Sue Ricketts Public Hearing Testimony

What all that really means is that they control everything, and when they want to get rid of you, they can and will, without prior notice. They'll take everything and make sure that you can't afford to take them to court.

LegislativeAssemblyofOntarioCostofArms.jpg

Legislative Assembly of Ontario
March 9, 2000

Public Hearing Testimony
London, Ontario, Canada
Ms. Sue Ricketts, former 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

SUE RICKETTS

THE VICE-CHAIR (Mr Garfield Dunlop): Is Sue Ricketts here? Good morning, Ms Ricketts. You can start whenever you wish. You have 20 minutes.

MS SUE RICKETTS: Thank you very much for giving me a chance to speak my opinions. I can't speak for any organization; I can only tell you what happened in my particular case.

I was brought up with the belief that Canada was the land of milk and honey, the golden place. My father chose to come here as an orphan and brought his two sisters with him because of his belief that this was a good place to be and well governed and well controlled and safe.

Until June 1998, I always held that thought in the back of my mind. That's where I come from. I never wanted to leave here. I never had any reason to question. I believed that when things go wrong, as they do at times, this country has laws and courts and mediation systems where wronged parties could present their side and an agreement could be found. I'm not talking about theft, murder, robbery or anything like that; I mean business dealings between two people, two companies, two entities. That's definitely not true regarding franchising. The contract is one way, and no changes are allowed or you're just not a franchisee.

When I look back on it, I can't believe I fell for the scheme. It went like this: "We have a wonderful idea. You put up lots of money, you provision a store, you pay us a fee to use our name, and we'll co-sign all the borrowing you have to do and make a deal with your landlord by co-signing your lease. In exchange, we'll be the sole provider of your inventory, your procedures, your prices and conditions of operation. We'll also mandate when you must do store refurbishing, which contractors you can use, and all the conditions of operation must meet our standards. We'll give you time to try to find out about us, but we won't let you change any of our conditions. We'll tell you what the average franchise should earn. Of course, the statements we give you contain no debt and thus give a wrong picture of the true operating profits."

What all that really means is that they control everything, and when they want to get rid of you, they can and will, without prior notice. They'll take everything and make sure that you can't afford to take them to court. They'll have discouraged and not permitted their franchisees to belong to any group which might insist on mediation or arbitration or some other form of handling disputes. The laws of Ontario let them take away your source of earning without any recompense for past work, for efforts in building them a business, and of course there is no formula for even a partial return of your investment. Thanks for the set-up, franchisor, and thanks for your protection.

Shortly after I lost my franchise, I wrote a statement which speaks to my feelings at that time, and you're welcome to read it. Without any prior notice, my franchise was taken over. In seven and a half hours, I went from owning two locations, with 16 employees, to having nothing except my home, which had been pledged to the bank as security to obtain operating credit. Nice feeling.

Shortly after writing that statement, I received a settlement agreement through my lawyer from the franchisor's lawyer. To a non-lawyer it's pretty intimidating and frightening, and that is its main purpose and intent. I am aware that other franchisees in my situation have received this and signed it, and then of course they can't speak out.

Following a page of legalese, clause 1 says that I agree never to take them to court. Clause 2 says that if they can find fraud, wilful misconduct or misrepresentation by me, or my husband, who was never involved in the business, they can do whatever they want to, and they want me to agree that I'll pay them $10,000 for every instance they can find of my damaging them or their franchise in any way. Clause 3 says that we, and all our descendants, give up any right to seek redress. Clause 4 says that they admit no liabilities or obligations and we agree with them. Clause 5 says that we will not speak about the terms of this agreement to anyone unless the law requires us to. Clause 6 says that we agree not to talk to anyone connected with them or any potential franchisees in any way that might be construed as negative. Clause 7 says that we all agree not to hinder them in realizing as much from their actions as they can. Clause 8 says that even though they have thrown me out without a thing, the franchise agreement is still in force. So they still have control over me. Clause 9 indicates that the laws of Quebec prevail and that if I want to fight I must go to court there, although my business was not in Quebec, it was always in Ontario.

