Summary of Recommendations

This summary sets out the recommendations and concerns presented to the Standing Committee on Regulations and Private Bills during its consideration of Bill 33, Franchise Disclosure Act, 1999. It reflects the oral and written submissions made to the Committee during public hearings held on March 6, 7, 8 and 9, 2000, and those received by the Committee up until March 30, 2000.

LegislativeAssemblyofOntarioCostofArms.jpg

Legislative Assembly of Ontario, Canada
March 31, 2000

SUMMARY OF RECOMMENDATIONS
BILL 33 – FRANCHISE DISCLOSURE ACT, 1999
*
Legislative Research Service

Ontario Legislative Library

Legislative Research Service
Room 2520, Whitney Block
99 Wellesley Street West
Toronto, Ontario M7A 1A9

(416) 325-3675
(416) 325-3637
(416) 325-3696 Fax

0893/199-2000

SUMMARY OF RECOMMENDATIONS
BILL 33 – FRANCHISE DISCLOSURE ACT, 1999
*

Prepared for:
Standing Committee on Regulations and Private Bills

Prepared by:
Susan Swift
Research and Information Services
March 31, 2000

  • Projects prepared by the Research and Information Services Branch are designed in accordance with the requirements and instructions of the Committee making the request. The views expressed should not be regarded as those of the Legislative Library or of the individual preparing the project.

CONTENTS

INTRODUCTION 3

BILL 33 – FRANCHISE DISCLOSURE ACT, 1999 3
General 4
S. 1(1) Definitions 4
“franchise” 4
“franchisor’s associate” 6
S. 2(2) Application 7
S. 2(3) Non-Application 7
S. 3 Fair Dealing 7
S. 4 Right to associate 8
S. 5(1) Franchisor’s obligation to disclose 8
S. 5(2) Same 9
S. 5(3) Contents of disclosure document 9
S. 5(6) Exemptions 11
S. 6(1) Recission for late disclosure 11
S. 6(2) Recission for no disclosure 11
S. 6(6) Franchisor’s obligations on recission 11
S. 7(1) Damages for misrepresentation, failure to disclose 11
S. 10 Rights cannot be waived 12
S. 12 Exemption 12

EMERGING THEMES 12
Due Diligence 12
Relationship Legislation 13
Restrictive Sourcing/Centralized Purchasing 15
Restraint on Trade 16
Dispute Resolution 16
Selling Franchises 17
Oversight Body 18
Miscellaneous 18

WITNESS LIST 20

INTRODUCTION
This summary sets out the recommendations and concerns presented to the Standing Committee on Regulations and Private Bills during its consideration of Bill 33, Franchise Disclosure Act, 1999. It reflects the oral and written submissions made to the Committee during public hearings held on March 6, 7, 8 and 9, 2000, and those received by the Committee up until March 30, 2000.

The summary is intended as a working document to aid Members in their deliberations. It is not a complete historical record of all the evidence that the Committee has heard, or a comprehensive review of the arguments made by witnesses. For a full account of the evidence presented to the Committee, reference should be made to Hansard, and to the briefs themselves.

Submissions expressing substantially the same point have been grouped together. Efforts have been made to link the witnesses’ comments to the sections of the Bill, although some more general comments about the Bill are set out at the beginning of the summary. In addition, several themes related to the Bill emerged during the public hearings and these are collected in a section at the end of the summary.

Witnesses are identified by acronyms. A list of these acronyms appears in alphabetical order at the end of the document. Several witnesses chose to appear before the Committee in camera. Their identities and submissions are not included in the summary.

BILL 33 – FRANCHISE DISCLOSURE ACT, 1999

General
Bill 33 is a workable consensus among the various interests that were represented at the Franchise Sector Working Team and should be enacted without delay.
(Levitt, CCGD, Ryan, CBAO, TH, Davy, Dillon, CFIG)

Support the Bill. It balances the needs of all parties without imposing undue or costly restrictions on the franchise industry.
(Lessif, Seymour)

The Bill should be amended to:
• disallow excessively long contracts,
• provide franchisees with details of the franchisor’s management personnel and pending litigation,
• offer an opt-out provision from forced buying so franchisees can invest in other small local businesses,
• prohibit “gag” orders that prevent current franchisees from speaking to prospective franchisees about the franchisor,
• makes breaches of the Act offences like those set out in Bill 35,
• provide a dispute resolution process like that set out in Bill 35,
• provide a guarantee of the payroll by the franchisor, and
• consider other provisions in Bill 35 to strengthen the Act.
(D’Angelo)

