Effective January 1, 2016, the California Franchise Relations Act (CFRA) has been amended to provide greater protections to California franchisees.
Termination: For most defaults, the CFRA now requires the franchisor to meet an ostensibly tougher “good cause” standard than current law and allows the franchisee at least 60 days to cure the breach (current law allows 30 days). “Good cause” under current law means the franchisee’s failure to comply with any lawful requirement of the franchise agreement, but, after January 1, 2016, it will mean the franchisee’s failure to “substantially comply” with any lawful requirement of the franchise. California’s new “good cause” standard is not unprecedented: New Jersey’s franchise relationship law, which has been challenged extensively since its enactment some 40 years ago, also uses the equivalent “substantially comply” standard.
Statutory Remedies For Lawful and Wrongful Terminations or Nonrenewals: Under the amended CFRA, a franchisor that terminates or fails to renew a franchise without meeting the new “good cause” standard is liable to a franchisee for the fair market value of the franchised business plus any other damages the franchisee can demonstrate it sustained by the violation. A franchisor that lawfully terminates or refuses to renew a franchise and retains site control must pay the former franchisee for its original cost minus depreciation of all inventory, supplies, equipment, fixtures and furnishings purchased by the franchisee.
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