Canadian Federation of Independent Grocers Public Hearing Testimony

In the absence of the ability of the franchise industry to appropriately self-regulate, it becomes the responsibility of government, as the agent of public interest, to provide the legislative framework for regulation.

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Legislative Assembly of Ontario
March 9, 2000

Public Hearing Testimony
London, Ontario, Canada
John Scott, Gary Sands, Peter Knipfel, grocers

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

CANADIAN FEDERATION OF INDEPENDENT GROCERS, CFIG

The Vice-Chair (Mr Garfield Dunlop): We have a couple of cancellations, but we have a deputation here that is ready to make a presentation and I've asked them if they would do that. I appreciate the fact that they are: the Canadian Federation of Independent Grocers. If they'd come forward and do their presentation, that would be great. Is Mr Sands here the presenter?

Mr John Scott: He's the coordinator. He coordinated us and got us all here.

My name is John Scott. I'm president of the Canadian Federation of Independent Grocers. I'm past 50, so I have to use these glasses.

With me this morning is Peter Knipfel, chair of the board of directors of CFIG. He also owns and operates the Knechtel grocery store as a franchisee in Chesley. Also with me is Gary Sands, our vice-president of government and industry relations.

We appreciate the opportunity of appearing before you today, particularly since it is in reference to a long-awaited piece of legislation, Bill 33, An Act to require fair dealing between parties to franchise agreements. Ontario now stands poised to become the second province, after Alberta, to enact franchise legislation. Alberta passed its own bill, as you know, also called Bill 33 a few years ago.

The Canadian Federation of Independent Grocers is a national non-profit organization founded in 1962 to further the unique interests of independent and franchised grocers through a progressive partnership with government, industry and the consumer.

From very modest beginnings in the province of Ontario, we now boast a membership of about 2,000 retailers located in every province and through most communities in the country. A board of directors of 18 regionally elected members governs us.

As I indicated previously, CFIG views Bill 33 as long overdue. It is probably safe to say that over the years the issue of providing some form of protection to franchisees has polarized both the industry and successive governments across the country. Indeed, Ontario will become only the second province, after Alberta, to have legislation enacted that governs the relationship between franchisor and franchisee. This is notwithstanding the fact that franchising is one of the most important economic activities in this country, certainly in the province of Ontario, where it accounts for almost half of all retail sales.

CFIG believes that in this committee's deliberations on Bill 33, it is important that legislators always keep in mind the context in which many franchisees operate.

At the outset, the reality of our industry, as you've heard over the last few days, is that it is dominated by big business in the retail, manufacturing and distribution sectors. In this era of acquisitions and mergers, this trend is becoming more pronounced and is of increasing concern. Consequently, this power in the marketplace has created the potential for abusing the franchisor-franchisee relationship. And make no mistake, abuses have occurred. Many of the franchise agreements that exist are one-sided contracts that ultimately devalue the assets and investments of some hard-working franchisees.

In the absence of the ability of the franchise industry to appropriately self-regulate, it becomes the responsibility of government, as the agent of public interest, to provide the legislative framework for regulation. Just as important as protecting the interests of franchisees is recognizing that the $40-billion to $50-billion franchise industry in Ontario, which provides so much economic benefit to so many, is put at risk by the unscrupulous behaviour of a few franchisors.

The greatest difficulty encountered by franchisees with their franchisors usually stems from a lack of desire on the part of some franchisors to act in good faith. This has often led to an untenable situation for some retailers, and in recent years their franchisors have often unfairly forced them out of business.

Some observers have characterized many of the contracts that exist in the marketplace as feudal in their approach to the franchisor-franchisee relationship. As well, notwithstanding the substantial amount of personal funds invested by a franchisee, there is little or no protection in most cases where a dispute arises by consumer protection, labour or securities legislation.

In that context, there are two fundamental weaknesses in franchise agreements that allow abuses to occur. First, the concept of good faith or fair dealing is not embodied in the agreement. By setting out fair dealing as a concept in Bill 33, hopefully both parties will now recognize the responsibility to observe commercially reasonable standards and act in this manner throughout the franchise relationship.

Secondly, franchise contracts are usually drafted in very broad terms that are one-sided and provide the franchisor with lopsided discretionary powers that are not conducive to the long-term development of a healthy franchise industry. Fairness, not fear, must be the backbone of our franchise industry.

Fear is generated when franchisees are forced to sign restrictive or controlling franchise agreements that limit their ability to manage their businesses as independent operators in the best interests of the consumer, or when retailers who do not sign new agreements receive arbitrary notices of termination or non-renewal in consequence. When franchisors unilaterally increase franchise fees and change pricing programs without either notification or any form of consultation, retailers are forced into new pricing programs that are profitable for the franchisor, but are neither profitable nor sustainable for many franchisees.

