House Debates, Introduction of Bills, Legislative Assembly of Ontario, Canada

They lost their franchise. The rug was pulled from under them. They found themselves flat on their face with no recourse to any resolution mechanism and lost their livelihood, and lost their opportunity to contribute in the ways they very genuinely wanted to, to the community in which they lived, to the community that actually brought them up, gave them their education, gave them their start in life. That was all gone.

LegislativeAssemblyofOntarioCostofArms.jpg

Legislative Assembly of Ontario
November 16, 1995

House Debates
Introduction of Bills
Tony Martin, MPP

The Committee of the Whole
1st session, 37th Parliament
Toronto, Ontario, Canada

FRANCHISES ACT, 1995 / LOI DE 1995 SUR LES FRANCHISES

PRIVATE MEMBERS' PUBLIC BUSINESS

Mr Martin moved second reading of the following bill:

Bill 13, An Act to regulate Franchise Agreements / Projet de loi 13, Loi visant à réglementer les contrats de franchisage.

The Deputy Speaker (Mr Bert Johnson): The member has 10 minutes.

Mr Tony Martin (Sault Ste Marie): I rise today in this House to share a very difficult story that has been unfolding, a relationship story that has been unfolding in this province over the last few years that has indeed some national repercussions.

It's a story that was told by a colleague of mine in the spring of 1994, Mr Jim Wiseman, who brought forth a bill concerning the relationship between franchisers and franchisees in this province. It's a story that pits small business in many significant ways against large business, and the imbalances that are in that relationship and the agreements that are signed, and in the end, the devastation and destruction that happens to many small, well-intentioned entrepreneurs who live and work and operate and contribute in more ways than simply being a businessman or a businessperson in a community across this province.

It wasn't long after I got elected to this place that I received a letter in the mail from some folks who were representing the franchisee industry or organization or community in the province, sharing with me their very genuine and sincere concern re the conditions within which they have to operate and make a living and try and do business in this province, given that, as they said, there was no legislative context within which agreements were signed, information was disclosed, resolutions were had etc.

They told me some very disturbing stories, particularly in subsequent meetings that I had with them, stories of people like your friends and neighbours, perhaps somebody in your family, who, well-intentioned, got into a business by way of a franchise opportunity, invested all of their money, all the money they had made over a number of years, in some instances mortgaged their homes, in some instances borrowed money from other family members and got into debt situations with banks, and then found three, four, five or 10 years down the road, for reasons unknown to themselves — or even if the reasons were known to themselves, there was no provision for challenging those reasons — they lost their business.

They lost their franchise. The rug was pulled from under them. They found themselves flat on their face with no recourse to any resolution mechanism and lost their livelihood, and lost their opportunity to contribute in the ways they very genuinely wanted to, to the community in which they lived, to the community that actually brought them up, gave them their education, gave them their start in life. That was all gone.

In one instance, we had a fellow take over a business that was in his family, that was his father's business. He worked very hard to make a go of it, invested a lot of money, borrowed a lot of money to do the renovations that were required in that store by the franchiser, and then one day — now, today, in fact — finds that he has no more business. Not only does he not have the business that was giving him his livelihood, that was actually going to be that place or that thing that would give him some comfort in his retirement years, but he now found himself in debt up to his eyeballs, and speaking to me in a way that certainly shared with me that he wasn't sure how he was going to resolve this.

Another couple in northern Ontario actually moved from another city to take over a franchise, and worked very hard. They took over a franchise that was struggling, worked very hard, mortgaged their home, bought a new home in the new community, put in, as most small businessmen do, we know — and franchisees particularly, in this instance — 50, 60, 80 hours a week, just every waking moment, worrying about the business, and just recently now have been given a notice that their agreement is not going to be renewed. So having moved their family, having sold their house, having invested all their money and put in all that time and energy that was required to make a go of this business, they're told, for no reason that's been given to them or presented to them, that their agreement is not going to be renewed. They're in debt and they're in terrible shape.

In going through the material that Mr Wiseman, the previous member for Durham West, shared with me as he put together the bill that he presented to this House, which actually got through second reading and was before the House, still active, when the election was called, some of the information that I read in there as well is quite disconcerting and actually tragic. I'm just going to share a couple of paragraphs for you so that you understand the human suffering that is being caused simply because there is no legislative framework within which this type of business operates so that resolutions can be resolved in a way that's just and fair and equitable.

