Normand Tremblay Public Hearing Testimony

My biggest fear is that if it passes without the changes discussed above, the franchisors will claim they have been dealt a serious blow and yet will still be allowed to do as they wish with their franchisees, provided they disclose their intentions to do so at least once in the original franchise agreement.

LegislativeAssemblyofOntarioCostofArms.jpg

Legislative Assembly of Ontario
March 8, 2000

Public Hearing Testimony
Ottawa, Ontario, Canada
Mr. Normand Tremblay, IGA franchisee

Standing Committee on Regulations and Private Bills
1st session, 37th Parliament

FRANCHISE DISCLOSURE ACT, 1999
Consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors

NORMAND TREMBLAY

The Vice-Chair: We'll now go to Mr Normand Tremblay. Mr Tremblay, we've allotted you 20 minutes, and that includes the time for some questions.

Mr Normand Tremblay: Good afternoon, everyone.

My name is Normand Tremblay. I am a former franchisee of the Loeb grocery chain. I left the business about three and a half years ago following a dispute with our franchisor. At the time, Loeb was owned and controlled by the Provigo corporation in Montreal. Today, as you probably all know, it is owned and operated by the Loblaws corporation.

The store I had was the Loeb St Laurent on St Laurent Boulevard in Gloucester, which is now part of Ottawa.

My reason for being here today is to offer my opinion on the proposed Franchise Disclosure Act, Bill 33, based on my personal experience in a franchisor/franchisee relationship that went wrong.

The end result of the dispute was that myself and approximately 18 other franchisees were bought out by the franchisor as part of a settlement agreement that was reached following an extensive legal battle. Part of the settlement also stated that, at the request of the franchisor, all franchisees were prevented from discussing any details about the dispute. The only comment permitted was to say that "our differences were settled on an amicable basis." So I have to be careful as to what I tell you today on the basis of what I can say is a gag order following the settlement.

The only reasons we were able to secure an out-of-court settlement were that, first, there were 21 of us who had joined forces to fight for our rights and to cover the legal expenses. Second, we had extremely competent attorneys who also sincerely believed in our cause. Third, our customers, the public, the media, local politicians as well as many provincial politicians were all on our side. Fourth, our franchisor eventually realized that it had more to lose than to gain by continuing the legal battle, from both a financial and a public opinion perspective.

During our fight with our franchisor, we also lobbied provincial politicians very hard for some form of legislation to regulate the franchisor/franchisee relationship. Although we knew at the time that very little could be done in time to help our own situation, our primary goal was trying to make sure that what was happening to us would not happen to other franchisees in the future; that the kind of misrepresentation and bad faith that we were battling would one day be prevented by having franchise legislation that would outlaw such an abusive process in the franchisor/franchisee relationship.

The things that we were looking for in the legislation were full disclosure of information, good-faith bargaining, dispute resolution, and some protection when it came time to renew our franchise agreement.

What the proposed Bill 33 is currently offering is the right to associate; full disclosure; a rescinding right for the franchisee; and finally, damage for loss due to misrepresentation in disclosure documents.

Although the proposed Bill 33 is a step, in my opinion, in the right direction in trying to prevent misuse and abuse from franchisors, I personally believe that it falls short on key issues that always surface in a franchisor/franchisee relationship. Let me try to cover some of them here today.

First, the right to associate: The right to associate was never an issue in our own dispute with our franchisor. What was the issue rather was the franchisor's steadfast refusal to (a) recognize our association as an established entity and (b) hear from or deal with our association or its duly elected representatives.

Giving the right to associate is meaningless without providing as well the right of the association to represent the interests of its members, the franchisees, before the franchisor. Giving only the right to associate is like giving employees of any organization only the right to form a union, but not giving that union the right to the bargaining process. It is also as useless as giving someone a brand new car with no engine; it looks great but you cannot take it anywhere. It is only good for lamenting in it, just like the association that we had, with no right to the bargaining or negotiation process. We had an association, but our franchisor refused to hear from the association, refused to hear from its representatives, even refused to acknowledge it. They never opposed the fact that we had an association, but the association was meaningless.

Second, disclosure documentation: This is a laudable effort at trying to make sure that the franchisor puts all its cards on the table before the franchisee enters into the franchise agreement. This also means, however, that franchise agreement documents will go from being two inches thick to four inches thick from now on, and that instead of one lawyer required to advise the potential franchisee, you will now need a battery of attorneys to make sure that all the i's are dotted and that the t's are crossed, plus you're going to need a battery of accountants to make sure that everything that is being said in the document is valid for the franchisee.