Fear occurs when franchisors locate new stores in the same marketplace as the franchisee they supply. Fear of economic retaliation should franchisees associate to discuss commons areas of concern and, therefore, increase their potential bargaining power; fear due to not having been able to obtain disclosure of all material facts before purchasing a franchise; and fear that in order to resolve any dispute, a franchisee must weigh the cost, time and uncertainty of litigation.

That is why we welcome and support Bill 33. We see the major achievements of the bill as the creation of three new rights: most importantly, the right to expect to be dealt with fairly, the right to associate with other franchisees; the right to obtain disclosure of all material facts before purchasing a franchise. The need in the marketplace for such legislation is clear and deserves all-party support.

We do believe the bill could be stronger in defining fair dealing. CFIG has difficulty understanding why the legislation cannot simply say that fair dealing means the observance of commercially reasonable standards and manner throughout the franchise agreement. Given that the burden of any litigation to resolve a dispute falls more heavily on the franchisee, we suggest that a definition that provides more clarity ensures that we provide a better balance between the interests of both franchisor and franchisee.

Society embraces the concept that consumers should be dealt with fairly and, consequently, must be able to understand fully and clearly the details of their transactions with suppliers of goods and services. CFIG sees no reason why the relationship between a franchisor and a franchisee should be exempt from a similar approach.

We wholeheartedly support the other main provisions in the legislation, which provide franchisees with the right to associate with each other and to join or form an organization without restrictions imposed by franchisors, and, most important, the disclosure obligations now imposed on franchisors.

While some have criticized Bill 33 for not going far enough, CFIG believes that having this legislation passed is vastly preferable to indefinitely delaying protective legislation because the industry cannot reach agreement on each and every clause of the bill. On a contentious issue such as this, it is doubtful that any legislation could be drafted that would satisfy everyone in the industry. We also recognize certain political realities. This issue has polarized successive governments and the industry. Asking for substantive amendments at this stage would probably kill the bill outright. It has been said that a journey of a thousand miles begins with a single step. CFIG believes that the passage of Bill 33 in Ontario is an extremely important step in providing some balance between the interests of franchisors and franchisees.

It is also an important strategic step in ensuring franchise legislation is enacted in each and every province across Canada. Two provinces have already indicated to us that, in the interests of interprovincial harmonization, they are awaiting passage of this legislation to determine if other provinces intend to base their legislative frameworks on the current Alberta Franchise Act. Our journey across the country will begin the moment this bill passes into law. We will take the Alberta and Ontario legislation to every provincial government and demand similar protection for their franchisees.

In conclusion, CFIG supports the act before you and we urge, in the strongest terms possible, speedy passage of Bill 33. We commend the government of Ontario for reintroducing this legislation. Thank you.

The Chair: Thank you very much. The government caucus, Mr Gilchrist.

Mr Steve Gilchrist (Scarborough East): Thank you very much, gentlemen, for your presentation. I appreciate the perspective you bring and the fact that you represent such an extensive range of business interests across Ontario. I also appreciate that you recognize that we operate in a bit different framework in the political sphere. I'm very encouraged from what we've heard so far from all three parties in terms of their support for the principles behind the bill and a recognition that there has to be a starting point somewhere. We will continue to have discussions on how big that first step will be.

In that context, I was wondering if you had seen the five or six amendments we have most recently seen discussed by the working group.

Mr Gary Sands: No.

Mr Gilchrist: When you do, perhaps you might want to comment if any of these do or don't pass the test from the grocers' perspective: expand the right of action for misrepresentation to include any agents or brokers involved in the selling of the franchise; permit electronic disclosure, for example, if you wanted to download your disclosure document from the Web; require disclosure for the sale of an additional franchise to a franchisee if a material change had occurred in the relationship or in the franchise agreement since you first signed on; require disclosure for the renewal of a pre-existing franchise agreement-as the act is written now, it wouldn't apply if you are currently a franchisee and your 20-year term has run out; and clarify the term "payment" in the definition of franchise to include indirect payments.

Are those all things you would see as further strengthening this bill and further improving the protection for franchisees, and consumers indirectly.

Mr Sands: We think those would be good amendments. We haven't had a chance to look at them, Steve, and we would like to review them. At first blush, they certainly sound to us like they would strengthen the bill. We would be happy to look at those amendments and formally respond to you when we get back. If I could take a copy of them with me, that would be great.