Here's one. It says:

"In the meantime, I have been unable to find steady employment, have lost our home, savings and pension plans. I will be filing for personal bankruptcy later this month as there really is no point escaping the fact that even if I win my action" — against the company that they're taking action against — "there would not be sufficient moneys, funds left over to clear my indebtedness completely."

Here's another one, a letter to Mr Wiseman:

"The result of this takeover was, and still is, devastating. My immediate family, comprised of my wife, two sisters and brother-in-law, are all affected through total loss of income, mortgages recently placed on our homes, capital injected into business, personal guarantees on equipment purchases, as well as personal guarantees on job performance bonding. We have literally watched our futures disappear and we are striving day to day to put our futures back together again."

This is the story I tell this morning, and the legislation I bring forward today will go a long way, in the opinion of both franchisers and franchisees who have worked with this, through a report that was given to the minister on August 30 that they developed on the initiative of the previous Minister and Ministry of Consumer and Commercial Relations, who have recommended that one way of resolving this problem — in fact, however you resolve this problem, in the end, there will be some legislation required. So the legislation that I present this morning will go a way to resolving at least three of the issues that have been shared with me as problematic in this interesting relationship.

This act provides a comprehensive scheme to regulate the entering into of franchise agreements and the ongoing relationship between the franchiser and the franchisee. It doesn't give anything special to any one side or the other. It doesn't tip the playing field in anybody's direction. All it does is try to set a level playing field to which both parties can come and share information and have some resolution to their disagreements.

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This act calls for disclosure of information at the beginning of the agreement. It acts for more control over the workplace and the investment that's made, and calls for dispute resolution, something that I think we all would see as reasonable and not out of sorts.

What is it specifically that the franchisees are having difficulty with? What is the cause of all of this? Let me just share with you a couple of the concerns they have raised with me.

Most disputes with franchisees involve allegations of improper disclosure. This act will answer that.

Problems arise when a contract does not allow sufficient time to recover the initial investment and provide a reasonable return for the franchisee's hard work and money.

Lack of support can be a breach of contract. Some franchisees have sued franchisers for failing to provide the level of pre- and post-opening support they were led to expect.

The list goes on and on of ways the franchisee feels he doesn't have a fair shake or get a fair shake in trying to make a go of this business he has invested all of his money, all of his effort, all of his energy in so that he can contribute in the ways that he wants to, to his own livelihood, to the livelihood of the community in which he belongs, not to speak of the livelihood of his family, and to put something in place that will be there for him ultimately when he retires or decides to move on, or will have something to pass on perhaps to his children.

In the context we have today, there is no legislative framework to ensure this will happen. So I ask all the members of the House to listen carefully to the discussion and the argument this morning and hopefully find it in your wisdom to support it.

Mr Jim Flaherty (Durham Centre): It gives me great pleasure to rise for the first time in this place as the parliamentary assistant to the Minister of Consumer and Commercial Relations.

First of all, I would like to say that the Ministry of Consumer and Commercial Relations appreciates the intent of Bill 13 to promote fair dealing between franchisers and franchisees in Ontario. Our government is aware of some problems that currently exist between franchisees and franchisers in Ontario. This is important to me because a thriving franchise sector means more jobs in Ontario and contributes to the government's objective of increased economic growth. The franchise sector alone accounts for about $45 billion in sales annually in Ontario.

In 1994, a highly publicized dispute between a Toronto-based franchiser and its franchisees was one of the factors that prompted the Ministry of Consumer and Commercial Relations to establish a team called the Franchise Sector Working Team, comprised of representatives from both franchisers and franchisees. Ministry representatives took part as facilitators.

This Franchise Sector Working Team's Report on Franchising, which is what the report was called, was presented to the minister last August; that is, August of this year. The report is a good first step towards a sound relationship between franchisees and franchisers. The report identifies several areas of consensus reached by both franchisers and franchisees, including pre-sale disclosure information by all franchisers and franchisees; secondly, a code of ethics; and thirdly, provision for alternative dispute resolution.

Very importantly, the team has agreed that problems associated with franchising can best be dealt with in an industry self-managed environment, rather than through full-scale government regulation. The fact that agreement could be reached on such important areas is an achievement in itself.

We believe that more time is needed to assess the recommendations contained in the report. Although it is agreed that there is a need to address the problems associated with the franchise sector, we are not convinced this bill is the most effective way of doing so.

The bottom line is that this government will not support the passing of a bill that will increase onerous government regulations and red tape. The bill before the House, while well intended, will first of all inhibit job creation; secondly, it will inflict an onerous regulatory regime not only on the government but also on the private sector; and thirdly, it will produce reams of red tape. It is for these reasons that this bill is opposed.