Third, a rescinding right: Although I am not a legal scholar, I believe that, should one party fail to deliver the information required by that contract or should such information be different from what was previously agreed upon, there already exist legal alternatives to rescind such a contract. As such, Bill 33 does not seem to offer additional protection or add value in this regard.

Rather than including the right to rescind, Bill 33 should address the right to renew a franchise agreement and provide some form of protection to the franchisee when the time comes to renew the franchise agreement. More specifically, the following issues need to be addressed in one form or another.

Option to renew and term or duration of renewal: An initial franchise agreement must address a renewal process that recognizes that the franchisee is entering into a long-term business partnership whose financial success often takes more than one franchise agreement term. There has to be some type of protection to prevent the franchisor from discarding a franchisee at the end of his or her first term, especially after the franchisee has worked so hard to build the business and also before he or she has had a chance to make a profit or build equity in that business. Often we do see that the franchisors are enlisting new franchisees and, as they become profitable or before they have a chance to make money, then they discard the franchisee at the end of the first term. There is no protection and no guarantee that they will be renewed for another period of time.

Renewal condition: There must be some protection from the franchisor making significant material change to the original agreement at the time of renewal, especially when those changes are made in an effort to get rid of the franchisee through the imposition of a financial burden such as increasing the amount of advertising fee, the percentage rent, the sign rental, the accounting fee or the franchise fee that the franchisee has to pay the franchisor, or by making significant changes to the franchise program that would preclude the franchisee from a reasonable expectation of making a profit in the future. From our own experience within our franchisor organization, we saw time and time again where the franchisor, before agreeing to renew the franchise agreement, imposed major expenditures on the franchisee so that even if he was renewed for another four or five years, his chance of making a profit at the end of those four or five years was nil. There has to be some kind of protection that there will not be any significant material changes in a renewal process.

The next item is goodwill. The franchise arrangement is a business partnership agreement where both parties play a key role in the success of the venture—both parties, not just one. However, most franchisors claim that the goodwill associated with a franchise operation is their doing and theirs alone. This belief cannot be further from the truth. The reason for this claim is that franchisors historically have refused to concede that the success of the business had anything to do with the franchisee's efforts, his or her dedication, the family commitment; hence, no recognition at all of the goodwill improvement the franchisee has brought to the franchise business.

Franchisors firmly believe that their name or sign alone is responsible for the business's success, which is not entirely true. There has to be a way to force franchisors to recognize the efforts of the franchisee who has successfully launched a new franchise location or promoted an existing location. Imposing some form of requirement for franchisors to recognize the goodwill contribution of the franchisee would achieve that.

The next item I want to speak about is risk and reward ratio. Franchisors have often claimed that the franchisee has made a minimal financial investment in the business and therefore bears very little risk compared to the franchisor. However, from a franchisee's perspective, this minimal investment may represent everything he or she has worked for all his or her life. As such, the franchisee's contribution to the venture is probably much greater than whatever investment the franchisor may have made, and the size of the amount at risk bears a much greater significance for the franchisee than for the franchisor. Furthermore, if the franchise location fails for whatever reason, the franchisor's representative, unlike the franchisee, is not suddenly out of work and does not have to rebuild his or her life.

The next item I'd like to speak about is acting as a prudent businessperson. No franchise agreement or franchisor should be allowed to force franchise program changes, either during the course of the existing agreement or as a new requirement at the time of renewal, that would prevent the franchisee from acting as a prudent businessperson. What I refer to here are things such as the franchisor imposing financially unjustifiable renovation or equipment changes on the franchisee, and changes that negatively affect the original profit potential structure of the franchise business, such as increasing rents or various fees and the like or a reduction in gross profit margins to promote sales for the franchisor, often at the expense of the franchisee.

Good-faith bargaining - as I walked in earlier, I heard about good-faith bargaining. There has to be a provision in Bill 33 to enforce the requirement for franchisors to deal in good faith with franchisees, both during the existing term and at the time of renewal of the franchise agreement. The franchisor, with the size of its organization, its bag of experts and its financial strength behind it, is really in a position of power over the franchisee. There has to be something in the legislation to bring the negotiations and bargaining process to a level playing field. Mandating good-faith bargaining would certainly help achieve this.

Dispute resolution: When things go sour and the relationship appears to be failing, there has to be a reasonable recourse that the franchisee can seek in order to resolve the dispute, outside of an expensive and often unaffordable court battle. Bill 33 must offer this kind of protection, otherwise the franchisee has almost no chance of having his or her side of the story ever heard. Litigation between a single franchisee and a franchisor is rarely a fair playing field due to the uneven amount of resources, time and funding each side can afford to throw into the battle. Mediation or arbitration certainly are better dispute resolution alternatives for a franchisee than litigation. However, franchisors are well aware of that, and they know their chances of success are better with litigation since they have the people, the time and the money that the franchisee seldom has.

