Alberta’s new approach to franchising

When you read through your average franchise agreement, it’s pretty hard to find a single obligation of the franchisor. In these one-sided documents, even exclusive franchisee territories are becoming a rare concession…“It’s true, the Alberta regulations have kept some franchisors out,” says Ken Purvis, a Calgary franchising consultant. “But some bad franchisors were among them.”

The Globe and Mail
July 10, 1995

JohnSoutherst.jpg

Alberta’s new approach to franchising
John Southerst

When you read through your average franchise agreement, it’s pretty hard to find a single obligation of the franchisor. In these one-sided documents, even exclusive franchisee territories are becoming a rare concession.

That’s why Alberta moved in the 1970s to protect small investors with the nation’s strictest franchise law. In Alberta, franchisors have to file extensive disclosure documents, similar to those in a prospectus, with the Alberta Securities Commission, which may enforce standards and demand changes before approval. Franchisors provide audited financial statements which are not required in any other province.

Franchise chains despised the regime, and many skipped Alberta. Perhaps the regulations were onerous, but franchisees finally had some weight on their side. “It’s true, the Alberta regulations have kept some franchisors out,” says Ken Purvis, a Calgary franchising consultant. “But some bad franchisors were among them.”

But now Alberta is about to change its law. A new Franchises Act passed third reading in the legislature in May. Once supporting regulations are written, the new law will probably be proclaimed in September.

The securities commission will no longer review franchise documents. Financial statements no longer need to be audited, but only prepared in accordance with generally accepted accounting principles. In place of the demanding standards of the securities regulator, the new document talks about the “duty of fair dealing” of both franchisors and franchisees.

The regulations will establish the actual disclosure requirements, and if franchisees feel franchisors’ disclosure isn’t up to those standards, they will have to take them to the civil courts.

The new law makes some sense, but interpretations are a bit puzzling. Just how stringent, for instance, will the new regulations be? That depends on who you talk to.

The new law came after almost five years of consultations with a working group of franchisors, represented by the Canadian Franchising Association, franchisees and the province. Don Schafer, president of Comac Food Group Inc. of Calgary and chairman of the CFA, says the new disclosure requirements will not be as onerous as the Uniform Franchise Offering Circular that is required by regulators in the United States.

Yet Edmonton lawyer John Stainton, who represents the Franchisee Association of Alberta and sat on the working group with Mr. Schafer, expects less disclosure than before but “at least as much as in UFOC.”

These varied views are a cause for concern and arise out of the fact that disclosure requirements are left so vague in the legislation. All eyes will be on the specific regulations when they’re ready in mid-September.

Mr. Schafer says the old bill was excessively onerous, creating red tape that often took six months to unravel and made legal costs prohibitive for small and medium-sized first-time franchisors.

One franchisor that took a pass was Golden Griddle Corp., the Ontario-based pancake chain. “We deliberately refrained from going into Alberta,” executive vice-president Bill Hood says. “It was combination of expense and complications we didn’t need.”

He figured that applying to enter Alberta would cost between $40,000 and $50,000. But Mr. Hood says the disclosure requirements weren’t bothersome. He’s even critical of a U.S. ban on showing franchise earnings because he’d rather make franchisees aware of all the possibilities.

“No respectable franchisor balks at disclosure. Disclosure is a chance to sell franchises.”

The Alberta government might consider taking franchisors at their word. It has eliminated the delay and expense of ASC filings, but shouldn’t tamper too much with high demands for disclosure. The risk is that the regulations will shift the balance back to the franchisor.


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