Bundy Law Firm PLLC April 18, 2012

Perhaps it is a response to a growing perception that franchise agreements have been growing increasingly lopsided-just a tiny step above the indentured servitude of the middle ages-or perhaps it is pandering to the franchisees who showed up in Sacramento in droves to testify, but the Assembly of the California legislature today took one step toward passing a state fair franchising law. It passed the Assembly Judiciary Committee on a 6-3 party-line vote.

The essence of the battle behind the bill is the tendency of franchisors and their attorneys to write increasingly one-sided contracts-contracts that effectively waive most protections the franchisee would otherwise have under the law. The contracts almost never obligate the franchisor to do anything except allow the franchisee to use their trademark and whatever “system” they really have. Franchisees, on the other hand, are subject to dozens of pages of fine print requirements covering every detail of operating the business. The agreements prevent the franchisees from having certain outside business interests, from hiring people unless they are approved, and from earning a living in the industry after the end of their franchise experience. If they leave in the middle of the term, they owe the franchisor all the money the franchisor would have received had they stayed the full term. The agreements, in many cases, purport to impose the same restrictions on all family members of the franchisee. In most cases, the restrictions on selling the business make it nearly impossible to sell. The franchisee is a virtual indentured servant for life.

Of course, the franchise agreements almost always require the franchisee to strictly comply with an operations manual-which the franchisor can change at any time without notice.

And the franchisee thought they were buying an independent business-where they could be “in business for themselves; not by themselves”.

It would still be speculative as to whether the bill will work its way through the California legislature and get the governor’s signature. In the grand scheme of things, it is more important to consider how franchisors can avoid having their franchisees resort to the legislatures for relief. It is as simple as backing off on some of the controls that no franchisor really needs and offering fair and balanced contracts for franchisees to sign. When franchisors start realizing that their most valuable asset is their franchisees and treating them accordingly, legislative appeals will no longer be necessary. It takes a lot to get franchisees riled up-and the franchisee community is currently becoming justifiably riled.

Bundy Law Firm encourages its franchisor clients to look for ways to present fair and balanced franchise agreements.