Mr Bruce Crozier (Essex South): I appreciate the opportunity to speak to this private member's bill this morning, and I do so because I think for all those things that we do in the Legislature, one of the more important things is the opportunity for private members to present their own bills. It were only my wish that these private members' bills were more successful, but perhaps we'll see that in the future.

To add to the comments of the introduction of the bill and to the speaker from the government side, franchising, as we all know, is big business in Ontario. Certainly in Canada, as a matter of fact, half of the franchising is done in the province of Ontario. We too recognize the need for franchise legislation. Carman McClelland, the predecessor of mine as the Consumer and Commercial Relations critic, also had prepared some work in this area.

It was interesting to me that the member for Sault Ste Marie who introduced this bill wanted to emphasize this morning the sad stories that there have been in the franchise industry, and I agree. That's one of the areas where we should be very careful, that we protect the franchisee because more often than not they have less expertise, they have less money, less resources when they're entering into these agreements.

On the other side, I think we have to uphold that long-standing tradition of buyer beware, and that we have to give the opportunity for the franchiser and the franchisee to reach their agreements and to have an understanding of how they're going to conduct business. But like the previous speaker, I don't feel that we can be too intrusive, because we do like to see the free market system operate as best it can.

We do know as well that there is franchise legislation in other jurisdictions in the Dominion of Canada, most recently I guess would be in the province of Alberta, and to some extent I suspect that this piece of legislation was patterned to some degree after that.

As was mentioned, this actually is much the same as a bill that was introduced in, I think it was, the third session of the previous Parliament, and that unfortunately didn't even pass first reading. So at least we're able to discuss this at some length.

Also was mentioned — and I guess that's the problem when you're the third person to speak on something like this. We all put our notes together separately and some of us come up with the same information, but I too have the franchise sector working team's report that was given to the minister in August 1995. There was a previous report, The Need for Franchise Legislation in Ontario, that was prepared for the Ministry of Consumer and Commercial Relations by the Canadian Federation of Independent Grocers, and that was back in November 1993.

I think there has been good work done in both of these reports. I expect that the government will be coming forward with some legislation because, with all due respect to my friend from Sault Ste Marie, as has been said, they're not going to support it, so I think we've already been told we're out of luck. But in any case, perhaps we can give them some good advice.

In concluding my remarks, I would like to say that I too agree that this bill as it's presented today is a bit onerous. It's heavily weighted on the side of using the regulatory powers of the Ontario Securities Commission and is onerous in the areas of its compliance and enforcement mechanisms. I would suggest, as I think the government speaker has, that what we need is a balance of legislation that protects the interests of the franchisees, who in most cases are small business people, and yet that is not too regulatory and has too much red tape, so that in the end I suppose what we would all like is some sort of legislation that would be in a sense self-regulatory. I hope when we come to vote on this that those who feel that we need some sort of legislation in this area — if this is the bill that satisfies their need — support it.

But further to that, as we've already been warned by the government that it's not supporting it and in all likelihood it won't pass second reading, I would hope that the government then will come forward with that balanced legislation that's not too intrusive but still gives protection for the smaller franchisees.

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Mr Rosario Marchese (Fort York): It's a pleasure for me to stand today to support the bill presented by my colleague from Sault Ste Marie. I think it's a good bill and I think it's an important bill that should pass. I want to remind the Conservative members on the other side that we passed 16 private members' bills during the last government session. That was important because it recognized the fact that individuals bring forward private members' bills that often are good and should be supported. We hope that what we did will be continued by the other side. I hope that they will not take what we did too lightly and that they will pursue the same goals as they did in opposition this time around as we introduce private members' bills.

I want to say with respect to this that we have created a Fort York Small Business Working Group for the last three years and we have had ongoing meetings almost biweekly talking about the problems that small business face. One of the biggest things that they face that we have talked about that we're trying to tackle is the fact that they face continually a problem with banks and that banks are the ones who are stifling growth because as they go to them for credit, they often don't get it. And 85% of all the jobs are created by small business people and they get a disproportionate share from the banks in order to be able to create wealth in this society. It's a tragedy, but it's something that we continue to work on in a small way in Fort York. But that is one of the biggest problems.

One of the other matters that was raised while we dealt with some of the problems that they face was the issue of franchisees and all of the multitude of barriers that they face in dealing with the franchisers. So we dealt with that and we talked to member Jim Wilson who introduced this bill prior to the member for Sault Ste Marie. I think what he introduced was good then and it's still good now.