Mr Gilchrist: We'll make sure you get them.

Mr Sands: They certainly sound like they would strengthen the bill.

The Chair: The Liberal caucus, Mr Crozier.

Mr Crozier: Thank you, gentlemen, for your presentation. I guess you understand, as we all understand, that in a sense there is all-party support for this. It was supported by every party at first reading, and I think all of us have the same objective in mind of the need for this kind of legislation.

I might ask if you'd expand just a little bit because I'm surprised that you have made the suggestion that substantive amendments at this stage would probably kill the bill outright. The whole idea behind committee hearings-we might as well not waste our time, quite frankly, if we're going to ask people to come before us and then not listen to them; in other words, not make amendments. A bill such as this isn't worth the paper it's written on until it's tested, so you might as well try and get it right. Because what you're telling us, I believe-and maybe you can comment on this-is that this isn't as good as it might be but it's OK and that we'll go ahead and pass legislation that's so-so rather than try an amendment. I hope I'm not getting that message. You can clarify that for me.

Mr Sands: I think what we said in our closing is a reflection that we recognize certain realities, that this issue has polarized a number of governments, including the Liberals when they were the government and the NDP when they were the government. We know that within the industry there are various views on this legislation. Some people would not like to see any legislation at all.

As we said in the presentation, we believe this is an important starting point. We have no legislation, even in draft form, in most of the provinces across this country. We want to start somewhere to start building legislative protection across the country. We intend to come back to seek amendments and give this bill a chance to work and see where it goes.

I think John wants to add something.

Mr Scott: Don't lose sight of the fact that the commercially reasonable standards is an amendment that the CFIG, like many others, would very much like to see in this bill. Your concept of fair dealing doesn't have a whole lot of use without that amendment. We'd like to see that happen. Secondly, if you were going to go to a far-reaching bill and they were in power-perhaps Mr Martin's bill encompasses all of the elements that a franchisee would like to see. But in making the statements we have that we'd like sure like to see an amendment on the commercially reasonable standards, we're reflecting what we believe is a political reality in dealing with the government. Again, we commend the government, particularly this government, which has not gone into regulation regarding business, for bringing it forward.

Mr Crozier: Sure. Some would suggest, though, that once legislation is on the books, it's just as difficult to get it amended as it was to get it there in the first place. So my point is the old saying, "When the going gets tough, the tough get going." If it takes time and it's tough to get the right bill in place, let's do it now. That's all.

Mr Scott: We've been after this for seven years. There are people in the audience who are well aware of our activities for seven years.

Mr Crozier: Let's not take something that's half-baked-

Mr Scott: Then make an amendment on commercially reasonable standards and it might be helpful.

Mr Crozier: Good. They're the guys who are going to control this, so as long as they understand that.

Mr Tony Martin: I also thank you for coming forward and making the presentation you have. I understand the anxiety that you hold to get something in place. I am like Mr Crozier, though, just not wanting to put something in place that gives people a sense of security that really isn't there.

You mentioned the fair dealing piece that really doesn't say anything. People think, when they sign on, "There's legislation that protects me; they have to deal with me fairly," and then five or six years down the road, when they end up in trouble, they find out it doesn't mean anything. I don't want to do that to people. I don't want to set people up for failure in that way. That's why I was insistent on this bill going on the road, so we could hear from-the working group was limited in the people it heard from. We needed to hear particularly from the franchisees out there who are experiencing some of the reality of the business world today. And we have, in spades, over the last three or four days, and we will continue to for the rest of this day.

My question to you though is, this is a bill that's gone out to hearings after first reading. It allows for a greater scope. We're not tied to a principle here and we can talk about all kinds of things. I would suggest to the government that maybe some other material be brought to the table, that some other efforts be made to understand the circumstances that people find themselves in out there.

We've heard so far in our deliberations that the grocery industry is in great flux from a number of different perspectives: farmers who can't get their product onto the shelves, small producers who can't their product onto the shelves, grocery stores whose ownership has changed, who now are looking at having to sign new agreements that aren't in keeping with the spirit of the original agreement. I know in my own community we have three grocers, who were some of our best corporate citizens, and they're not in the grocery business any more. I'm not sure where some of them are. One of them is now running a bingo hall. These were people who contributed in very serious and meaningful ways to our community. The fact that small producers can't get their product onto the shelf at some of the major grocery chains is killing the economy of some of the regions of northern Ontario and that's a worry to me.

With that in mind-and I don't know if you've given this any thought or not-what else could we do here? What other information could we bring to the table that will be helpful to us in perhaps resolving some of the issues particular to the grocery industry at this point in time?

