Will Recent Changes in California’s Franchise Law Blaze a Path for Other States?

California strengthened the hand of in-state franchisees vis-à-vis their franchisors with amendments to the California Franchise Relations Act (CFRA) that went into effect January 1, 2016.  Since 1980, the CFRA has protected California franchisees against termination and nonrenewal without good cause.  But now, good cause means more than failure to comply with the franchise agreement.  Termination or refusal to renew is permitted now only when the franchisee has committed a “substantial and material breach” of the franchise agreement.

Under the revised CFRA, a franchisor that lawfully terminates or fails to renew a franchise may also be required to purchase all inventory, supplies, equipment, fixtures and furnishings used in the operation of the franchised business unless the franchisee declined an offer of renewal or unless the franchisee can retain control of the business premises after termination.

The revised CFRA also protects the franchisee’s right to assign the…