Disclosure key to franchise act

It’s a dog-eat-dog world, but when it comes to owning a franchise, it’s more like “dog-eat-goldfish.”

The London Free Press
March 10, 2000

Disclosure key to franchise act
Joe Paraskevas


It’s a dog-eat-dog world, Les Stewart acknowledges, but when it comes to owning a franchise, it’s more like “dog-eat-goldfish.”

Stewart, a former Londoner and president of the Alliance of Franchise Operators, says the dogs are franchisors who entice goldfish franchisees – sometimes desperate for work – with unrealistic visions of success.

“People buy a franchise out of fear and they’re kept in a franchise because of fear,” Stewart said yesterday during public hearings on the province’s bill 33 – the Franchise Disclosure Act – held by the Standing Committee on Regulations and Private Bills.

The committee was in London after previous stops in Toronto, Sault Ste. Marie and Ottawa and heard from 15 presenters – both supporters and opponents of new legislation that would be signed as early as this spring.

“What I’m not on the side of is portraying franchising as the Wild West,” said Peter Dillon, a partner specializing in franchise law at Siskind, Cromarty, Ivey and Dowler.

“I think franchising is good for the economy. To necessarily make the connection between bad situations and franchising (in general) is wrong.”

Bill 33, which has gone through first reading in the legislature, proposes franchisors be required to inform prospective franchisees of key points about their operations.

“People buy a franchise out of fear and they’re kept in a franchise because of fear.”
- Les Stewart, Alliance of Franchise Operators president

Such points include who current and past franchisees of a company are, what financial requirements are involved in running a franchise and any ongoing litigation involving a principal of the company, said Canadian Franchise Association president Richard Cunningham.

“The bill hinges around disclosure,” said Cunningham, who represents 350 of the 1,200 franchise companies in Canada, “giving a new franchisee all the information they need to make a viable decision.”

There are 85,000 franchisees in Canada, 60 per cent of them in Ontario, Cunningham said.

Stewart became one of them after he lost his job as a financial analyst at Victoria hospital in 1992. One week before his unemployment benefits ran out, he bought a franchise of Nutri-lawn International Inc. – an Etobicoke-based fertilizer and weed control company.

Despite performing due diligence work before he bought the franchise that even opponents acknowledged was extensive, Stewart lost $130,000 in the first two years of operation, largely because he achieved less than 25 per cent of this projected income and because the franchisor misrepresented the business, he said.

“After 4 ½ years, I was terminated,” Stewart said of the company not renewing his contract.

But his troubles continued.

The franchisor threatened to call a promissory note if Stewart didn’t give up part of his territory. When Stewart refused, the two sides ended up in court, where it was ruled Stewart had breached his contract.

Stewart appealed – a decision is still pending—but he also started CAFO to represent fellow franchisees.

ACT: ‘Industry has a problem’
Bill 33 doesn’t mention how disclosure will be enforced, he said, adding many franchisees lack the money for a franchise lawyer in times of trouble and also the initiative to take on large franchisors alone.

Stewart is supporting a tougher private members Bill by Tony Martin (NDP-Sault Ste. Marie).

“The industry has a problem,” Stewart said. “They can’t sell (franchising) to the next sucker. They need something to be able to have at the trade shows that says the stories you’ve read are untrue.”

Whether the stories of loss are true or not, they don’t accurately represent the industry, Dillon countered.

“Just because somebody loses everything, there is a connection made between that fact and the fact they were a franchisee,” he said, criticizing the media and groups such as Stewart’s for focusing on personal failures.

“The fact that the majority of those owners are happy campers doesn’t get mentioned.”

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