Mr Scott: You're right. The grocery industry is in a state of great flux and we're very, very pleased to see the number of franchisees who have come forward, and you're going to hear more today from our particular industry. There is a lot of pressure on a lot of people right now.

I just want to pick up on your last point. I know you've heard from primary producers and people who traditionally sell into grocery stores. I submit to you with great respect, sir, that most of the arguments on that don't come under the franchise situation but rather under the Competition Act and the issues of tied selling, which is something that perhaps this government can't look at, but something you ought to have a look at.

The Vice-Chair: That has been raised this morning by Mr O'Toole.

Mr Scott: Anyway, sorry. Peter, do you want to respond to any of the comments on the industry?

Mr Peter Knipfel: Just from a franchisee's perspective, in our industry this is our primary asset. This is what we've invested our money in to hopefully see us through to retirement. With the consolidation today in the grocery industry and the control that the franchisor has over the franchisee as far as pricing and our profitability is concerned, we need some protection for some fair dealing with our franchisor. That's basically all I have to say, that that's what we'd like to see.

Mr Tony Martin: Do I have time for-

The Vice-Chair: You've got five seconds. That does include your preamble, though-your normal preamble. Go for it.

Mr Tony Martin: I recognize the common commitment around the table to looking at the Competition Act and challenging the federal government, and we'll probably have this discussion further, but our jurisdiction is provincial. That's where we have control. We're dealing with the provincial government. Is there anything we could do to be helpful in that piece? We have a Ministry of Consumer and Commercial Relations.

Mr Scott: On that particular one, on the restrictive selling issues, I believe-in fact I know-that the Ministry of Agriculture, Food and Rural Affairs has discussed it with some of the major grocery chains and has some similar concerns. I do not believe that any representations have been made by this government to Ottawa, but there has certainly been a tremendous amount of representation made by the smaller processors and producers directly to the Competition Bureau on the issue. It is a big concern for our own retailers, as you can imagine, because they're supporting the local economy and all of a sudden they're precluded from that. It's a very difficult situation.

I don't know what else you can do there, because it's federal legislation. But I do know in this situation, as Peter says, doing something on the "commercially reasonable" thing would be huge in this piece of legislation. Huge.

Mr O'Toole: On a point of order, Mr Chairman: If I may, just respectfully to the comments you've made, if you have a position that outlines what you've said, it would be important for that to be on the record, engaging not just the Ministry of Consumer and Commercial Relations but the Ministry of Agriculture, Food and Rural Affairs, as well as the federal government.

Mr Tony Martin: Yes.

Mr Scott I think that would be productive, to recognize that the agricultural sector industries have commodities and supply management issues that are removed from this legislative framework. Your industry has made the supply issue a significant issue in the hearings this week. I appreciate that.

Mr Crozier: On the same point of order and just very briefly, it's interesting that the whole idea of franchising itself goes to the point of competition. If we really got to the very bottom principle of it, franchising would be no more than a name on a store, because you should be able to be free, under competition rules, to buy from anybody, but we know that's not the case with franchisees. McDonald's supplies the patties, I suppose-I don't know. It's an unfair example. But if you really went to the very principle of competition, you wouldn't have franchises, because that in itself restricts a franchisee from doing certain things. That's all.

Mr Scott: Franchising is a big part of our industry, and what you're trying to do is shepherd franchising into the next century in a productive manner. I think that's what we're all trying to do here.

Mr Crozier: I think we all are, for sure.

Mr Scott: I'm not sure, but was I bothering you with my comments?

Mr O'Toole: Oh, no. I think they were very productive comments. I mean that genuinely. If you have a position as the independent association, I would like to see that.

Mr Scott: OK. We'll provide you with that. The various ministries are well aware of our discussions.

Mr O'Toole: I'm sure they are. It's part of the public record here.

The committee recessed from 1156 to 1304.

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=2000-03-09&ParlCommID=1&BillID=&Business=Bill+33%2C+Franchise+Disclosure+Act%2C+1999&DocumentID=19723#P373_119486

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


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Risks: Ontario Public Hearings, Canada, 2000, Bad faith and unfair dealings, Sham of self-regulation, Feudal relationships, Fear, distrust, hate and contempt, Encroachment (too many outlets in area), Corporate stores competing with franchisees, Agree with proposed law or you get nothing, Must buy only through franchisor (tied buying), Competition Act, Industry Canada, Mergers and acquisitions, Fear, Opportunism (self-interest with deceit), Retaliation, Blocking for the industry, Can't buy local producers' products, Local suppliers with no shelf space, Independent franchisee association, Canada, 20000309 CFIG

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