The Bill should be amended to:
• stipulate that the franchisor is obligated, at its expense, to assist franchisees in all ways to achieve the average performance the franchisor claims can be achieved;
• create and mandate an independent mediation/arbitration system to determine disputes between the parties. The cost should be reasonable and should be shared by all parties;
• ensure that there is no blame attached to any party who requests mediation/arbitration;
• stipulate that those who invest their money to set-up and operate a franchise must be indemnified for their efforts, much the same as an employee who is let go must receive one week’s pay for every year of service;
• stipulate what happens to the investment remaining in a business when a franchisor, as opposed to the bank or an outside creditor, forecloses on the business; and
• stipulate that franchisees have the right to associate freely and to form associations without interference from the franchisor.
(Ricketts)

S. 1(1) Definitions
“franchise”
Clarify that the word “payment” in the definition means both direct and indirect payments. This will ensure that the Act applies to franchisors that do not require pre-payment of a franchise fee, but build the fee into operational fees and the cost of purchasing goods and services.
(Lessif, Krupp)

Concerned that the definition could be construed to cover the periodic payments made to a supplier for inventory under a distribution arrangement. Such an arrangement would not be considered a “franchise” in any commonly accepted sense of the term. The Bill should be amended to eliminate such an interpretation by excluding from the payment element of this definition, “purchases of reasonable amounts of inventory at a bona fide wholesale price.”
(Hale)

The Bill should be amended to permit a franchisor to take a fully refundable deposit, as is the case in Alberta.
(Levitt)

Add a de minimus franchise fee exemption. Under such an exemption, payments to a putative franchisor or its associate would not trigger application of the Act, unless the total amount paid during the first six month period of the business operation exceeds a sum of say, $2,000.
(Hale)

To ensure that the legislation does not apply to arrangements between businesses that operate customer loyalty programs and companies that participate in such programs by issuing a reward currency to their customers, amend the Bill by adopting one of the following five alternative amendments:

1) Add the following two definitions to this subsection:

“franchise” means a right to engage in a business for which the franchisee is required to pay to the franchisor, or the franchisor’s associate, a franchise fee, and…

“franchise fee” means a payment or continuing payments, or a commitment to make such payment or payments, required as a condition of acquiring or maintaining the right to engage in the business, but shall not include:

(a) amounts paid to one person by another person whom the first person authorizes to participate in a customer loyalty program involving two or more participants in two or more goods or service categories or industries that permits direct or indirect customers of a participant to obtain goods, services, rewards or other value, in connection with obtaining goods and/or services from, or that have been manufactured, performed, supplied or otherwise furnished by, a participant.

OR

2) Add the following definition to this subsection:

“business” in respect of a right to engage in a business, shall not include any activity arising from an arrangement whereby a person is authorized to participate in a customer loyalty program involving two or more participants in two or more goods or service categories or industries that permits direct or indirect customers of a participant to obtain goods, services, rewards or other value, in connection with obtaining goods and/or services from, or that have been manufactured, performed, supplied or otherwise furnished by, a participant.

OR

3) Amend clause (a)(ii) of subsection 1(1) as follows:

(ii) the franchisor or the franchisor’s associate exercises significant control over, or offers significant assistance in, the franchisee’s entire method of operation, including…

And, add the following provision as a new subsection 1(4) of the Bill:

The Minister shall not consider the following items in determining whether “significant control” or “significant assistance” exists:

(a) an arrangement whereby a person is authorized to participate in a customer loyalty program involving two or more participants in two or more goods or service categories or industries that permits direct or indirect customers of a participant to obtain goods, services, rewards or other value, in connection with obtaining goods and/or services from, or that have been manufactured, performed, supplied, or otherwise furnished by, a participant.

OR

4) Add the following additional exclusion to subsection 2(3):

9. An arrangement whereby a person is authorized to participate in a customer loyalty program involving two or more participants in two or more goods or service categories or industries that permits direct or indirect customers of a participant to obtain goods, services, reward or other value, in connection with obtaining goods and/or services from, or that have been manufactured, performed, supplied or otherwise furnished by, a participant.

