Advocate of franchise rights loses Ontario court battle

Stewart claimed Nutrilawn did not renew his contract because he had become a vocal franchisee advocate. In September, 1996 Stewart founded the Canadian Alliance of Franchise Operators (CAFO). He has since been active in bringing attention to franchise disputes in an effort to secure regulation of Ontario’s franchise industry.

The Toronto Star
March 22, 1999

Advocate of franchise rights loses Ontario court battle
Legislation needed to raise industry standards, lawyer says
Donna Green

One of the country’s most outspoken advocates for the rights of franchise operators has lost a legal battle with Nutrilawn International Inc., a company that sells franchises in the lawn care business.

Former Nutrilawn franchise operator Les Stewart was ordered to pay Nutrilawn $74,000 in damages, unpaid fees and royalties, in a court decision earlier this month

Justice Katherine Swinton of Ontario Court, general division, determined that Nutrilawn made no misleading statements nor deliberately withheld information; further, the judge noted that Ontario has no legal requirement for franchisors to disclose capital requirements or full earnings information.

Had Stewart won his case, legal observers say, it is likely that companies who sell franchises in Ontario would have been held to a higher standard of disclosure about their operations than they are now.

Tonu Toome, Nutrilawn’s lawyer in the proceedings, said Nutrilawn acted respectfully and ethically throughout its dealings with Stewart. Stewart disputed this. He claimed in court that Nutrilawn’s lack of disclosure about the actual earnings of franchises in operation when he bought his franchise misrepresented the truth about his likely earnings potential.

David Sterns, Stewart’s lawyer, said after the judgment was released, “The current state of the law only goes so far. In order to require full disclosure of the cold hard facts you need legislation.”

The Ontario Government has given first reading to a franchise disclosure bill that would require franchisors to provide disclosure documents, including financial statements, to franchise buyers. If these documents prove inaccurate or incomplete, franchisees would be entitled to damages within two years of signing the franchise agreement.

Stewart, 40, owned and operated a Nutrilawn franchise in Barrie from 1992 to 1997 that provided lawn care services to residential and commercial clients.

He said his decision to buy a Nutrilawn franchise was partially based on Nutrilawn’s sales package containing a statement of projected income and costs showing four different sales levels and expenses involved in running a Nutrilawn operation with those respective sales levels.

The sales projections used in Nutrilawn’s literature ranged form $180,000 to $1 million. Stewart claimed that when he purchased his franchise in 1992, he wasn’t told 70% of the 20 franchises in the system were making less than the lowest earnings projection in the sales literature.

At a $180,000 sales level, Stewart said the documentation did show the operations losing money after deducting a small salary for the franchise operator. In his fifth and best year, Stewart said his Barrie territory reached $216,000 in sales, but he was still not making money.

Stewart, who has an MBA, said in an interview he did extensive research before buying the franchise, but said what he didn’t know was the large amount of additional capital required to get the business up and running.

“It cost twice as much per customer as I had anticipated,” he said. “I was out of my league.” He started with a net worth of $50,000 and lost $75,000 in his first year of operation.

Larry Maydonik, president of Nutrilawn, said in an interview that Stewart’s financial difficulties were a result of his own inefficiency and poor decisions and that this is the first time in the system’s 11 year history that they have terminated a franchisee.

“We’ve had other people with less capital who were successful,” he said.

Etobicoke-based Nutrilawn did not renew Stewart’s franchise contract in 1997 and Stewart has been operating as an independent lawn care company since.

Because franchise agreements generally do not permit former franchisees to operate a competing independent business in the franchised territory, Nutrilawn sued Stewart for breech of contract.

Stewart in turn counter-sued for $68,000, which is what he paid Nutrilawn in franchise fees and royalties in the course of the contract.

Stewart claimed Nutrilawn did not renew his contract because he had become a vocal franchisee advocate. In September, 1996 Stewart founded the Canadian Alliance of Franchise Operators (CAFO). He has since been active in bringing attention to franchise disputes in an effort to secure regulation of Ontario’s franchise industry.


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