In summary, the proposed legislation is a step in the right direction, but unfortunately it appears to fall very short of addressing the kinds of problems and issues faced on a day-to-day basis by franchisees across Ontario. It certainly would not have helped the Loeb franchisees or myself to resolve our differences with our franchisor, or prevented our franchisor from pursuing and promoting its personal interests and objectives at the expense of the franchisees.

If the intention of Bill 33 is to introduce "fair dealing between parties to franchise agreements," then it must be broadened to include the issues I have just discussed. Franchisees need protection from abusive franchisors. Such protection can be provided by addressing:

The right of the franchisee association to bargain and negotiate with the franchisor on behalf of its members;

The right of a franchisee to renew the franchise agreement with equal or better terms than the original one;

The right of a franchisee to have a reasonable expectation of profit provided he or she acts as a prudent businessperson;

The right of a franchisee to be allowed to act as a prudent businessperson in the business development and operation of his or her franchise operation;

The right of a franchisee to be treated as a business partner and investor rather than as a subservient employee whose termination can be justified provided the franchisor has respected the Employment Standards Act;

The right of a franchisee to claim goodwill for his or her contribution to the success of his or her franchise business;

The right of a franchisee to expect a good-faith relationship with the franchisor, especially when it comes time to discuss renewal and the future business prospects of the franchise venture;

The right of a franchisee to participate equally in the short- and long-term business development of his or her franchise operation as any prudent business person should be allowed to do and is obligated to do as well;

Lastly, the right of a franchisee to seek an alternative to an expensive and, most of the time, unaffordable legal battle with the franchisor through some form of dispute resolution that is fair and affordable to both parties.

In conclusion, I want to thank you for giving me the opportunity to express my views on the proposed legislation, Bill 33.

I am sure many franchisors will come and tell you there is no need for such legislation and that the industry should be allowed to regulate itself. Unfortunately, franchisors of all stripes, with very few exceptions, have demonstrated time and time again that they have absolutely no interest in the business success or financial well-being of their franchisees. If one does not meet their expectation or challenges their authority, they simply get rid of him or her through whatever means they have at their disposal. When there is a dispute, the cards are always stacked in favour of the franchisor.

The government has an obligation to protect citizens from being subjected to misuse and abuse by unscrupulous businesses and corporations, in the very same way it protects the environment or guarantees health care and social security to those who need it.

Franchisees in Ontario need protection from irresponsible franchisors. Let us hope that Bill 33 will deliver the kind of protection it was intended to deliver. My biggest fear is that if it passes without the changes discussed above, the franchisors will claim they have been dealt a serious blow and yet will still be allowed to do as they wish with their franchisees, provided they disclose their intentions to do so at least once in the original franchise agreement. Thank you very much.

The Vice-Chair: Thank you very much, Mr Tremblay. We don't have any time for questions right now because you used up the 20 minutes, but could we get a copy of your presentation?

Mr Tremblay: By all means. I wish I could have made it faster to take some of your questions, but I had so much I wanted you to know.

The Vice-Chair: OK. Thank you very much.

Mr Patten: Mr Chair, might I suggest that you notify each one, that you give them a five-minute notice. Some may not be aware that their time is being fully used.

The Vice-Chair: OK, I'll do that from now on.

This document is a verbatim copy of this witness’ oral testimony. To review the original transcript: http://www.ontla.on.ca/web/committee-proceedings/committee_transcripts_details.do?locale=en&Date=2000-03-08&ParlCommID=1&BillID=&Business=Bill+33%2C+Franchise+Disclosure+Act%2C+1999&DocumentID=19724#P444_162656

Copyright (c) 2000
Office of the Legislative Assembly of Ontario
Toronto, Ontario, Canada


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Risks: Ontario Public Hearings, Canada, 2000, Oligopoly, Gag order (confidentiality agreement), Lawsuits, group, Refusal to acknowledge independent franchisee association, Refusal to renew contract, Justice only for the rich, Sham of self-regulation, Listing fees and inside money, Tony Martin, Can't afford to fight, Hates publicity, Misrepresentations, Bad faith and unfair dealings, Rescission, Renewing contract much tougher, Affordable, early and non-legal dispute resolution mechanism, Weak law worse than no law, Oligopoly: operates essentially the same as a monopoly, War of attrition, Veil of secrecy, Unbridled corporate power, Termination threats, Right to associate but refuses to acknowledge, Right to associate and right to harass, Life savings gone, Lost homes, Law protects franchisor not franchisee, Blocking for the industry, Canada, 20000308 Normand Tremblay

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