California Legislators Forget That Some Franchisors Are Small Businesses Too.

California Flag - Franchise LawEarlier this year, legislation was introduced in California with the snappy title, “The Level The Playing Field For Small Business Act of 2012”. The law would significantly expand California’s Franchise Relations Act and California’s Franchise Investment Law by placing further restrictions upon Franchisors and creating new potential claims for franchisees.

For example, the proposed California legislation would extend civil liability for damages for any violation under the Franchise Investment Law to parties who “directly or indirectly control a person liable” under the Act, including every principal, partner, executive officer and/or director associated with the franchisor.

At the core of this proposed legislation is the perception that the franchisor/franchisee relationship is inherently inequitable, placing the franchisee at a tremendous disadvantage. The contrary view is that the franchise relationship is one based in a contract that an individual franchisee may choose to enter, or not. Of course, one needs to be mindful that all franchisors are not international behemoths. In fact, approximately 60% of US based franchisors have less than 30 units.

Although the proposed legislation ultimately failed to gain sufficient support to become the law in California, expect to see it resurface in 2013. On whatever side of this issue you find yourself, there will be a number of legislative efforts to address in 2013, as more and more states introduce legislation patterned on this California initiative.

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Filed under The Franchise Legislation Monitor

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