Fair franchising bill in California a win for franchisees or their lawyers?

Senate Bill 610 (SB 610) passed through California’s Senate this week and now heads to the State Assembly. The pending legislation would amend the California Franchise Relations Act (the “Act”) as follows:
• The parties to a franchise relationship would be required to deal with one another in good faith (defined as honesty in fact, and the observance of reasonable commercial standards of fair dealing in the trade); and,
• Franchisors would be prohibited from restricting a franchisee from joining or participating in an association of franchisees.
Senate Bill 610 would also amend the Act by permitting a franchisee to sue a franchisor who violates the Act and would authorize a court in its discretion to award to the franchisee treble damages, as well as reasonable costs and attorney’s fees. Supporters of the Bill argue that these additional protections for franchisees are necessary because franchise agreements are unfair, one-sided contracts in favor of the much larger, more sophisticated franchisor. This characterization ignores the reality that the majority of franchisors in the US are small to mid-size businesses, and not, as the Bill’s supporters believe, corporate behemoths bullying the unsophisticated franchisee into signing unconscionable franchise agreements.
Should franchisors and franchisees deal with one another in good faith? Of course. Should franchisees have the right to associate freely with one another? Yes. Is the best way to achieve this goal arming plaintiff’s lawyers with yet another piece of legislation containing ambiguous terms that, when applied, undermine a contract entered into willingly by two parties? No. I have had many recent conversations with franchise executives of small to mid-size systems who ask the question; “Who in their right mind would want to sell franchises in California?” That’s a tough one.

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