Franchise protection ‘long overdue'

“The greatest form of protection for a prospective franchisee is to speak to former franchisees, not existing franchisees,” says Katzman. “Current franchisees may be afraid to release information.”

The Toronto Sun
June 17, 1998

Franchise protection ‘long overdue’
Maryanna Lewyckyj

It will be tougher to get burned in a fast-food deal, or sucked into an unprofitable office-cleaning scheme, under proposed franchise guidelines that could become law by the fall.

The Ontario Ministry of Consumer and Commercial Relations’ just released consultation paper has tough, new disclosure requirements for franchisors.

Although filled with success stories, the franchise industry has also been plagued by horror stories of shady operators fleecing inexperienced entrepreneurs.

“There are some franchisors out there who keep putting franchises into bad locations, so they can keep re-selling,” says Richard Cunningham, President of the Canada Franchise Association. “This legislation will expose the bad guys.”

“It’s long overdue,” say Murray Katzman, who operated a Golden Griddle franchise for 20 years. “Franchising is a rather unique situation.”

Lawyer Larry Weinberg of Cassels, Brock & Blackwell, says legislation won’t entirely eliminate the risks involved in starting a franchise, but will make it easier for would-be franchisees to get factual information to make a reasonable decision.

14 – day disclosure
If the guidelines become law, franchisors would be required to disclose within 14 days of a contract:

  • The litigation history of the franchisor, associates, directors, partners and officers, including any fraud convictions or pending charges.
  • Bankruptcy or insolvency information.
  • Audited financial statements.
  • Business background of the franchisor and its directors, partners and officer (i.e. ownership, prior experience, length of time the franchisor has been in business).
  • A list of current and former franchisees.
  • Any restrictions on suppliers, or goods or services to be offered.
  • Conditions of termination, renewal and transfer of franchise agreement.
  • Exclusivity of the territory and the proximity in which a new franchise can be opened.
  • If potential earnings are given, they must include reasonable basis for the claims.

“The greatest form of protection for a prospective franchisee is to speak to former franchisees, not existing franchisees,” says Katzman. “Current franchisees may be afraid to release information.”


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Risks: Ministry of Consumer and Commerical Services, Ministry of Consumer and Business Services, Ministry of Government and Consumer Services, Ministry of Government Services, Ontario, Canadian Franchise Association, CFA, Churning (serial reselling), Fear, distrust, hate and contempt, Toothless law, Wanted: sheep, Franchisor takes franchisee store, resells to new dealer, Current franchisees can’t talk freely, Horror stories are merely anecdotal, Gag order (confidentiality agreement), Intimidation, Canada, 19980617 Franchise protection

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