It’s time to get tough with franchise laws

Many immigrants looking to secure a place and a future for themselves and their families bet their life savings and lose or become indentured. In too many cases, investments are made with all due integrity. People work hard, bring their intelligence and experience to the enterprise, earn a good reputation, become good corporate citizens only to find out it is not enough. They lose it all or continue to work with much lowered expectations.

The Globe and Mail
March 16, 2000

It’s time to get tough with franchise laws
If left unregulated, the business is a foolish investment for entrepreneurs in Ontario
Tony Martin, MPP

Last week, a committee of the Ontario Legislature completed hearings into the booming but risky business of franchising. The committee was gathering reaction to the government’s proposed Bill 33, an act that seeks to regulate franchise agreements. The testimony was far from encouraging.

Based on what I heard in Toronto, Ottawa, London and Sault Ste. Marie, I could not in good conscience recommend to anyone that they acquire a franchise. It is just too risky. The horror stories reinforced what has been well documented in the past: left unregulated, the franchising business is not only a foolish investment but also a threat to one’s financial, social and medical stability.

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In fact, Les Stewart, president of the Canadian Alliance of Franchise Operators, wants an immediate freeze on any further franchise contract signings until tough new regulations are put in place. CAFO has endorsed the kind of legislation contained in my Bill 35 because the government’s proposed legislation simply does not go far enough.

My private member’s bill would establish legislation that requires full disclosure of all material facts relating to the franchise in all agreements, a dispute resolution mechanism, the right to associate and freedom to source product outside of the chain where it is not trademark related. Bill 35 provides a comprehensive scheme to regulate the entering into of franchise agreements and the continuing relationship between the franchisor and the franchisee.

The franchise business has long been a concern to regulators. In fact, in 1971 the consumers affairs minister of the day was handed the Grange Report, which sought to “recommend controls that are least burdensome and the most flexible, while at the same time being consistent with the suppression of the evils of the system.”

Almost 30 years later, we find ourselves struggling with the same problems. The big difference of course is the growth of the franchising industry in the province.

Franchise business accounts for $45-billion to $50-billion of sales annually – or 40 per cent of every retail dollar. There are an estimated 500 franchisors and 40,000 franchisees in the province. The very difficult reality for many people investing (on average between $50,000 and $200,000) as franchisees is that 5,000 civil cases are filed every year before the courts in Ontario.

The Minister of Consumer and Commercial Relations, Bob Runciman, has indicated to me that he appreciates the issues. All our efforts should be dedicated to creating legislation and regulations that will respond directly to the need identified in the Grange Report and the Franchise Sector Working Team of 1995.

When you consider the growing number of people and families being restructured or downsized in today’s economy and who are looking around to invest their severance package it is essential that the government act to protect them from being victimized again.

Franchising is marketed as an easy method of getting into business with the hope of long-term prosperity and security. It is often portrayed as the proven path to success for entrepreneurs. Unfortunately, statistical information does not exist to support this rosy assertion.

Many immigrants looking to secure a place and a future for themselves and their families bet their life savings and lose or become indentured. In too many cases, investments are made with all due integrity. People work hard, bring their intelligence and experience to the enterprise, earn a good reputation, become good corporate citizens only to find out it is not enough. They lose it all or continue to work with much lowered expectations.

If a franchisee decides to challenge the franchisor, it is an uphill battle against usually overwhelming odds.

We owe it to these people and to the many others who have gone down quietly or continue to struggle. We owe it to the future of franchising – and good franchisors and prospective franchisees – to maximize the potential for them to contribute to our economy and in particular local economies.

I have tabled legislation at Queen’s Park three times over the past five years in an effort to stimulate this discussion and to move the government to action. We need to honour the work of the Grange Report, the Franchise Sector Working Team and the good will and effort of all involved in franchising in our province.

The best way to do that is by writing tough, comprehensive legislation that allows franchisees to reach their full entrepreneurial potential.

Tony Martin is an Ontario MPP for Sault Ste. Marie and NDP critic for Consumer and Commercial Relations.


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