Ontario proposes disclosure rules for franchises

Mr. Stewart… said what’s needed is some form of dispute resolution and protection for franchise operators from encroachment on their territories. Without some recourse other than through the courts, he said disagreements become a form of “economic warfare" that pits small business owners against firms with deep pockets.

The Globe and Mail
June 16, 1998

Ontario proposes disclosure rules for franchises
Elizabeth Church

The Ontario government is proposing that franchise chains in the province be required by law to disclose specific information about their businesses before prospective franchisees agree to tie the knot.

The proposals, made public yesterday in a consultation paper prepared by the Ministry of Consumer and Commercial Relations, would also require franchisors to spell out details about the franchise agreement such as costs, restrictions and under what conditions it can be terminated.

But at least one group representing franchisees said the long-awaited requirements do not begin to protect people who often enter into deals with big corporations that hold most of the cards.

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“What it really is is a 10-per-cent solution,” said Les Stewart, a former franchisee who heads the new Canadian Association of Franchise Operators. “It will make it more difficult for people who are out-and-out crooks to operate. But you have more protection buying a car.”

Mr. Stewart, a businessman in Barrie, Ont., whose organization has close to 60 members, said what’s needed is some form of dispute resolution and protection for franchise operators from encroachment on their territories.

Without some recourse other than through the courts, he said disagreements become a form of “economic warfare” that pits small business owners against firms with deep pockets.

“If they think this is going to clean up the industry, they are wrong.”

But Richard Cunningham, president of the Canadian Franchise Association, a national body of 300 franchisors, said he is happy with the proposals, which closely resemble the disclosure requirements of his own organization.

The proposals call for franchisors to provide information about their business, litigation and financial history. They would be required to disclose such things as policies regarding exclusivity of territory, training and assistance programs, lists of current and past franchisees, and the conditions under which a franchise may be terminated, renewed or transferred.

Franchisors would be required to provide this information at least 14 days before signing any agreement. Failure to do so could make an agreement non-binding and franchisees would be able to seek compensation for losses.

Mr. Cunningham said he does not believe there is a need for a dispute resolution system, which he argued would only duplicate requirements already in place for all civil actions in Ontario.

Full disclosure, including a complete list of past and current franchisees, is enough to give prospective operators an indication of the kind of chain they are dealing with, he explained.

“What you want to stop is companies that give you a list of their best franchisees.”

The proposals come after years of study and repeated calls from franchise operators for Ontario to level the playing field somewhat in the industry. The province’s government first heard about franchising problems in 1971, when a special committee detailed widespread abuses and recommended regulation and oversight by a franchising body.

Three years ago, a report from a franchisor-franchisee working group recommended that Ontario adopt legislation similar to that in Alberta, the only province that has a law governing franchise agreements.

The Ontario proposal includes many of the features of the Alberta law, but it does not include its requirement of “fair dealings,” saying that the definition of the term is “problematic and costly.”

Yesterday’s paper proposes to implement the requirements either through changes to the Business Practices Act or in new legislation, but it does not give a timetable for any changes.

Mr. Cunningham said the government has indicated to him that it would like to have the legislation passed by the fall.

While Ontario would not be the first province to have such legislation, he said the new proposals are critical to the industry because about 65 per cent of Canadian franchising takes place in the province.

Now that the consultation paper has been released, he hopes other provinces will follow suit.


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Risks: Outright scams, Ministry of Consumer and Commerical Services, Ministry of Consumer and Business Services, Ministry of Government and Consumer Services, Ministry of Government Services, Ontario, Les Stewart, Canadian Alliance of Franchise Operators, CAFO, War of attrition, Arbitration, Ombudsman, Canadian Franchise Association, CFA, Grange Report, Toothless law, Disclosure laws: 10 per cent solution, Encroachment (too many outlets in area), Franchisors want the minimum regulation they can get away with, Grange Report, Evils of the system defined in 1971, Canada, 19980616 Ontario proposes

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