Have you contemplated acquiring a cell phone repair franchise in California recently? New legislation passed in that state gained the attention of both franchisors and prospective franchisees. The situation demonstrates why entrepreneurs involved in franchising usually discover benefits in obtaining experienced legal advice. Consulting with an attorney assists business planning.

New Laws May Impact Franchise Owners

Laws affecting franchises change from time to time. Sometimes measures passed in one jurisdiction inspire lawmakers to amend legislation in other places. In September 2019, the Governor of California signed California Assembly Bill 5 (“AB5”) into law. It formally established a new legal test in the state for determining whether a worker qualifies as an independent contractor or an employee.

The change came after the California Supreme Court revised its criteria for making this determination. Lawmakers in California embraced the new test. Some experts believe the Legislature expanded it even further, in fact.

Clarifying The Scope of AB5

A recent federal case seeks to challenge the application of some of AB5’s provisions to franchisors. In IFA et al vs. State of California, the International Franchise Association and several other parties filed a lawsuit against California. The plaintiffs contend the new law does not apply in the case of a franchise relationship. Numerous businesses and employees maintain a strong interest in the outcome of the dispute.

This controversy suggests potentially significant legal changes sometimes impact franchise models. Whether or not a worker qualifies as an independent contractor or an employee holds important ramifications. Since employers conduct withholding for tax purposes for employees (but not for independent contractors), the issue also carries accounting and tax consequences.

The Importance of Monitoring Laws Impacting Franchises

Perhaps for this reason, today most business experts advise franchisors and franchisees to consult periodically with a qualified attorney. Sometimes the application of laws impacting commercial enterprises proves complex. Certain rules and regulations apply in some settings, but not in others, for example.

Selecting an experienced legal advisor assists most entrepreneurs. Franchising represents a popular business model today. However, this type of commercial organization does not exist in a vacuum. Important legal developments potentially affect both franchisors and franchisees. It usually helps during business planning to obtain specific advice concerning a company’s unique circumstances!