State of the Franchise Nation?

Of the 40,000 franchisees in Ontario, 5,000 are presently battling it out in court with their franchisors. Les Stewart is one of them. He’s locked into a lawsuit with the lawn care franchisor for who he worked six years before deciding to become an independent…the proposed legislation as badly needing Viagra. “It’s the wooliest thing I’ve ever seen.”

High Grader magazine
January/February 1999

State of the Franchise Nation?
Far from good says industry gadfly
Charlie Angus

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Les Stewart operates a lawn care business in Barrie, Ontario. But in the last two years he has made a name for himself as an outspoken critic of the franchise industry. In early December he helped lead a picket outside a closed down pizza shop in Toronto. Stewart, along with NDP leader Howard Hampton and Sault MPP Tony Martin, were hoping to bring attention to the plight of former franchisees who say they lost their life savings in a one-sided franchise deal.

What does lawn care have to do with pizza making? Everything, says Stewart. As the president of the fledgling Canadian Association of Franchise Operators, Stewart is a walking encyclopedia of franchise horror stories.

“We have stories of franchise operations changing hands five times in a single 12 month-period. If the franchisee defaults on the royalty payment the franchisor who often acts as landlord can come in and throw him out.” The franchise is then “sold” to the next prospective franchisee. There is nothing in Ontario law requiring the franchisor to reveal to such prospective buyers the track record of a particular operation or the hidden costs awaiting.

These may be extremes in an industry that trades on the image of successful flagship operations like McDonald’s and Tim Hortons, but they are stories that have a particular resonance in Ontario. Unlike jurisdictions such as the United States and Alberta, which have brought in specific franchise legislation, Ontario is still considered wide-open territory for a whole range of onerous and one-sided contracts.

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Of the 40,000 franchisees in Ontario, 5,000 are presently battling it out in court with their franchisors. Les Stewart is one of them. He’s locked into a lawsuit with the lawn care franchisor for who he worked six years before deciding to become an independent.

Stewart says that in Ontario, franchising remains a buyer beware proposition.

“When you sign a contract with a franchisor you are giving up a lot of rights that you don’t even know about,” he explains, “It’s a franchisor’s contract and you pay hidden franchise taxes all along the line.”

He provides the example of one fast-food outlet where the franchisee was paying for cheese at a 500% mark up from the franchisor. “If the contract says you have to buy from approved suppliers, well that’s it. If you don’t like it, they’ll change the locks.”

Stewart says that when a dispute arises, the terms of the contract always favour the franchisor.

“Most contracts state you can only sell the franchise back to the franchisor. As well, you sign a non-compete clause if you leave. So in the event of a dispute, you have to accept whatever they agree to pay you – if anything- for the franchise and then you’re not allowed to work in the business on your own for another two years.”

He says that with the heavy debt-load hanging over franchisees, the prospect of a long drawn out court battle on top of losing one’s livelihood makes it difficult to fight back. “Your life savings are tied up in the business. So if you start resisting, it can be catastrophic.”

Sault MPP Tony Martin (small business critic for the NDP) has tried to get more wide-ranging franchise legislation put in place but the bill was killed on first reading by the government.

“Part of the problem is that because the contracts are so punitive, the franchisees don’t want to talk. What we’ve been doing is highlighting the more dramatic cases where people really got taken to the cleaners but many who have been in similar situations don’t want to come forward. These people are small entrepreneurs, they don’t want to be seen as shit disturbers and so they say nothing.”

Presently the Ontario government is considering some form of franchise legislation but Martin says that the initial discussion paper doesn’t address the problems. “This bill doesn’t look like it’s going to do the trick. It just doesn’t have any teeth in it. There are no provisions for mediation or arbitration and that’s really what the franchisees need.”

Stewart concurs. He dismisses the proposed legislation as badly needing Viagra. “It’s the wooliest thing I’ve ever seen.”

Stewart is adamant that any new legislation needs to include the obligation for full disclosure (so franchisees knows exactly what they are paying for before going into the contract) and a binding dispute, so the matter can be settled without racking up large legal bills.


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Risks: 5,000 new lawsuits per year in Ontario, Canada, Justice only for the rich, War of attrition, Les Stewart, Canadian Alliance of Franchise Operators, CAFO, Necessary illusions, Tony Martin, Churning (serial reselling), Lease controlled by franchisor, Franchisee decision, independence, lawsuits, individual, Gouging on supplies, Non-compete restrictions, Must buy only through franchisor (tied buying), Justice only for the rich, Arbitration, Toothless law, Protest, rally and demonstration, Life savings lost, Political champions, Evict instead of terminate, Affordable, early and non-legal dispute resolution mechanism, Gouging on supplies, Non-compete restrictions, Canada, 19990101 State of

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