Part of the problem that the franchisee faces is having to deal with a very powerful franchiser. It's a case of small versus big. It's a case of the little guy against the big guy. But these are the people who work hard — this is a big industry — and these are the people who are trying to create in their own way wealth not just for themselves but for our society, and they need, in my view, protection that they don't have at the moment. They're seeking a dream. So you can picture these people sitting down with the franchiser saying: "Well, I want to get into this. I want to be able to make a living doing this and it seems good," and the franchiser saying: "Yes, of course it is. We want you to do well and if you don't do well we won't do well. We want you to operate that business. We wouldn't put you in a position where you would fail because if you fail we, the franchiser, will fail."

Now imagine that kind of talk. People submit to that. You listen to that as a franchisee getting into the business and you say: "He doesn't want me to fail. He wants me to succeed because if he fails I fail." Therefore, it all sounds rosy. And it does sound rosy in the beginning, but it gets very complicated as you go along. That's why this bill was introduced before and is being reintroduced now, because we know there are predatory practices that are being practised by the franchiser that need to be dealt with.

The former Minister of Consumer and Commercial Relations, Marilyn Churley, attempted to deal with this by bringing forward a group of stakeholders to attempt to give answers to this question. Having done that, we would have been ready as a government to have moved on that, because I feel that we need to move on this. So they have the report. They hopefully, in my view, will act on the report. Not to act on it would be a tragedy.

Alberta has it. It's a Reform Party that we've got there, much similar to this one. They've done it. If Alberta can do it, Ontario can do it. If Alberta, of all places, feels that franchisees need protection, surely the same party here with the same reform-minded politics can do the same. Surely this party will support small business in the same way that Alberta has done; and if it doesn't, you need to question why. Who are they supporting? Are they supporting the small business person, or are they supporting the big business person, because that's the way it seems from what I hear from the member for Essex South who has spoken.

We have many, many problems here to deal with. We have uncompetitive pricing, products that are supplied at terms or prices which place the franchisee at a competitive disadvantage to others in the industry. We have breach of territory. If a franchiser reduces or oversells exclusive marketing areas, the franchisees' sales may be affected. We have unnecessary renovations and unreasonable costs which the franchisees are subjected to. We have unreasonable payments that they have to meet. Royalty rates may be set low deliberately, but they're accompanied by a requirement that supplies must be purchased from the franchiser at inflated prices.

This is a small list of complaints that I bring, but I know that my friend from Sault Ste Marie has brought other complaints and problems and barriers they face in order to make a living. These people work night and day, 60, 70, 80 hours trying to make a living, but then they face the difficulties of having to deal with a franchiser that can pull the plug at any moment.

The letter that my colleague the member for Sault Ste Marie was reading earlier on — and it's not here in front of me — the plug was pulled away from them. They said, "You no longer have the franchise." How do you deal with that? Nine years of work — he, his wife and other family members — and all of a sudden the franchiser said, "We're sorry, we're pulling the plug." How do youdeal with that? We need protections.

The Liberal member and the Conservative member say: "Oh, we don't need to inflict a regulatory regime on these people. We don't need reams of red tape; we need self-management. It cannot be too intrusive." "It's too onerous in compliance mechanism," the Liberal member says.

If that is true, what you are doing is, you're abandoning the small franchisee. You're abandoning the little guy, and you're saying this: "Self-compliance; we'll need to find different ways to deal with it. Let them in their own way deal with this. Yes, we know it's painful but eventually they will come up with a system without the onerous regulation to deal with it."

I argue, you can't do it. It hasn't worked, and what you're proposing is not a solution. What we need is regulation to protect the little guy, the small business person who works 70, 80 hours a week. The regulations we're proposing are by no means a complete solution, but they move towards it; they move towards responding to the problems that little guy has.

If you don't do it, you're abandoning thousands and thousands of people in Ontario who operate these small franchisees and are at the mercy of the franchiser. I plead with the members to look at this. I plead with the members who are looking at this not to simply get a response from the minister that says, "This is your response in the House," but to look at this bill carefully, because you will find that what's here is very reasonable.

I hope the members will support the member for Sault Ste Marie, who has introduced this bill today.

