For Carls franchisees in California, is the franchise agreement's requirement for application of Tennessee laws always enforceable?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
ADDITIONAL DISCLOSURES REQUIRED FOR CALIFORNIA FRANCHISEES
The following information applies to franchises and franchisees subject to the California Franchise Investment Act.
- C. California Business and Professions Code Sections 20000 through 20043 provide rights to the Franchisee concerning termination, transfer or non-renewal of a franchise. If the franchise agreement contains a provision that is inconsistent with the law, the law will control.
- D. The franchise agreement provides for termination upon bankruptcy. This provision may not be enforceable under federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq.).
- E. The franchise agreement contains a liquidated damages clause. Under California Civil Code Section 1671, certain liquidated damages clauses are unenforceable.
- F. The Franchise Agreement requires application of the laws of Tennessee. This provision may not be enforceable under California law.
- I. No statement, questionnaire, or acknowledgment signed or agreed to by a franchisee in connection with the commencement of the franchise relationship shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement, or (ii) disclaiming reliance on any statement made by any franchisor, franchise seller, or other person acting on behalf of the franchisor. This provision supersedes any other term of any document executed in connection with the franchise.
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the franchise agreement stipulates that Tennessee law governs the agreement. However, for franchisees in California, this requirement may not always be enforceable. The disclosure specifically states that if any provision in the franchise agreement is inconsistent with California law, California law will take precedence. This means that certain aspects of the agreement that would be enforced under Tennessee law might not be enforceable in California if they conflict with California's franchise laws.
This is particularly relevant because California has specific laws, such as the California Franchise Investment Law, that protect franchisees. These laws cover areas like termination, transfer, and non-renewal of the franchise. Additionally, certain clauses within the franchise agreement, such as those related to termination upon bankruptcy or liquidated damages, may not be enforceable under California or federal law.
For a prospective Carls franchisee in California, this means that while the franchise agreement is written to be governed by Tennessee law, California's franchise laws offer additional protections. It is crucial for franchisees to understand their rights under California law, as these rights can supersede the terms of the franchise agreement. Franchisees should consult with an attorney to fully understand the implications of these legal nuances and how they apply to their specific franchise agreement.
Furthermore, Carls includes a rider to the state addendum that reinforces franchisee protections. This rider ensures that no statement, questionnaire, or acknowledgment signed by a franchisee can waive claims under applicable state franchise law, including fraud in the inducement, or disclaim reliance on statements made by the franchisor. This provision further strengthens the franchisee's position by preventing unintentional waivers of their legal rights under California law.