Franchise protections urged

Stewart, who set up the association after his own unhappy experience with a lawn care franchise, said there must be an alternative to going to court to settle disputes – perhaps an industry ombudsman or mandatory arbitration.

The Toronto Star
June 16, 1998

Franchise protections urged
Paper proposes proper financial disclosure
Valerie Lawton

Ontario is one step closer to legislation protecting franchise buyers – almost three decades after a government committee found there was a desperate need for it.

A government discussion paper released yesterday proposes mandatory disclosure of information such as a franchisor’s financial and bankruptcy history before contracts are signed.

But the head of a small franchisee group says the province’s proposal for the long-awaited help doesn’t go far enough.

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“It’s enough (for the government) to get it off the plate – ‘We’re supporting small business,’ “ said Les Stewart of the Canadian Association of Franchise Operators.

However, he added, “It’s not nearly enough.”

Stewart, who set up the association after his own unhappy experience with a lawn care franchise, said there must be an alternative to going to court to settle disputes – perhaps an industry ombudsman or mandatory arbitration.

Going to court is too expensive for franchisees, he said from Midhurst.

The Ministry of Consumer and Commercial Relations’ consultation paper outlines proposals for legislation expected to be introduced at Queen’s Park this fall.

Information a franchisor would have to provide includes:

  • Business backgound and litigation history of the company and its directors and officers.
  • Bankruptcy information about franchises.
  • The company’s audited financial statements.
  • Detailed information about the franchise offer, such as costs for initial inventory and policies on where another franchise can open
  • Details about earnings potential are optional. However, if they are offered there must be a reasonable basis for claims

Contracts wouldn’t be binding without proper disclosure

Franchise businesses in Canada account for nearly $90 billion in sales.

There are about 500 franchisors and 40,000 franchisees in Ontario

The rapidly growing industry has been described by some as a Wild West where franchisors hold virtually all the power. Some franchisees have complained about misleading offers and one-sided contracts.

Back in 1971 a legislature committee on franchising argued “the evils cry out for some control.”

Successive governments have only talked about doing something.

The Canadian Franchise Association has called for a disclosure law.

“It’s good for franchising. It’s good for franchisees who want to buy into a franchise,” association president Richard Cunningham said.

Lawyer Ned Levitt, a franchising expert, said the proposed legislation is long overdue.

“So many franchisees do buy without that information in Ontario, so it’s really quite a revolution.”


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