OR

5) Add the following clause to subsection 5(6):

(i) the grant of a right to a person pursuant to which the person is authorized to participate in a customer loyalty program involving two or more participants in two or more goods or service categories or industries that permits direct or indirect customers of a participant to obtain goods, services, rewards or other value, in connection with obtaining goods and/or services from, or that have been manufactured, performed, supplied or otherwise furnished by, a participant.
(LMG)

“franchisor’s associate”
Amend the definition to ensure that a shareholder, even a controlling shareholder, is not caught by the definition. It would be unprecedented in our judicial system for shareholders to be liable for the acts of their company.
(Levitt)

The concept of the liability of, and obligations extending, to an associate of a franchisor should be limited or clarified.
(CBAO)

S. 2(2) Application
The Act should be made to apply to franchise agreements entered into before, as well as, on or after the Act comes into force.
(Sousa)

S. 2(3) Non-Application
(See also LMG recommendation set out under section 1(1) above.)

S. 3 Fair Dealing
Support the fair dealing provision set out in the Bill.
(CFA, MG)

The ‘duty of good faith’ as it appears in Bill 33 needs to be strengthened, and made enforceable and reciprocal.
(Kezios)

The Bill should also include a duty of ‘due care,’ meaning that the franchisor must have the level of knowledge and skill they purport to have; and a ‘limited fiduciary duty’ when the franchisor undertakes bookkeeping or accounting and payroll functions for the franchisees.
(Kezios)

The duty of ‘fair dealing’ must be defined. It is preferable to define it generically, rather than with reference to specific issues such as termination, renewal, transfer etc. The duty must also be enforceable.
(Sotos, OFC, CFM)

Section 3 should be amended to read:

(a) “Fair dealing” means honesty in fact, and where the franchisor has the right to adversely affect the franchisee’s investment it must exercise such right in a commercially reasonable manner.

(b) If the franchisor or franchisor’s associate contravenes this section, the franchisee shall have a right of action for damaged against the franchisor or the franchisor’s associate, as the case may be.
(Sotos, OFC, Welch)

It would be better to define fair dealing with reference to commercial reasonableness, but it would be better still to then define commercial reasonableness in the franchising context. This should mean that franchisors are explicitly obligated to exercise their discretion as if it were their own assets at risk.
(Hadfield)

If the Bill is to have any meaningful value to existing franchisees, it must define the concept of “fair dealings” as requiring commercial reasonableness in all areas where the franchisor has discretion. This duty should be made enforceable. These amendments will help to adjust the imbalance that exists in so many franchise situations, and to protect the investment of franchisees when a franchise program or other operational elements are unilaterally changed by the franchisor.
(Pilat, Krupp, CFIG, Gibson)

Add the words ‘good faith’ to the duty of ‘fair dealing.”
(OFC)

Support the Bill, but remain concerned about the fair dealing provisions. Consider amending the Bill to ensure not only that a history of bankruptcies an successive transfers in the ownership of the franchisor would be disclosed to prospective franchisees, but also that fair dealing would apply in such circumstances to help existing franchisees who otherwise bear the burden of successive changes.
(McCartney)

Level the bargaining playing field between the franchisee and the financially stronger franchisor by mandating good faith bargaining. Make this duty enforceable.
(Tremblay)

Adopt the approach proposed in the Grange Report to reverse the onus of establishing fair dealing so that it is up to the franchisor to prove that it dealt fairly with the franchisee in the circumstances.
(Wishart)

S. 4 Right to Associate
The right to association should not include the right to disclose confidential information about the franchisor.
(CBAO)

The right to associate is not enough protection, the Bill should include a ban on "gag orders.”
(CAFO)

It is not a good idea to include a prohibition against ‘gag’ orders.
(Wishart)

Provide not only that a franchisee association has the right to represent the interests of its members before the franchisor, but also that the franchisor is required to recognize and deal with the association as the representative of the franchisees.
(Tremblay, Gibson, MG)

Delete section 4 and instead provide that a franchise agreement cannot contain a clause that prevents association with other franchisees, and stipulates that a franchisor (or master franchisor) cannot interfere with the franchisees right to associate.
(PL)

S. 5(1) Franchisor’s obligation to disclose
Support the disclosure requirements proposed in Bill 33 and the terms and conditions proposed to ensure timely transmission of the disclosure documents.
(CFA)

Permit electronic disclosure.
(Lessif, Krupp)

Ensure that the legislation imposes a high standard of care on franchisors to disclosure to franchisees all relevant information, and impose significant sanctions for non-compliance.
(Davies)

