Tough franchise law demanded

“Franchisees provide the money but the franchiser controls it. That’s the fundamental (aspect) of the relationship and that’s where the abuse comes in. Control tactics are used in the relationship, the greatest being fear and divide and conquer.”

The Sault Star
March 8, 2000

Tough franchise law demanded
Proposed legislation governing franchisers doesn’t go far enough, Nori tells committee
Frank Dobrovnik

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

The Ontario government doesn’t go far enough in planned legislation requiring franchisers be more straightforward with prospective business operators, lawyer Gerald Nori told a committee of MPPs in Sault Ste. Marie.

Almost invariably the franchiser is a large, sophisticated, well-managed and well-financed enterprise pitted against a small, unsophisticated under-financed individual with limited management experience and skills.”

“The franchisee has usually been dazzled by what he or she has seen and heard and all the franchisee sees is the positive and none of the negative or pitfalls,” he said during a hearing convened for the MPPs’ provincial tour to sound out Bill 33.

The proposed Franchise Disclosure Act, which passed first reading in December, would set standards for the disclosure of information by franchisers, ensure Ontario’s 40,000 franchisees the right to associate and require fair dealing by both parties.

But Nori told the Standing Committee on Regulations and Private Bills that the legislation, although “well-intentioned and on the right track,” wouldn’t be as effective as a private member’s bill tabled three times over the last five years by Tony Martin, Sault MPP and a committee member.

Nori’s firm recently helped represent a local businessperson who had his enterprise seized by a head office peeved that he was trying to get out.

“The nature of the relationship was such that the franchisee was constantly in a loss position due primarily to the ability of the franchiser to control the wholesale pricing of goods sold, with the result that the level and consistency of the losses left the franchiser in the position of taking unilateral and arbitrary action to end the relationship,” Nori said.

He endorsed several additional recommendations in Martin’s Bill 35 that he said would help keep the same from happening again.

They included: investor protection; exit provisions; the right to submit disputes to mandatory mediation; and reversing the legal burden to the franchiser to show that the contract was fair and its conduct was equitable.

A former Nutri-Lawn operator, who traveled from the Barrie area to speak of his two-year court battle to extricate himself from the company, compared Ontario with the Wild West when it comes to franchisee protection.

“Franchisees provide the money but the franchiser controls it. That’s the fundamental (aspect) of the relationship and that’s where the abuse comes in,” said Les Stewart, founder and president of the Canadian Alliance of Franchise Operators advocacy group.

“Control tactics are used in the relationship, the greatest being fear and divide and conquer.”

CAFO has been working with Martin to push for more openness and transparency to avoid situations such as his: since February 1998 he has been battling Nutri-Lawn in the courts, and he doesn’t expect to win.

“As far as disputes, the way it’s resolved is the franchisees eventually go broke.”

He called Bill 33 a “10 per cent solution” because it only “gives the illusion of a solution” and may even protect a franchiser in court because full disclosure wouldn’t be necessary.

One of the 12 speakers Tuesday, Lock City Dairies owner Vic Fremlin, told the committee that his milk had gone from taking up 70 per cent of the dairy shelf space at Loeb outlets to 10 per cent after the grocer was bought by Loblaw last year.

“It needs to be addressed because eventually the big guys will always win,” Fremlin said, also endorsed the recommendations of Bill 35. “It should be a fair ball game for guys out there who are trying to make a living. I feel for them.”

The committee, which kicked off its four-city tour in Toronto Monday, is in Ottawa today.

Bill 35 is expected to receive second reading in the spring.


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