Franchise laws welcome

“What a disappointment.”…“This law is worse than what exists now, which is nothing,” snapped Les Stewart, founder of the Canadian Alliance of Franchise Operators. “It will only lull potential entrepreneurs into a false sense of security.”

The Toronto Sun
December 8, 1998

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Franchise laws welcome
Linda Leatherdale

Ask many franchise operators, like disgruntled 3-for-1 Pizza franchisee Ali Mahmoudzadeh, about Ontario’s new franchise laws and the response will likely be: “What a disappointment.”

Mahmoudzadeh is suing 3 Pizzas 3 Wings Ltd. (the parent company for 3-for-1), for $2.5 million, alleging abusive practices aimed at forcing him out of business.

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Mahmoudzadeh’s now dormant lawsuit, which included 19 other 3-for-1 Pizza franchisees, was filed last March, too early to be covered by Ontario’s first-ever franchise legislation introduced by Consumer Minister David Tsbouchi last week. The 3-for-1 parent denies any wrongdoing and says the claims are “completely false and untrue.”

Some franchise experts argue the proposed legislation, expected to be quickly passed into law, wouldn’t help Mahmoudzadeh anyway.

“This law is worse than what exists now, which is nothing,” snapped Les Stewart, founder of the Canadian Alliance of Franchise Operators. “It will only lull potential entrepreneurs into a false sense of security.”

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Others, though, say Stewart’s wrong. The legislation is just what the doctor ordered by setting up guidelines to assist both franchisors and franchisees and not so overbearing to choke off business altogether.

In a nutshell, it offers better disclosure to let the franchisee understand who he or she is getting involved with a 60-day cooling off period and even some guidance in what constitutes fairness.

“A government can set guidelines with respect to a business relationship, but it cannot legislate behaviour,” quipped 20-year franchise veteran Murray Katzman.

Katzman is now in the medical insurance business after the lease on his Golden Griddle on Finch Ave., near Dufferin St., was not renewed by the franchisor.

He says would-be franchisees are enticed into an agreement through “seductive” advertisements which read “be your own boss,” or “own your own business,” and “be the author of your own destiny.” Once the deal is signed, they find out it may not be as easy as it sounds.

Katzman applauds the new disclosure rules, which will reveal a six-year history of a franchisor’s dealings.

“I think the legislation really forces wannabe franchisees to think very carefully about the relationship they are entering,” he said. “Because if it goes to a dispute, nobody is happy.”

Katzman also pointed out that if a dispute does go to court, a franchisor usually has deeper pockets and can “out-sue” the franchisee.

London, Ont., franchise lawyer Peter Macrae Dillon, of Siskind, Cromarty, Ivey & Dowler, also believes the new legislation is a good step forward.

“Some people may be unhappy because they were asking for the earth, the moon and the stars in terms of this legislation. “But I think it will be good for the industry.”

Alberta is still the only province to have franchise legislation. Even then, says Dillon, it was too tough when first unveiled.

“Alberta’s laws killed the golden goose, so by 1995 they softened the legislation,” said Dillon, who added Ontario’s new laws are very similar to Alberta’s.

Dillon believes most franchisors have good intentions, and only a handful are out there to burn their franchisees.

Dillon says both franchisors and franchisees take risks, and the relationships work best when both sides make money and share the wealth.

“That’s why McDonald’s, Tim Horton’s and Canadian Tire are so popular,” he said. “They produce millionaires.”

But Dillon warned that nobody gets rich without doing their homework first.


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