Labor and small businesses team up on California franchising law

On Thursday, the California State Assembly is expected to consider a law that could dramatically alter the shape of fast food and other franchised industries in the state.

Senate Bill 610 (SB 610), which has already been approved by the State Senate, would make it harder for franchisor companies such as the McDonald’s Corporation to end licensing agreements with franchisees. The proposed law has polarized the business community, and become a flashpoint in organized labor’s efforts to transform the franchising business model.

The question before the Assembly is whether current state law is sufficient to protect franchisees from the arbitrary whims of major franchisers. If made law, SB 610 would prevent a franchisor from severing licensing agreements with their franchisees unless they can demonstrate that a “substantial and material breach … of a lawful requirement” of the agreement has taken place. The bill also says licensing agreements cannot obstruct the right of franchisees to participate in franchisee associations, or prevent them from selling their franchises, although the franchisor must still give consent for a sale to take place.

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