In the California Legislature’s latest attack on the fast-food industry, Assemblymember Chris Holden (D-Pasadena) introduced the Fast Food Franchisor Responsibility Act (“AB 1228”). AB 1228 was introduced shortly after a Sacramento County Superior Court judge issued a preliminary injunction to stop the controversial Fast Food Accountability and Standards Recovery Act or “FAST Recovery Act” (AB 257) from taking effect, pending a vote by California voters, as we previously reported here.

Under AB 1228, a fast-food restaurant franchisor would be required to “share with its fast-food restaurant franchisee all civil legal responsibility and civil liability for the franchisee’s violations of prescribed laws and orders or their implementing rules or regulations.”

Examples of such laws include the California Fair Housing and Employment Act and the Labor Code.  As a result, a franchisor’s potential liability under these laws would be shared with a franchisee even though the latter actually may be the one responsible for the alleged violations.  A franchisor would have the opportunity to cure any violation following 30-days’ written notice before a civil action may be commenced.  The period to cure any violation will be extended to 60 days upon written request by the franchisor, for purposes of completing an investigation.  If the noticed violation is cured (i.e., if a franchisor abates each violation alleged, ensures the franchisee is in compliance and “makes whole” any affected employee) during this time, the franchisor shall not be liable in a civil action.

Perhaps we’re too skeptical, but it seems doubtful that most trial lawyers in California will be satisfied with any curative measures a franchisor may attempt to make.

Further, AB 1228 invalidates any agreement between the franchisor and franchisee attempting to waive this joint-liability or seek indemnity.  Lastly, AB 1228 authorizes a franchisee to sue a franchisor for monetary or injunctive relief if the terms of their franchise agreement prevent the franchisee from complying with the proposed law.  AB 1228 expands on this stating that “there shall be a rebuttable presumption that any changes in the terms of a franchise that increase the costs of the franchise to the fast-food restaurant franchisee create a substantial barrier to compliance.”

We will continue to monitor the AB 1228 and provide updates.

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