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Mr Rob Sampson (Mississauga West): First of all, I want to congratulate the member for Sault Ste Marie for the considerable amount of work that he's put in putting this issue and this bill to the House today. It certainly reflects my honourable friend's commitment to his constituents and his belief that small businesses are a very crucial factor of the Ontario economy. I too wish to speak to this particular bill, not only as the parliamentary assistant for financial institutions to the Minister of Finance, but as a member of this House who is also concerned about small business in Ontario and how we must rely upon the small business sector to generate the economic growth this province truly needs and deserves.

I'd like to first of all focus on my concerns with Bill 13 as it relates to the reference to the Ontario Securities Commission, which of course reports to the Minister of Finance, and then I'll go on and address the other pieces of legislation I think are relevant.

Part II of Bill 13 would require companies selling franchises in Ontario not only to file a prospectus but to register the salespersons with the Ontario Securities Commission. Now, this is an added responsibility to be placed on the Ontario Securities Commission, which by the way is principally involved in the regulation of public stock transfers and capital market transactions, not joint ventures between business partners, which is truly what a franchiser-franchisee relationship is; it's a business transaction, a joint venture business transaction that has been agreed to by two parties.

The bill does not speak to the resources or the skill sets that would be required of the commission in order to deal with the paper flow and information flow that is proposed by the bill. Frankly, as an additional concern, it doesn't mention the time and expense — more importantly, the expense — required by the commission in order to deal with this activity. Now, in times of serious economic constraint I think that is a fairly serious omission that must be dealt with.

In general terms, Bill 13 appears to be modelled after the Alberta Franchises Act of 1980. After several years of experience in that province, and a number of reviews, it was found that the rules in the legislation, the Alberta Franchises Act of 1980, were in fact too intrusive and curtailed investment, investment that was designed, supposedly, to create jobs in the crucial small business sector of that province. So Alberta put together a working group of franchisers, franchisees and government representatives, and agreed through a series of meetings that some changes needed to be made. On November 1, 1995, I'm led to believe, the filing of prospectuses and the registration of salespeople was no longer required in Alberta, and a large degree of the governance relationship between the franchiser and the franchisee was delegated under the new Alberta legislation to a self-regulating entity, not the Alberta Securities Commission but a self-regulating entity.

So, indeed, Alberta has tried the experiment, as my friend the member for Fork York has suggested. They indeed did try the experiment, and it didn't work, so they had to change it. They had to change it to return the regulation of the industry, the regulation of the business relationship between the franchiser and the franchisee, to the industry.

In the Common Sense Revolution this government committed to removing unnecessary regulation that hindered the growth of business. That's a crucial component of our plan to get this province working again.

As a former employee of a provider of leveraged capital to the small business sector in Ontario, I am concerned that the attempts to regulate the franchiser-franchisee relationship may in fact hinder both parties in getting access to the needed capital to do business. Indeed, much of the information required by the bill is unlikely to be meaningful data to any one of the parties. I know; I've asked for it. What we need to do is let investors decide the information flow that's required to reach an investment decision.

What investors want, frankly, are the factors to be determined on their own accord, not by some government regulation, not by some government legislation. We in this House must be extremely careful not to become party to these investment decisions determined by this Legislature but in fact having application upon two people who are deciding to get into business together.

I should draw the House's attention to the fact that even the business community in Ontario itself is uncertain that regulation as proposed by this particular bill is needed. I understand that the Canadian Federation of Independent Business has conducted a survey of its many thousands of members and found, of those who responded, 59% do not support the regulation of the franchiser-franchisee relationship.

For these reasons, the impact upon the Ontario Securities Commission being one that affects the Ministry of Finance, but more specifically, coming from the private sector, coming from the sector that provided and does continue to provide a significant amount of capital to the franchising business in this province, I'm unable to support this bill as it is currently tabled. I would go so far as to say I think certain provisions of it would injure the development of the franchising business in this province.

Mr John Gerretsen (Kingston and The Islands): I suppose the first matter that could be raised this morning — and we heard from both of the parliamentary assistants that the ministry is looking at bringing in potential legislation in this area — is the question, when is it coming?

Having dealt with people in my business over the years that were both franchisers and franchisees, I can tell you that there is a problem in this area. Certainly, I too have to congratulate the member for Sault Ste Marie in bringing this matter forward. All one has to do is walk around the downtowns of the province of Ontario, walk through various malls, and you very quickly get the impression that a significant amount, if not the majority, of the retail business going on in this province is being done on a franchise basis, and there are some significant problems in the area.

It seems to me from the debate that we've heard this morning we're either talking about intrusive government intervention on the one side, which is certainly what this bill recommends, and the much slower self-regulatory approach as has been advocated by the Conservatives.