Needless to say, I didn't sign the agreement that they sent. So we sit, almost two years later, and I have never heard from them since. I never received a penny. I'm now being harassed by a couple of collection agencies over bills which they didn't pay and retail sales tax is holding $18,000 which they won't release because they can't find out which of their departments cashed my PST cheque in February 1997. There's also a fax that I sent to my local member of Parliament making some recommendations. Even though it's too late for me, it's my aim and my sole intention to prevent this from happening to anyone else.

I've read that since 1993 there have been 170-some articles printed regarding failed franchises. These articles mention 4,600 people directly losing their businesses and their investments. That's a huge number of families being devastated. I'm sure they all had employees who were immediately affected by the business closure or upheaval. You have it in your power to stop this from happening again. Please make sure that you speak for those who need you to do so. Thank you for your time.

MR TONY MARTIN: I want to thank you for coming forward and telling your story. I know that it takes a lot of courage and effort to come and do this. This is exactly what we were hoping would happen as we crossed the province these last few days to hear from people who have had an experience in franchising that in some instances was positive, in many instances was not, so that we could get a handle on just exactly what the situation was and how it was that people were suffering and what things came into play or did not come into play that resulted in this situation as it now exists.

You paint a very worrying picture here with the description of the document that you received and the various things in it, which really speak to what's in it for them and nothing—actually, what's in it for them that they will get from you, more than anything.

I guess there are two questions. Are you aware of others who have experienced the same circumstance? What would you recommend by way of changes to this bill that would have been helpful to you or might even be helpful to you as you continue to struggle with trying to get justice?

MS RICKETTS: My problem with justice is that I can't afford it. They took all my money; they took everything. How do I go to court? I was told by my lawyer that because of the size of the franchisor, they would just put in an appeal no matter what happened, and I haven't got a war chest to fight them. I believe that it's very important that it be mandated by law that there is some form of dispute mechanism which all parties can afford. It doesn't matter who's right, whether it's the franchisor or the franchisee, you should still have the right to mediation. The courts are not really affordable, and they want payment beforehand; they don't want payment when you win. It doesn't work that way.

Just something you might want to know: My businesses weren't exactly that small. I had sales of $2.6 million a year. However, you'll see my profits were minuscule. They were controlled by the franchisor directly. If there is national advertising that says the price is this much, I'm not going to find a customer who is going to pay me any more. That's part of the problem.

There were a number of systems in place that made sure that your profits were in the hands of your franchisor. We had a credit note system. We had to take all product that was on sale, and the deal was that we kept it for 90 days and if we didn't sell it we could return it. That means I get to pay the freight two ways, in effect. But because of the system, we had to pay for product in 30 days. So I've already paid for it. Then they issue a credit note maybe two months after I've returned the product, which is only good against buying more inventory. It doesn't pay my staff, doesn't pay my landlord, doesn't help me keep the business going, and so I have to go to the bank to get interim financing. That's the way this franchise works.

How do you get out of it? You don't. You keep struggling and working and trying your best to make a profit.

MR TONY MARTIN: You mentioned the question of a dispute resolution mechanism, and I couldn't agree with you more that there needs to be something put in place. What has been suggested over the last three days by some folks is that the new provision in law that cases go to mediation before they actually go to court might do the trick. But what we were told yesterday morning by Professor Gillian Hadfield is that that may, on the surface, look like a good thing and that it may work, but in fact before you get to that mediation process you actually have to have already developed a case and have had legal advice, and you're into the adversarial legal system already.

What I think you're suggesting, and what I certainly am suggestingmaybe you can comment on thisis a system where there is a third party arbitrator and where, before you get into those very detailed and complicated and expensive legal wranglings, maybe something could be done.

MS RICKETTS: Absolutely. I believe that's the most important part of it. It's my understanding that car dealerships, for one, have that type of agreement. They pay a regular fee, both franchisor and franchisee, to provide funds for a mediation service, if needed. You know that you have the ability to at least argue your case yourself with your franchisor and have it fairly looked at.

I just feel very frustrated because I have no option. I'm just going to have to learn to get over it and get on with life. However, I don't think that's a reasonable way of dealing. I don't think it's fair to say to people: "You've done your due diligence, you've got your job, you've built a business, you've worked very hard, but they can take it away. It's OK." If I were an employee, I would at least get a week's wages for every year that I spent. If you're a franchisee, it's: "Thanks for the business. Bye."

