California Governor Vetoes Rebate Disclosure Bill

On September 29, 2022, California Governor Gavin Newsom returned Senate Bill 1247 without his signature. If signed, the new bill would have required franchisors to disclose very specific information regarding rebates and monetary incentives received by franchisors each time a franchisee bought or sold goods and services. This bill proposed additions to both the Business and Professions Code and the Corporations Code. We’ll break down these additions below.

Proposed Addition to the Business and Professions Code

The bill, relating to franchisees, proposed the addition of Article 5.5 (commencing with Section 20033) to Chapter 5.5 of Division 8 of the Business and Professions Code. Basically, the bill demanded additional reporting requirements. Within 120 days of the end of the franchisor’s fiscal accounting year, the franchisor and all affiliated companies would have to report to its franchisees, any money, goods, services, anything of value, or any other benefit received from the franchisee’s required or approved vendors. That report would have to break down the benefit the franchisor or its affiliate received by each vendor. 

Currently, the California Franchise Investment Law (CFIL) requires franchise disclosure documents to include franchisors’ rebates and benefits received by a franchisor as a result of the franchisee’s purchases of products or services from a supplier to any potential franchisees. This unsigned bill would have required, upon franchisee request, franchisors to report their received rebates or benefits to their current franchisees.  It would also have required greater detail on a vendor-by-vendor basis then is currently required.

Proposed Addition to the Corporations Code

The bill also proposed an addition to Section 31222 to the Corporations Code. If signed, the bill would have made it a violation for a franchisor to execute an agreement that required the assignment or waiver of a franchisee’s right to a rebate, promotion, allowance, or other monetary incentives for the sale of a product within California, unless the agreement stated the potential or current gross value of that right.

Newsom’s decision not to sign SB 1247 was based on the idea that franchise contracts are complex contracts governing a business-to-business relationship and are the main authority between a franchisor and a franchisee. These contracts are very voluminous—typically hundreds of pages long. While Newsom stated he appreciated the intent to provide more information on the rebates vendors might provide based on franchisee purchases, he was not convinced that California should dictate this decision.

Work with an Experienced Franchise Lawyer

Franchise law can be complicated. It’s important to consult with an experienced franchise attorney regarding the ever-changing laws that may affect your business. We are experienced in advising franchisors and franchisees on franchise investment laws in every state. If you need assistance, contact Luther Lanard, PC, to schedule a consultation.