California About to Make Franchise Terminations Harder

27 August 2014 Publication
Author(s): Roberta F. Howell

Legal News Alert: Distribution & Franchise

SB 610, if signed into law, would forbid termination except for “a substantial and material breach . . . of a lawful requirement of the franchise agreement.” It does not provide for the possibility of termination based on non-contractual defaults. Even in the case of contractual defaults, the new language will open the door to fact-intensive disputes over whether an established breach is “substantial and material”. Thus, for example, a 10% quota shortfall would seem ample to support termination under existing law, whereas the substantiality requirement in the proposed amendment would arguably make the justifiability of termination on that basis a jury question.

Enactment of SB 610 would make it prudent for franchisors to examine their agreements in order to ensure that they impose at some level of abstraction all requirements that franchisors feel are essential to ensure that franchise businesses operate effectively and in conformance with the franchisors’ business models. This may require, for example, express provisions that franchisees will obey all national, state, and local laws; that they will treat their employees and prospective employees with dignity and in accordance with legal requirements; and that they will avoid conduct that, if publicized, would risk damaging the franchisors’ name or impairing the integrity of its marks.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Michael A. Bowen
Milwaukee, Wisconsin

Roberta F. Howell
Milwaukee, Wisconsin

Related Services


Foley Manufacturing Update
18 August 2022
Manufacturing Industry Advisor
Using Upfront IP Licensing to Reduce Future Supply Chain Disruptions
18 August 2022
Manufacturing Industry Advisor
Do you have adequate Ransomware Cyber Insurance Coverage?
18 August 2022
Internet, IT & e-Discovery Blog
Warning to All U.S. Taxpayers Who Use Cryptocurrency: “Crypto” Doesn’t Mean Your Currency is Secret — or Protected — from the IRS
17 August 2022
Legal News: Government Enforcement Defense & Investigations
Foley Sponsors Ernst & Young Entrepreneur of the Year® Program
1 December 2021 - 30 November 2022
Michigan and Northwest Ohio Region
Moss Adams 2022 Health Care Conference
3-4 November 2022
Las Vegas, NV
An Update on Remote Patient Monitoring Policy and Reimbursement
28 October 2022
Austin, TX
AI in Healthcare: EU-U.S. Legal Challenges and Guidance and Security Implications
26 October 2022
Las Vegas, NV