Ontario rules make being a franchisee too risky: law expert

“At this point I would not advise anybody to become a franchisee, frankly,” says the franchise law expert and Stanford University professor.

The Sault Star
February 10, 2000

Ontario rules make being a franchisee too risky: law expert
Jeffrey Ougler

If you’re a retired professional boasting a sound nest egg and you’d welcome the challenge of testing the small business waters by becoming a franchisee, Gillian Hadfield has advice for you.

Forget it.

You likely haven’t the business acumen to jockey with Ontario’s big operators, especially amid what she brands as the province’s current “archaic” franchise rules.

“At this point I would not advise anybody to become a franchisee, frankly,” says the franchise law expert and Stanford University professor.

“I just think the position is way too vulnerable. I would feel more confident in the U.S. doing it, but you’re still taking a significant risk, especially if you’re not going with a very well respected, reputable company.”

In a telephone interview Wednesday morning from her California office, the former University of Toronto professor contended that under current Ontario system, franchise deals are usually very complex documents, rife with small print detailing rules franchisors are often able to change at any time.

“That’s the power the franchisor has,” Hadfield added. “And the franchisor can come in and in that contract, it says if you’re in violation of any of these principles – the French fries have been under the lamp for too long, sort of thing – (agreements) can be terminated.”

Hadfield’s conference call interview was engineered by Sault Ste. Marie MPP Tony Martin, who is trying to shepherd franchise legislation that would allow local players – Lock City Dairies is a prime example – more shelf space in the region.

The government has introduced its own Bill 33, the Franchise Disclosure Act, to be debated via a series of public meetings in March.

The standing Committee on Regulation and Private Bills will touch base in the Sault on March 7.

Hadfield hails California franchise laws as more equitable, stipulating that termination or failure to renew franchise pacts be only for “good cause.”

For most types of defaults by the franchisee, California law requires that there be notice and a period for the problem to be rectified, Hadfield added.

“So (franchisors) just can’t swoop in and say, ‘The bathrooms are dirty, we’re terminating your franchise,’ which can happen in the absence of that legislation,” she said.

“And although it sounds a bit bizarre, a franchisor might have a reason to do that if what they want to do is take over the location or if they’ve made a mistake on the part of their marketing and this particular franchisee has exhausted their life savings on the spotted hats and uniforms and not (the franchisor) has decided they want to change that, they might want to bring somebody in who’s got fresh capital.”

Every year in Ontario, some 5,000 franchisees take franchisors to court, said Martin.

Hadfield said Bill 33, as disclosure legislation, merely scratches the problem’s surface.

The law does nothing to control how a franchisor exercises power one a deal’s ink has dried, she contended.

“And you wouldn’t see the face of retailing change very much unless you really mean the faces behind the counter,” she added. “You may have some change in the people who go into (franchise deals), because perhaps some of these people will have more information up front. You might see some types of the worse things on the margin disappear.”

“Disclosure legislation is necessary, but the essence of franchising is that the people going into it are not particularly savvy in running a business.”


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