On September 29, 2022, the California Legislature passed AB 676, which makes various changes to the Franchise Investment Law and the California Franchise Relations Act, and creates new requirements and prohibitions for franchise agreements, effective January 1, 2023.
AB 676 amends the Franchise Investment Law in the following ways:
- AB 676 expands the reasons for the Commissioner to issue a stop order. Specifically, the Commissioner may summarily issue a stop order denying the effectiveness, or suspending or revoking effectiveness, of any registration for the following two additional reasons: (1) The franchisor’s method of business includes or would include activities that are or would be illegal where performed, or (2) the franchise agreement contains a provision that is contrary to law.
- AB 676 protects franchisees against discrimination based on protected characteristics. Specifically, a franchisor may not refuse to grant a franchise or provide financial assistance, based on certain characteristics of a franchisee or the composition of the neighborhood of the prospective franchise. These characteristics include sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status.
- AB 676 requires a franchisor to notify a franchisee of the approval or disapproval of an application within 60 days.
- AB 676 prohibits a franchisor from disclaiming or denying representations made to a franchisee, or reliance by a franchisee on any representations as provided. See below for further guidance.
Changes to the California Franchise Relations Act
AB 676 amends the California Franchise Relations Act in the following ways:
- AB 676 prohibits a franchisor from requiring a franchisee to waive any of the protections of the California Franchise Relations Act.
- AB 676 clarifies that upon the termination or nonrenewal of a franchise, a franchisor may only offset the amount owed to the franchisee with amounts owned by the franchisee if the franchisee agrees to the amount owed or the franchisor has a judgment for that amount.
- AB 676 prohibits a franchisor from modifying a franchise agreement or requiring a general release in exchange for assistance related to a declared state or federal emergency.
The Prohibition on Disclaiming Representations, Reliance or Violations
Corporations Code section 31512.1, added by AB 676, provides that any provision of a franchise agreement or related document requiring the franchisee to waive specific provisions of the law is contrary to public policy and is void and unenforceable. Further, no provision in a franchise agreement or related document may disclaim or deny any representations made by a franchisor to a franchisee. The law applies to all offers and sales in California, regardless of whether the franchisor is registered or exempted from registration.