MR O'TOOLE: Thank you very much, Ms Ricketts, for a very personal story. Your victim's statement really is a lot more an emotional plea to level the playing field, and I certainly can assure you that I have heard that and it's important.

I look at you, and I've heard a number of stories that were similar, and to put a real face on it is extremely important, outside of this whole legal babble that's in some of this legislation, or any legislation, I suppose. But I want to broaden it out a bit. It's not just this community here, arguably not even just this province.

MS RICKETTS: Certainly not.

MR O'TOOLE: The only other province that has any legislation is Alberta.

MS RICKETTS: And even that is not much help; it's 60 days. You don't really know an organization in 60 days of dealing with them.

MR O'TOOLE: I guess I'm trying to make a point here, and I don't want it to sound anything more than an incredible lack of leadership federally. Because the very definition of "franchisor and franchisee" under the Competition Act could be described, I'm sure, as an abusive-dominant position. The person with all the gold has all the rules. The golden rule?

There's no question in my view that it'sbuyer beware, extremely aware. If nothing else comes out of these hearings, it's certainly important to take a sober second thought, exercise due diligence. You can tell people that until you fall down on the road, but when it's clear legally that you couldn't possibly take on the giant, whoever that is

MS RICKETTS: Yes.

MR O'TOOLE: —not that they're bad but to have your day in court, as you've described it.

I call on the Competition Act to renew the reviewable trade practices under the Competition Act. I think that's critical. Any province trying to, helter-skelter, do this commercial thing isn't really helping the people of Canada. Ontario, certainly by this act, is doing more than nothing and more than the two previous governments, ever since the Grange report has moved forward significantly. Is it perfect? No. But I think if you look at the three fundamental purposes—and this isn't a lecture; it's more or less bringing you up to date on where we are, through what you've lived through and lost, a lot of your life.

Disclosure: I'm sure if we can make that stronger, we will listen to you and others to make it stronger. The whole attitude of fair dealing and commercial reasonableness may even find its way in there and this right to associate, thereby educate your peers. Do you not agree that those are substantively important moves that may help? That's why you're here this morning.

MS RICKETTS: That's why I'm here. When I signed my agreement in 1989, the franchisor assured me and showed me that their franchise agreement met every one of Alberta's rules, was the best legislation in this country. Needless to say, it didn't go too far.

MR TONY MARTIN: On a point of order, Mr Chair: Is the parliamentary assistant tabling some amendments here on further strengthening the disclosure piece and also suggesting that maybe we would consider adding commercial reasonableness to the fair dealings?

THE VICE-CHAIR: I don't think he has tabled anything at this point.

MR TONY MARTIN: OK. I just thought maybe he was.

THE VICE-CHAIR: We've only got a couple of minutes. I'd like to make sure that the Liberal caucus has a chance to comment on this. Mr Crozier.

MR CROZIER: That's kind of you, Vice-Chair. Would you consider your problem, Ms Ricketts, one of competition or one of simply dealing with an unfair franchisor?

MS RICKETTS: Part of it is competition in that the industry that I was in tends to have an average net sale value of between 13% and 18%, very small.

MR CROZIER: So the franchise you had was in competition with other businesses or other franchises of a similar nature?

MS RICKETTS: Absolutely.

MR CROZIER: Do you mind telling us what the business was?

MS RICKETTS: Computers, hardware and software.

MR CROZIER: Ah, OK.

MS RICKETTS: But what really put a strain on relations was that after eight years of operating, my lease had to be renewed with the mall. The mall insisted that I move my location to a space which was double the size that I had, and the franchisor made all the arrangements. Then after everything was put in place and signed, I went to the bank and the franchisor had forgotten to tell me that small business development loans don't apply to the second store.

MR CROZIER: Conveniently forgotten to tell you.

MS RICKETTS: Yes. Scramble, you know, panic. This after having very minuscule returns. You'll find them there.

MR CROZIER: Is the franchisor you dealt with a solely Canadian corporation?

MS RICKETTS: Absolutely.

THE VICE-CHAIR: Ms Ricketts, thank you very much for taking the time this morning. We appreciate hearing of your personal experience. Thanks again.

MS RICKETTS: Thank you for the chance.

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#P142_44666

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


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