Franchisees score ‘hollow’ victory

Dave Michael, an Orillia Pizza Pizza franchise operator, said, “we won the battle, but basically we’ll have nothing to show for it.”…In his arbitration award, retired Ontario judge Richard Holland rejected most complaints about excessive expense charges on the grounds Pizza Pizza was operating within its contract.

The Ottawa Citizen
December 20, 1994

Franchisees score ‘hollow’ victory
CALL FOR ACTION: An arbitration ruling on complaints against Pizza Pizza brings a call for new Ontario franchise laws.
Bert Hill

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The former owner of a local Pizza Pizza franchise says Ontario franchise owners need tough new legislation in the wake of a ‘hollow victory’ over the mammoth fast-food chain.

A group of 49 Pizza Pizza franchisees in Toronto and central Ontario has won $2.7 million in damages, interest and legal costs because Pizza Pizza did not properly manage trust funds used to pay rents and other operating costs.

That the amount will be whittled down to $821, 495 – or nothing – after franchisees pay accumulated debts and bills owed Pizza Pizza, their lawyers and accountants.

Marc Bourdeau, a former franchisee in Orleans who tried to start a similar case, said “we need legislation that creates fair franchise agreements and ensures both sides act in the spirit of the deal and not in a predatory fashion.”

“And we need an ombudsman service so disputes can be settled quickly without legal fees eroding all the proceeds.”

The Ontario government is studying the issue.

Pizza Pizza said the franchisees won just two of 20 contract complaints and predicted expenses and other charges will exceed the arbitration award. The franchisees must pay Pizza Pizza $500,000 for legal expenses spent fighting the unsubstantiated fraud allegations.

Pizza Pizza lawyer Daniel Vukovich said, “This dispute always was nothing more than an issue over interpretation of contracts. Unfortunately, because of the (fraud) allegations that have been proven unfounded, the situation became inflamed.”

The Canadian franchise business is a $90-billion-a-year operation. Pizza Pizza has 250 stores, which do $250 million in business annually in Canada.

Dave Michael, an Orillia Pizza Pizza franchise operator, said, “we won the battle, but basically we’ll have nothing to show for it.”

He said franchise owners have few of the rights ordinary citizens and consumers take for granted. “Lawyers will charge people $800 to tell them they’re crazy to sign a franchise agreement. But they sign anyway to get their own business, thinking that nothing like this could happen in their worst dreams.”

In his arbitration award, retired Ontario judge Richard Holland rejected most complaints about excessive expense charges on the grounds Pizza Pizza was operating within its contract.

But in his ruling, Holland defined as “trust-funds” the millions Pizza Pizza collects from franchisees for shared expenses like rent, advertising and delivery system costs. These monies are to be managed by Pizza Pizza, not used at its discretion, wrote Holland.

Bourdeau said he lost $75,000 during an 18-month involvement in an Orleans outlet that ended in October 1992.

Since then he and his family have gradually reduced a heavy debt to avoid bankruptcy. Bourdeau said he tried unsuccessfully to enlist the Ottawa operators in an action similar to the southern Ontario case.

The legal battle and expenses are not over. The chain is appealing the financial award that the franchisees have filed a counter-suit.

Bordeau, a former federal public servant, said the system needs urgent reform, with thousands of laid-off people considering investing severance pay in franchises.

He blamed the failure of his business on Pizza Pizza wiping out profit margin with increasing expenses. But the chain and some happy franchisees attributed the failures of some outlets to the recession and weak management.

With files from The Toronto Star

Update

The Issues: Forty-nine Pizza Pizza franchise operators in southern Ontario sued the chain for complaints ranging from fraud to excessive charges.

What’s new: Arbitrator found the chain mismanaged trust fund but rejected fraud complaints and found Pizza Pizza was operating within its franchise agreement.

What’s next: Franchise owner’s want legislation guaranteeing fairer contracts and cheaper avenues to resolve disputes.


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Risks: Futility of taking legal action, Ombudsman, Arbitration, Settlement just covers legals, Courts misunderstand relationship, Justice only for the rich, Within the four corners of the contract, Hefty severance packages, Settlement just covers fees, Canada, 19941220 Franchisees score

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