California Franchise Relations Act: Termination and Nonrenewal Rights

The California Franchise Relations Act, codified at Business and Professions Code sections 20000 through 20043, limits how a franchisor can end or decline to renew a franchise agreement with a California franchisee. It requires good cause and at least 60 days’ written notice with a chance to cure before termination, mandates 180 days’ notice before nonrenewal, blocks franchisors from forcing disputes into out-of-state courts, and voids any contract clause that tries to waive these protections.¹² These rules govern the ongoing relationship after a franchise agreement is signed, not the initial sale.

Who the Act Covers

The statute reaches any franchise where the franchisee lives in California or the franchised business operates (or has operated) in the state.² A franchisor headquartered in Texas or Florida is still bound by it when even one of its locations sits in California.

A business relationship is a “franchise” under California law when three things are true: the franchisee operates under a marketing plan substantially prescribed by the franchisor, the business is closely associated with the franchisor’s trademark or brand, and the franchisee pays a franchise fee.³ Courts read the definition broadly, so an arrangement that meets those three elements can fall under the Act even if the parties never used the word “franchise.”

One boundary is worth flagging. The Act sits alongside the California Franchise Investment Law, which governs the sale and registration of franchise offerings before an agreement is signed.⁴ If your issue is with disclosures or the sale itself, you’re looking at the wrong statute.

Termination Requires Good Cause and a Cure Period

A franchisor cannot end a franchise before the term expires unless it has good cause, which under the Act means the franchisee substantially failed to comply with a lawful requirement of the franchise agreement. Before terminating, the franchisor must give written notice at least 60 days before the termination date, describe the specific noncompliance, and give the franchisee at least 60 days from that notice to fix the problem.¹ Cure the noncompliance in that window and the termination cannot go forward.

The cure period has a ceiling too. Absent a separate agreement to extend it, the franchisee’s window to fix the problem tops out at 75 days.¹

What “good cause” excludes matters as much as what it includes. Subjective dissatisfaction, personality conflicts, or a franchisor’s wish to reclaim a profitable territory are not good cause. The breach has to attach to a specific, lawful obligation written into the franchise agreement itself.

When a Franchisor Can Skip the Cure Period

The 60-day notice and cure period does not apply to every situation. Section 20021 lists grounds for immediate termination:⁵

The franchisee files for bankruptcy, is judicially determined insolvent, assigns assets for the benefit of creditors, or admits an inability to pay debts as they come due.
The franchisee abandons the business by ceasing operations for five consecutive business days (or a shorter period suggesting abandonment), unless the closure results from fire, flood, earthquake, or a similar event beyond the franchisee’s control.
The franchisee made material misrepresentations to acquire the franchise or engages in conduct materially damaging the brand’s reputation.
The franchisee fails to come into compliance with applicable federal, state, or local laws within 10 days of notice.
The franchisee cures a violation and then commits the same breach again, or repeatedly fails to meet franchise requirements even after cures.
The premises or a key asset is seized by a government official or creditor, and the situation remains unresolved for 30 days (for judgments) or five days (for levies).
The franchisee is convicted of a felony or other criminal misconduct relevant to operating the franchise.
Franchise fees or other amounts owed to the franchisor remain unpaid five days after written notice that payment is overdue.
Both parties agree in writing to end the relationship.

Franchisors sometimes reach for this list to skip the 60-day cure period on what is really an ordinary dispute. Courts look at whether the cited ground genuinely fits and whether the franchisor acted in good faith rather than using an immediate-termination category as a pretext.

Nonrenewal Protections

When a franchise agreement approaches the end of its term, a franchisor that plans not to renew must give the franchisee at least 180 days’ written notice before the agreement expires.⁶ The notice alone is not enough. The franchisor also has to satisfy at least one of several additional conditions.

The Right to Sell the Business

During the 180-day notice period, the franchisor must allow the franchisee to sell the business to a buyer who meets the franchisor’s current standards for granting new franchises (or renewal franchises, if the franchisor is not actively granting new ones).⁶ This gives the franchisee a real chance to recoup investment instead of losing everything at expiration.

No Conversion to a Company-Owned Location

A franchisor cannot refuse to renew for the purpose of taking over the franchisee’s location and running it as a company-owned operation. Nonrenewal aimed at converting the premises to direct franchisor control is prohibited, though the franchisor may still exercise a contractual right of first refusal to purchase the business at fair value.⁶ Buying the business through a fair process is permitted; using nonrenewal as a back door to seize the location is not.

Release from Non-Compete Covenants

When a franchisor declines to renew and the nonrenewal is not based on the franchisee’s own noncompliance, the franchisor must agree not to enforce any non-compete covenant against the former franchisee upon expiration.⁶ A franchisee who loses the franchise through no fault of their own cannot also be barred from earning a living in the same industry.

