Ontario’s proposed franchise law should be known as the “Golden Rule” Bill

Until this type of law is passed, CAFO recommends potential franchise investors to talk in the only language Queen’s Park and the franchisor’s seem to understand – keep your chequebooks in your pocket.

Huronia Business Times
January 1, 1999

Ontario’s proposed franchise law should be known as the “Golden Rule” Bill
Les Stewart

LesStewart.jpg

Franchising is one of the fastest growing business sectors in Canada. It is a unique way of doing business, which is based on mutual trust.

Franchising is a long-term, interdependent relationship that holds the promise of increased wealth for both franchisees (small business-people) and franchisors (the owners of the system). This trust has broken down and the credibility of the industry is in question.

The Ontario government has known about these problems since 1971, when the Grange Report documented widespread abuses and recommended regulation through an industry-specific franchising body. Franchise lawyers and desperate individual franchisees have been repeating the same stories, over and over again: one-sided contracts, unrealized sales, over-inflated product costs, franchisor’s intimidation when franchisees want to organize for their self-preservation and costly law suits dragging out for years.

The Ontario Ministry of Consumer and Commercial Relations tabled their “Franchise Disclosure Act” recently. It promises to “provide a scheme for imposing disclosure obligations on franchisors to ensure that franchisees have the right to associate and to require a duty of fair dealing on each party to the franchise agreement.” How will it do this?

This law will be impotent because it lacks effective enforcement. A franchise that has been wronged can only take their franchisor to court to prove it, suing to recover damages. This is an extremely expensive and disruptive process, which would destroy the value of the franchisee’s investment. They would be throwing away their life’s savings to prove a principle. After three years, there has not been one such case resolved in Alberta. This is where the “Golden Rule” comes in.

Franchisees pay franchisors and banks in Ontario at least $3.1 billion per year in royalty and service charges alone. This works out to more than $350,000 per hour, every hour of every year. Using the one-sided agreements, franchisors control this cash flow, buy influence and protect their dominance by keeping the franchisees isolated, fearful and alone.

Don’t be fooled. This issue is only about money – who creates it and who controls it. A pizza outlet in Toronto, now vacant, was sold and resold five times in 18 months. A lawsuit drags on for 3 1/2 years, costs the franchisees $180,000 and has been delayed 38 times.

The true story of franchising is leaking out. Luckily, there is hope. Australia passed their new Franchising Code of Conduct in 1998. Enforcement of its specific provisions is done by a government tribunal. When an infraction is reported, the Competition and Consumer Commission responds, much in the way our provincial labour board or Human Rights Commission intervenes in abuse situations.

Canadian%20Alliance%20of%20Franchise%20Operators%20Les%20Stewart.jpg

The Canadian Alliance of Franchise Operators (CAFO) is calling for an independent, franchise-specific industry watchdog that will have the statutory powers to penalize irresponsible franchisors which will be funded by existing franchise industry cash flow.

The economic power of the franchisors must be balanced with the legislative power wielded by an unbiased Ontario Franchising Commission. Is it too much to ask that three hours of industry revenue be devoted to protecting the $5 billion that franchisees have invested when the franchisors and banks get the other 8,757 hours per year?

Until this type of law is passed, CAFO recommends potential franchise investors to talk in the only language Queen’s Park and the franchisor’s seem to understand – keep your chequebooks in your pocket.

Les Stewart founded the Canadian Alliance of Franchise Operators as Canada’s first franchisee-investment advocate group. Information can be found on CAFO’s web site at CAFO.net.


Brought to you by WikidFranchise.org

Risks: Undue influence, Investor confidence crushed, no trust or buying, Les Stewart, Canadian Alliance of Franchise Operators, CAFO, Grange Report, Ministry of Consumer and Commerical Services, Ministry of Consumer and Business Services, Ministry of Government and Consumer Services, Ministry of Government Services, Ontario, Justice only for the rich, Banks, Fear of poverty, Futility of taking legal action, Churning (serial reselling), Australia Franchise Act, Arbitration, Ombudsman, National Franchise Council of Canada, Don’t buy any franchise, State sanction, Commission with investigation, publication and enforcement powers, National Franchise Council of Canada, Affordable, early and non-legal dispute resolution mechanism, Power to publish offenders name, Canada, 19990101 Ontarios proposed

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License