First of all, let me say that I wish that I could support this particular bill, but I cannot. There are few enough of us on this side of the House to realize that we do have to support one another from time to time. However, this is, once again, a situation where I believe we have to find a balance in between the rights of the franchisers and the rights of the franchisees.

Most of the matters that the member for Sault Ste Marie has referred to this morning are very sad situations where people lose their life's investment after maybe having spent five or 10 years in trying to build up a business etc. But when we get into the details, on most of the items that he refers to one could very easily take the position that in a lot of these situations people just made bad business decisions. I'm not sure whether government should be involved in protecting people from making bad business decisions. That's number one.

They're talking about improper disclosure. I would say that if a proper contract was drawn up at the outset, if there was improper disclosure then that's a cause of action right there. Why doesn't the person take the matter to the courts? After all, that's what they're there for.

Also, the comment was made that in a number of situations there's no time for the franchisee to recover the initial investment that they may have made. I assume that's because the franchise agreements are for too short a duration. That is a decision, quite frankly, that those people who are going into that business have to take into account — the length of the franchise agreement that's offered to them — when they make that investment decision. If they have miscalculated that somehow and they haven't calculated in the amount of time that's required in order to pay back the initial investment, I'm not so sure whether the government should necessarily step in and protect them in cases like that.

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On the last matter that he mentioned, about there not being support there that quite often is contained in these franchise agreements, in opening up, in promotional matters etc, I will totally agree. These are usually matters that arise almost in the heat of the moment, immediately before a franchise is opened, and all sorts of support has either been promised and may even have been contractually signed for and quite often is not there. Quite often the independent businessperson is left with the position that, having invested as much as they do, they go ahead or they somehow back out of it and in effect walk away from their investment.

Certainly there ought to be a mechanism in place to ensure that the small investor — and most franchisees are, initially – is protected from usually the much larger multinational franchiser.

I'm a new member to this House, and I maybe approached this bill a little bit differently. When I got a copy of it the other day, I went through it and I thought, "Well, what makes sense, and what doesn't make sense?" I must admit that having the Ontario Securities Commission deal with this matter didn't seem to make sense to me. Having this 14-day filing requirement or disclosure requirement seems to me, in most situations, almost an extraordinary length of time, because usually people want to make a quick decision. They ought to have all the information in front of them, there's no question about it, but on the other hand, to wait 14 days, during that period of time there may have been two or three other people who have come forward and want to get involved in that particular line of business as well. It seems to me that that's kind of an onerous requirement.

I'm not so sure that the mediation process that is described in the bill is necessarily a good one. Mediation does work in certain areas, but in a situation where usually the franchiser has the greater ability to wait the situation out, I'm not sure whether the mediation process in effect doesn't help the wrong party in situations like this. Perhaps the much better way is to have the matter resolved either within a court of competent jurisdiction or through some mandatory arbitration, compulsory arbitration, so that the matter can be dealt with immediately, particularly the smaller items about which usually there may be quite a bit of dispute that arises from time to time in these franchise situations.

The member for Durham Centre mentioned the fact that this bill would inhibit job creation. It reminds me of some of the other comments that have been made in this House that have been freely thrown out etc. I'm not sure whether the bill will do anything, either inhibit job creation or create jobs, for that matter. It has just been a phrase that has been thrown out there to go along with the other rhetoric, I suppose.

It's true that there have been some changes proposed in Alberta, as the member for Mississauga West has mentioned, which obviously indicates that the bill as proposed, which I understand to be the Alberta bill, didn't work there to the satisfaction level that people were looking for and that perhaps those kind of amendments ought to be placed in any Ontario legislation that may come along.

I think where the legislation should ultimately end up is to recognize the fact that in situations like this there ought to be full public disclosure, no question about it. But there also has to be built in a "buyer beware" component. That is, after all, what made this province great, as far as I'm concerned —

Interjection.

Mr Gerretsen: Oh, look, it's true that there are many people out there, many small business people who have made, particularly in the last little while, bad business decisions. The economy has been against them etc, but on the other hand it is the idea that somebody can start with nothing and still become something in this province that I think is something we should hold on to. With too much government regulation and too much government interference, that simply will not happen.

My question again is, as I wind up my dissertation, to the members from the government who have spoken this morning: Could they give us some clear indication as to when exactly we can expect to see some government-proposed legislation on this matter?

Mr Peter Kormos (Welland-Thorold): I've listened, obviously, with great care to the discussion of this Bill 13 presented by my colleague and friend Tony Martin, the member for Sault Ste Marie, who shows his typical commitment to the little person, the small people, the vulnerable people in his presentation of this bill.

