New rule for ending Calif. franchises vetoed by governor

Legislation that changed the terms under which franchisors could terminate a franchise in California has been vetoed by Gov. Jerry Brown.

The bill was widely seen as a deliberate attempt by lawmakers in the state, the nation’s largest restaurant market, to tip the balance of power in franchisees’ favor. Gov. Brown did not take issue with that intent, but expressed confusion about what ill the measure rectified, and hence whether new standards for booting a franchise were needed.

“I am open to reforming the California Franchise Relations Act to give more protections to franchisees if there are indeed unacceptable or predatory practices by franchisors,” the Gov. said in returning the legislation to the State Senate. “I need, however, a better explanation fo the scope of the problem so I am certain that the solution crafted will fix those problems and not create new ones.”

The governor, a social liberal but fiscal conservative, took issue in particular with the new standard for breaking a franchise contract. The current legal standard of “good cause” would have been replaced with “substantial and material breach” of the franchise agreement. 

“While the ‘good cause’ standard is common and well understood, the standard provided in this bill is new and untested,” Brown said. 

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