Other Lawful Grounds

Nonrenewal is permitted without those additional protections in narrow situations: when the franchisee’s conduct would justify termination under sections 20020 or 20021, when both parties mutually agree, when the franchisor completely withdraws from the geographic market (still subject to the non-compete and anti-conversion restrictions), or when the parties cannot reach agreement on changes to the franchise terms that would apply equally to all franchisees in the system.⁶

Waiver and Forum Clauses Are Void

What gives the rest of the Act its teeth is that a franchisee cannot sign these rights away. Any franchise agreement clause requiring the franchisee to waive Act protections is void and unenforceable as a matter of public policy.² A waiver buried in a dense contract carries no weight later.

The Act also blocks franchisors from routing California disputes into other states. Any clause restricting venue to a forum outside California is void for claims arising under or relating to a franchise agreement involving a business operating in the state.⁷ Forum selection clauses pointing to a franchisor’s home state, common in national agreements, do not bind California franchisees on Act-related claims.

Good Faith in Day-to-Day Dealings

Every franchise agreement in California carries an implied covenant of good faith and fair dealing, and the Act keeps the parties from contracting that duty away. Both sides have to deal honestly and fairly across contract performance, operational decisions, and actions that affect the franchise’s future.

The duty bites hardest where the franchisor has discretion. If the franchise agreement lets the franchisor approve relocations, set supply prices, or consent to transfers, those decisions have to rest on legitimate business reasons. Withholding approval to push a franchisee toward abandonment, or piling on conditions unrelated to brand standards, can support a bad faith claim. So can pricing structures on mandatory proprietary products that function as hidden profit extraction, or sudden unexplained fee increases. Courts ask whether a reasonable franchisee would have expected the conduct at the time the agreement was signed.

What a Valid Termination or Nonrenewal Notice Must Say

Notices under the Act have to be in writing and delivered through a method that creates a receipt: registered mail, certified mail, or personal delivery. Each notice needs a clear statement of whether the franchisor is terminating or not renewing, the specific reasons behind that decision, and the effective date. A vague notice that fails to identify the actual noncompliance or leaves out the effective date does not satisfy the statute, and that failure can undo the franchisor’s position if the decision is challenged.

How Franchisees Enforce the Act

The Act does not create an enforcement agency. Franchisees bring claims in California civil courts, and the venue protection keeps those claims in-state.⁷

The Act’s own remedies center on injunctive relief. A court can order a franchisor to halt a wrongful termination or nonrenewal, keeping the franchise intact while the dispute plays out. A franchisee who moves quickly can obtain an order preserving the business rather than watching it disappear during years of litigation.

For monetary damages, franchisees typically layer other claims on top of the Act itself. The statute preserves the right to sue under other applicable laws, including breach of contract and fraud. A wrongful termination that also breaches the franchise agreement supports a contract damages claim covering lost profits, relocation expenses, and investment losses. Franchisees can also bring claims under California’s Unfair Competition Law, which treats any unlawful business practice as actionable unfair competition and can carry restitution and broader injunctive relief.⁸ Because an Act violation is an unlawful act, it can serve as the predicate.

Punitive damages are available only in limited circumstances. Under California Civil Code 3294, a plaintiff can recover exemplary damages for malice, fraud, or oppression, but only for claims not arising from contract.⁹ A straight breach-of-contract claim will not get them. If the franchisor’s conduct also amounts to fraud or intentional interference with the franchisee’s business, they come into play, and the standard is clear and convincing evidence. For corporate franchisors, the misconduct must involve an officer, director, or managing agent.

Cross-Checking the FDD Against Your Rights

The Act runs alongside the FTC Franchise Rule, which requires franchisors nationwide to give prospective franchisees a Franchise Disclosure Document before any agreement is signed.¹⁰ Item 17 of the FDD is where the two frameworks meet: franchisors must disclose the specific terms governing renewal, termination, transfer, and dispute resolution, including what counts as a curable default, the cure period, what constitutes a non-curable default, the franchisee’s post-termination obligations, and any right the franchisee has to terminate on their own.¹¹ Reading Item 17 against the Act is the fastest way to see where a franchise agreement’s termination and nonrenewal provisions may conflict with California law. Any conflict is resolved in the franchisee’s favor, because the Act’s protections cannot be waived.²

1
California Legislative Information. California Code Business and Professions Code 20020 – Termination
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California Legislative Information. California Code Business and Professions Code 20015 – Jurisdiction
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California Legislative Information. California Code Corporations Code 31005 – Franchise
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Department of Financial Protection and Innovation. California Franchise Relations Act
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California Legislative Information. California Code Business and Professions Code 20021 – Immediate Termination
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California Legislative Information. California Code Business and Professions Code 20025 – Nonrenewal
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California Legislative Information. California Code Business and Professions Code 20040.5 – Venue
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California Legislative Information. California Code BPC 17200 – Unfair Competition
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California Legislative Information. California Code CIV 3294 – Exemplary Damages
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Federal Trade Commission. Franchise Rule
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eCFR. 16 CFR Part 436 – Disclosure Requirements and Prohibitions Concerning Franchising