On September 29, 2014, Governor Jerry Brown vetoed Senate Bill 610, a proposed bill to update the California Franchise Relations Act to provide additional protections to franchisees.
Senate Bill 610 was sponsored by the American Association of Franchisee Associations, a 20 year-old franchisee advocacy group located in Palm Springs. The bill would have amended the California Franchise Relations Act to ( i ) prohibit the contractual waiver in a franchise agreement of the implied covenant of good faith and fair dealing that is applicable to all contracts under California law, and ( ii ) change the standard to terminate a franchise agreement from the established “good cause” benchmark to a new “substantial and material breach” test.
Proponents of Senate Bill 610 asserted that the legislation was necessary to protect small business owners from frivolous terminations of their franchise agreements by fast-food giants and convenience store chains. In a partisan vote in the state Senate, 23 Democratic state senators voted for the bill, while nine Republicans voted against it. In California’s general assembly, the bill passed 41 to 28.
Governor Brown stated that he vetoed Senate Bill 610 because he felt that the proposed amendments to the California Franchise Relations Act would have changed the well-established “good cause” test to an untested and subjective “substantial and material breach” standard to terminate a franchise agreement in California. He also stated that he would revisit his positon if “there are indeed unacceptable or predatory practices by franchisors.”
The International Franchise Association praised Governor Brown’s decision to veto Senate Bill 610. It issued a press release stating that the proposed legislation would have created unnecessary and unclear new regulations on franchisees across the state and would have led to an excess of unnecessary and costly litigation.
Various states, Puerto Rico and the Virgin Islands have specific laws that govern the termination of a franchise relationship by the franchisor. Most franchise termination laws require the franchisor to have “good cause” to terminate the franchisee. What constitutes good cause varies from state to state