Ontario introduces bill to protect franchisees

“Everything goes to (the chain) … These people cheat us and we’ve lost everything.”…Vahdati said she and her husband spent $100,000 on legal costs in a fruitless court fight against the pizza-chain owner.

The Toronto Star
December 4, 1998

Ontario introduces bill to protect franchisees
Canadian Press


Fereshteh Vahdati and her husband spent more than $100,000 to buy a Toronto pizza franchise, invested thousands more on various fees and worked 17 hours a day.

Their payoff?

“We didn’t make any money,” a despondent Vahdati said yesterday.

“Everything goes to (the chain) … These people cheat us and we’ve lost everything.”

A new law introduced by the Ontario government yesterday aims to protect entrepreneurs like the Vahdatis from unscrupulous companies that impose unexpected costs and use shrewd business practices.

It would require franchisors to provide a document disclosing all the costs before the deal is signed – and to stick by its provisions.

The bill would also prohibit parent companies from using intimidation or other means to stop franchisees from forming associations among themselves.

The idea is to help potential franchise owners make an informed decision about whether to invest, consumer Minister Dave Tsubouchi said.

“There’s been some instances of unfairness,” he said.

But NDP Leader Howard Hampton said the law is toothless, lacking the kind of enforcement mechanism provided by similar legislation in Alberta and Australia.

Franchisees need a low-cost dispute resolution body they can use when the rules are allegedly broken, Hampton said.

Franchisees can use the courts. But the company owner usually has far deeper pockets and can simply wait till the franchise-holder runs out of money for legal fees, Hampton said.

Vahdati said she and her husband spent $100,000 on legal costs in a fruitless court fight against the pizza-chain owner.

The couple immigrated from Iran eight years ago and heard about the business from an Iranian community newspaper here.

The owner, also of Iranian descent, asked them to pay a 10 per cent royalty an 4 per cent of sales for advertising, Vahdati said. But after they bought the stores, they were told they also had to spend $65,000 a year to buy flyers from the owner.

They eventually ran out of money and the company seized the stores from them, Vahdati said.

The Canadian Franchise Association said yesterday it supports the Ontario legislation, saying it reflects rules that its own members voluntarily follow. Association members represent about 30 per cent of Canadian franchisor companies.

“The legislation will extend these high standards to all franchisor companies operating in Ontario,” association president Richard Cunningham said.

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