Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: California franchise legislation defeated as a result of International Franchise Association efforts, (Aug 19, 2013)

By Peter Reap, J.D., LL.M.

Last week, California legislation that would have amended the California Franchise Relations Act was defeated for the year as the sponsor of the bill pulled the legislation off the California Assembly Business, Professions & Consumer Protections Committee docket when it became clear there was scant support for the bill by the Committee’s 10 Democrats and four Republicans, according to the International Franchise Association (IFA).

As amended, Senate Bill 610 would have required franchisors and franchisees to deal with each other in good faith, with “good faith” defined as “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” It also would have prohibited a franchisor or subfranchisor from restricting the right of a franchisee to join or participate in an association of franchisees to the extent the restriction is prohibited by Section 31220 of the California Franchise Investment Law.

The bill would have authorized a franchisee to bring an action against a franchisor or subfranchisor who offers to sell, sells, fails to renew or transfer, or terminates a franchise in violation of the statute for temporary and permanent injunctive relief, and damages caused thereby, or for rescission or other relief deemed appropriate by the court. The bill would have additionally authorized a court in its discretion to award reasonable costs and attorney’s fees to a prevailing plaintiff.

Further, Senate Bill 610 would have prohibited a franchisor or subfranchisor from requiring a franchisee to waive its rights as a condition of doing business with the franchisor or subfranchisor, and would have provided that any waiver that is required as a condition of doing business shall be presumed unenforceable. Under the proposal, a franchisor or subfranchisor could enforce a waiver of rights under these provisions only if the waiver is knowing, voluntary, and not made as a condition of doing business with the franchisor or subfranchisor.

“This represents a critically important victory for the IFA and the franchising industry. This victory is the direct result of an intense two-month IFA integrated lobbying, grassroots communications and public affairs campaign,” said IFA President & CEO Steve Caldeira. “By deploying grassroots field teams in California that were able to identify and engage hundreds of franchisees and franchisors in Committee members’ districts who opposed the bill, California legislators understood that SB 610 was a solution to a problem that did not exist.”

According to the IFA, its campaign to defeat the bill included a variety of tactics to reach lawmakers, including hundreds of letters delivered to Committee members, in-district meetings during the July recess, op-eds by franchisors and franchisees, and editorials in key publications opposing the bill. On August 7 an IFA-led delegation of 20 franchisees and franchisors, including members of IFA’s Franchisee Forum, were in Sacramento to lobby against SB 610.

“Moving forward, IFA has built a strong coalition and grassroots operation to ensure the bill does not move forward in its current form in 2014,” said Caldeira. “Such legislation seeks to undermine the franchising business model by driving a wedge between franchisors and franchisees by propping up the underperforming few at the expense of the large majority of franchisors and franchisees who work day-in and day-out in partnership to uphold the terms of their contracts and to help our industry continue to grow.”

News: FranchisingDistribution