I'm going to tell you right now that I'm going to be supporting this bill, and I'll tell you as well, notwithstanding the views that have been expressed around this forum, I exhort my colleagues to support this bill. This is second reading. That means you support the concept in principle.

Everybody, notwithstanding their bias for or against a stronger or weaker regulatory regime, seems to be consistent with each other in suggesting that the franchisees in this province deserve some type of protection, some type of process whereby they can be guaranteed a full disclosure, because "caveat emptor" can only take effect when there is full disclosure, when there's a right to full disclosure, when it's a legislated requirement that there be full disclosure. Otherwise "caveat emptor" is a defence for every bunko artist and perpetrator of fraud that wants to walk the continent, never mind the country or the province.

Let's face it, most franchisers are responsible franchisers. When you go down to the University Avenue courthouse and take a look at who's involved in litigation, you don't see names like Tim Horton. You don't see some of the stable, responsible franchisers, but you see Pizza Pizza, Jumbo Video, Petro-Canada Certigard, Coffee Time, Baker's Dozen, Second Cup, Mister C's, Yogen Früz. It's these franchisers that franchisees have to be protected from.

Let's understand who the franchisees are, especially in this economic climate. The franchisees, to a large extent — and this is a new phenomenon, a post-1980s phenomenon — have a tendency to be new Canadians, also tend to be people in their more mature years, their late 40s, early 50s, who have been displaced from industry or the business world because of the downsizing that's occurring there, and who take their last paycheque, that golden handshake if they're fortunate enough to have one, to invest in a business endeavour, people who are not entrepreneurs per se, people who never anticipated having to enter the somewhat risky world of free enterprise.

Let's clear up another myth, and Bates addressed that in a study some time ago, and that's the 90% myth. The fact is that all the relevant studies, including that of Bates, indicate that there's a higher failure rate among franchises and franchisees than there is among non-franchised business starts.

Let's also understand that this issue — although I give Jim Wiseman, a member in the last government, credit, along with Tony Martin, for bringing the bill forward again — did not commence with Jim Wiseman. Indeed, it's very much a Conservative issue. It was back in 1970 that then-Minister Allan Lawrence, recognizing this new phenomenon, this new relationship — and you see, the problem is that there's a real vacuum in our legislative regime to deal with franchisers and franchisees. They're neither fish nor fowl. The franchisee is not an employee; the franchisee is not a consumer such that he or she is entitled to protection of however modest our consumer protection legislation is in this province. The franchisee, as well, is not an investor. The franchisee is a unique legal entity that justifies the implementation of appropriate legislation.

1150

Allan Lawrence recognized that back in 1970 when he established the Grange commission, the Grange inquiry, Mr Justice Grange as you'll recall. Mr Justice Grange in his report made some 14 very tough recommendations, recommendations to a large part replicated in this bill. And Arthur Wishart, who replaced Allan Lawrence as the Minister of Financial and Commercial Affairs — and not inappropriately from the same riding as my friend Tony Martin — Arthur Wishart, a good member of this Legislature, a real Tory concerned about the little guy, promised that there would be legislation in response to the 14 tough recommendations of the Grange report.

Notwithstanding the Kleining of Alberta under the regulation of franchiser-franchisee relationships and the requirement of full disclosure and registry, the fact is, Pizza Pizza with a scumbag like Lorn Austin, a convicted fraud artist described by a Florida prosecutor as "one of the most prolific white-collar criminals I have prosecuted in my career, Lorn Austin," a senior management person for Pizza Pizza — why, that bit of slime who has victimized so many young families, young investors, young new Canadians, through the unconscionable actions of Pizza Pizza — the Alberta Securities Commission indicated that Pizza Pizza could never have registered in Alberta with a character like Lorn Austin, a bunco artist, a thief, in a senior management position.

This government talks about protecting small business people and, by God, promoting them and sustaining them and supporting them and giving them the assistance they need. Well, the victims of the unconscionable franchiser scams are those very people.

So I say this, Speaker, and I know you'll agree because you've been around here for a good chunk of time: Let this bill go to second reading. The Tories have enough numbers to kill the bill on third reading if they wish. Let it go to second reading. Let it be dealt with in committee so we can hear from the public, so we can hear from the victims and, by God — I doubt if we'll hear from the perpetrators — so we can hear from the real small business people of this province.

