USA – CALIFORNIA Law and Practice Contributed by: Dawn Newton and Hayley M. Lenahan, Donahue Fitzgerald
These statutory protections apply even if the franchise agreement is silent or provides otherwise. 8.4 Prohibited Provisions in Local Law California does not have a single statutory blacklist of prohibited franchise agreement provisions. However, several types of provisions are void or unenforceable under California law. California law prohibits a franchise agreement from requiring a franchisee to waive compliance with the CFIL or CFRA. California also forbids provisions that disclaim or deny representations made by the fran - chisor, the franchisee’s reliance on those represen - tations or on the FDD, or violations of the CFIL. A franchise agreement may not require claims relating to a franchise business operating in California to be liti - gated exclusively outside the state. A franchisor also may not restrict or inhibit a franchisee’s right to asso - ciate with other franchisees or join a trade association. A franchisor may not modify a franchise agreement or require a general release in exchange for assistance related to a declared state or federal emergency. Non-compete provisions are subject to California’s restrictions under Business and Professions Code Section 16600, as discussed in 6.1 Treatment of Competition Restrictions in Franchise Agreements and 6.2 Exclusive Territories and Competing Busi- nesses . Other franchise agreement provisions are unenforceable to the extent that they conflict with the mandatory protections of the CFRA discussed in 8.3 Mandatory Content . 9. Dispute Resolution 9.1 Enforcement of Foreign Judgments A judgment from any court of another US jurisdiction may be enforced in California state courts by filing an Application for Entry of Judgment on Sister-State Judgment under the California Sister State Money- Judgments Act. An out-of-state federal judgment may be registered in a federal district court in California. A money judgment from a court outside the United States may be enforced in California under the Uni -
form Foreign Money-Judgment Recognition Act, which requires the enforcing party to file an action to recognise the foreign money judgment. For arbi - tral awards, the United States codified the New York Convention in Chapter 2 of the Federal Arbitration Act. 10. Payment and Taxes 10.1 Restrictions or Limits on Franchisee Fees and Royalties There are no laws in California that specifically restrict franchise fees or royalty payments or that impose arbi - trary limits on the fees that a franchisor can charge. That said, regulators at the DFPI strictly enforce the North American Securities Administrators Associa - tion’s Impact of Shifting Market and Economic Factors on Franchise Disclosures (2025) policy by requiring the franchisor to specify the formula or amount by which a fee can increase during the term for any fee that is described as variable. 10.2 Withholding Tax There is no standard withholding tax specific to fran - chise fees or royalties in California. However, if the California Franchise Tax Board (FTB) concludes that an out-of-state franchisor must pay California income tax on the fees or royalties that the California fran - chisee pays, the franchisor can choose between reg - istering in California and paying income taxes to the FTB itself or having the California franchisee withhold 7% on gross payments for all services in California. This would include royalties, initial franchise fees, training fees and similar brand-related service fees as well as gross rent payments. Separately, as business operators, California fran - chisees are subject to state income tax obligations. Businesses organised in California will be subject to associated California fees, such as the minimum USD800-per-year fee for limited liability companies organised in California. These fees are the same for franchisees as for non-franchised businesses. 10.3 Foreign Currency Controls This topic is not applicable.
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