group) allows a franchisee (another individual or group) the right to use their trademark, business systems, and procedures for a fee, as well as royalties. However, while franchising has become an essential part of our economy, it has become heavily regulated, with complex legal procedures and processes being implemented that govern the relationship between franchisees and franchisors.
To detail some of these rules and regulations, we have prepared the below guide, where we will go over the California Franchise Relations Act and explain what it can mean for you.
What Exactly Is the California Franchise Relations Act?
The California Franchise Relations Act (CFRA) is a state law that aims to regulate franchise relationships, protect franchisees, and promote fair business practices. The law is also designed to safeguard the interests of California franchisees and regulates several key issues, including:
- Non-renewal
- Jurisdiction
- Termination
- Transfer rights
- Selection of venue
- Arbitration clauses
- Inventory repurchases
While this law does offer some legal protection to franchisees, it is critical to understand that the franchise agreement’s terms are the primary determinant of the franchisor-franchisee relationship. That is why if you want to further safeguard your rights and interests, consider reaching out to an experienced and knowledgeable California business attorney to review your agreement.
What Additional Protections Are Established Under the California Franchise Relations Act?
The purpose of the California Franchise Relations Act is to provide further protections to franchisees. Under this Act:
- Franchisors must provide written notice to franchisees before they can terminate or not renew a franchise agreement.
- Franchisors must provide a specific reason for the termination or non-renewal of a franchise agreement.
- Franchisors cannot take certain actions against franchisees, such as retaliating against a franchisee for filing a complaint or placing unreasonable restrictions regarding the transfer of the franchise.
What Changes Were Made To the California Franchise Relations Act
On September 29, 2022, the California Legislature passed AB 676, which made additional changes to the California Franchise Relations Act, as well as the California Franchise Investment Law. These changes included the following:
- The bill prohibits franchisors from requiring franchisees to waive any protections of the CFRA.
- The bill states that if a franchise is terminated or not renewed, the franchisor can only offset the money owed to the franchisee with amounts owned by the franchisee if the franchisee agrees to the amount or if the franchisor has a judgment for that amount.
- The bill stops franchisors from changing a franchise agreement or requiring a general release in exchange for assistance related to a federal emergency or declared state.
Contact FortmanSpann To Learn More About the California Franchise Relations Act
At FortmanSpann, we represent franchise clients nationwide, including in various State and Federal Courts, arbitrations, and mediations, helping them fight for their rights. If you want further information about the California Franchise Relations Act and what it can mean for you and your business, contact us today to speak with our team.