Mr David Tilson (Dufferin-Peel): The member for Sault Ste Marie has brought forward a bill that was introduced by Mr Wiseman. Certainly all you have to do is look at the proceedings in the courts, the amount of litigation that's been going on. The former speaker just spoke about a certain amount of litigation that's been going on in the province of Ontario. You talk to the average lawyer in this province who advises people, franchisees, on signing agreements, and most of them say: "Don't sign it because they're so awful. Just don't sign it." Of course, they want to get into the business and what are they going to do? So they sign these things and they get into terrible amounts of trouble.

I understand the initiative of the bill, and this is not the first time this has been tried. Bill 45, I believe, was introduced in the province of Alberta and that's been mentioned by some other speakers. As I understand it, Bill 13 appears to follow the format of Bill 45, the Alberta bill. You hear news reports from the province of Alberta and it appeared that a number of franchises did not start in that province because they were concerned about that piece of legislation. It never did pass — I don't think it ever passed — but they were nervous about it and business stayed away.

So the province of Alberta introduced a new bill, which did not follow Bill 45 and certainly isn't going to follow Bill 13. It was introduced in 1995 and this is certainly a strong departure from the existing legislation of the province of Alberta. I believe the member should be looking at the Alberta legislation. You look where other provinces have made errors before you create some of our own.

Registration and review of the disclosure of documents by the Alberta Securities Commission were removed. The new act also includes a requirement for fair dealing and the establishment of a body for industry self-regulation. Alberta's 1980 Franchises Act was repealed when the new franchises act came into effect. I could stand corrected; perhaps Bill 45 was never enacted.

In any event, the point that I'm trying to make for the member for Sault Ste Marie is that Bill 45 was proven in Alberta to be ineffective. It wasn't what they wanted. The member from Kingston, I believe, spoke about how he was a little nervous about the principle of self-regulation. I think you've got to look at that.

We've just gone through five years when every time the government passed a piece of legislation, we had a commission; we created a bureaucracy. We can't afford these bureaucracies, and of course this piece of legislation, Bill 13, will require the Ontario Securities Commission to administer the new act. That's going to need more bureaucracy for them, although, interestingly, the Ontario Securities Commission has advised that since the bill doesn't involve the trading of public stock in a capital market, it does not meet the criteria of the Ontario Securities Commission and, as such, would not be considered as falling under the purview of the Ontario Securities Commission. So we have a problem there.

I will say that I agree with some of the comments made by the other speakers and I'm not going to repeat them, other than to say that it is intrusive. It is going to create more of an expense for the people of Ontario. Hopefully the legislation, whether it passes or whether it doesn't pass second reading, will encourage the Minister of Consumer and Commercial Relations to introduce government legislation, and perhaps some of his principles can be incorporated. But I simply will say to him that it was tried in Alberta. It didn't work, and I'm not going to support a bill that didn't work there when it appears that it's not going to work in the province of Ontario either.

Mr Martin: In bringing this bill forward this morning, I hoped to achieve a couple of things. Obviously, I wanted to see it pass so that we could have that table around which all of us could gather in the process that follows second reading before we had third reading to have the discussion.

If there are changes that you suggest need to be made, then let's make them, but let's make them now, let's make it happen now, because there are people out there who have been hurt, who are waiting for some resolution, who are being hurt as we speak, who are into major disputes with their franchiser over issues that they have a difficult time understanding. There are people out there who are going to be sucked into this vortex in the next year — six months to a year — that we should be concerned about and wanting to put something in place that will provide some protection.

So I would hope, first of all, that in the spirit of private members' hour, and trying to give it some oomph and some meaning in this place that you would see fit to support this and, as my colleague from Welland-Thorold said, in principle at least, allow it to be discussed further, in third reading. If you don't like it at that point, you can defeat it.

The other thing that I wanted to achieve this morning was the raising of this issue again, to let the people in this House and across Ontario who are listening and who may hear of it via the reports the press will print, that this issue has not gone away, that it's still a difficulty out there for small business, for little people who enter into franchise agreements, and they need help. They need some support. They need some protection.

I want to thank the members who participated in the discussion and took time to prepare and to participate and contribute – the Conservatives, the Liberals and my own colleagues — this morning. I again exhort you to please help me with this and support it when it comes to a vote.

This document is a verbatim copy of Hansard, the official record of the Legislative Assembly of Ontario. To review the original transcript:
http://hansardindex.ontla.on.ca/hansardeissue/36-1/l024.htm

Copyright (c) 1995
Office of the Legislative Assembly of Ontario
Toronto, Ontario, Canada


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