Ensure that, where franchisees have to pay into things like an advertising fund, the franchisor has to use this fund for the purpose for which it is established, and must provide disclosure to the franchisees. This will ensure that the franchisor is accountable to the franchisees for dealing with the fund.
(MG)

Disclosure needs to be reciprocal, and consider requiring franchisors to look more closely at the resources and abilities of prospective franchisees.
(Sovereign)

Amend to require disclosure on renewal, or immediately in the event of a material change of a pre-existing franchise agreement.
(Lessif, Krupp, Ryan)

Change the Bill to provide that the franchisor is also obligated to provide disclosure anytime after the sale of the franchise has been completed.
(Wilson)

Require the franchisor to make ongoing disclosure of the franchisor’s prices and pricing policies, volume rebates and co-op moneys, and subsidies to other stores in the franchise.
(Welch)

S 5(2) Same
Ensure that the format of disclosure documents is harmonized across all Canadian jurisdictions that currently require or that may in the future introduce requirements for pre-sale disclosure to potential franchisees.
(CFA)

S. 5(3) Contents of disclosure document
The ‘material facts’ referred to s. 5(3)(a) should be clearly set out in the legislation together with information referred to in clause (d). This is the most important part of the bill.
(PL)

Require that disclosure documents include:

• notice of the policy of the franchisor to encroach on the franchisee’s territory within X period of time after the franchisee has operated the business and notice that this policy is a material risk to the franchisee;

• the length of time for the franchisor to approve an alternate sourcing vendor;

• a notice that reads as follows:

You do not own your own business. You are leasing the rights to sell our goods and services to the public under out trade name. At the end of your initial 10-year term your current contract will expire or terminate. You will have the choice of signing a new contract with us at the time of expiration or termination. The new contract will be written by us, with no input from you and will contain materially different financial and operational terms.
(Kezios)

Provide that a mandatory Franchise Information Kit (similar to the mandatory Used Vehicle Information Kit) must be given to prospective franchisees. It should include, as a minimum, a “provenance” requirement, specifically: history of the franchisor (ownership structure, financial history); history of the franchise (i.e., previous ownership or sale); a market analysis by a third party, paid for by the franchisor; a comparison of franchise fees in the particular industry; and an independently audited pro-forma statement of expected sales and profit.
(Benmurgi)

Engagement letters and/or commercial credit reports are the optimal tools for potential franchisees to accurately assess the financial viability of a franchisor system. Audited financial statements can be confusing.
(CFA)

Recommend that sales projections be supplemented with two additional pieces of information: 1) industry sales data that would provide the potential franchisee with a benchmark on generally how the industry is performing, and 2) historic sales figures on comparable existing sites in the system.
(Lessif)

Consider amending clause (b) to provide that prospective franchisees must be given specific financial information certified to be true by a franchisor. This would be more effective than requiring the production of full financial statements because many prospective franchisees simply don’t understand these documents and do not take them to accountants to have them analyzed.
(Levitt)

Clarify which financial statements must be disclosed. Unlike the usual public offering prospectus, franchisors are not soliciting investment in their master franchise company and therefore a prospectus is not necessary. The only useful data to potential franchisees is data with respect to the average operating results of existing franchisees. Suggest that disclosure of such information should be made only if the existing franchisees can legally be required to provide financial information for publication, or if they consent willingly to such publication.
(PL)

Require franchisors to disclose whether there are special contractual terms with some franchisees in the franchise system and what those special arrangements are. This information is significant because the terms of such arrangements may affect the contractual terms of all the other franchisees.
(MG)

Regulations must require the franchisor to clearly set out its policy on the supply of goods and services particularly where the franchisor or a related corporation is the supplier. It is not necessary to require the franchisor to set out the volume of rebates; it is sufficient to set out the corporate policy.
(Konigsberg)

Franchisors should not be able to quote earnings or revenue potential without proof that these projections are supportable.
(Fitzpatrick)

S. 5(6) Exemptions
Oppose any broad-based exemption provision for franchisors from the terms of the legislation.
(CFIB)

Amend clause (c) to require disclosure by the franchisor in cases where there is a sale of an additional franchise, if there has been a material change.
(Lessif, Krupp)

(See also LMG recommendation set out under subsection 1(1) above.)

S. 6(1) Recission for late disclosure
This provision adds no additional protection.
(Tremblay)

S. 6(2) Recission for no disclosure
Delete s. 6(2). Instead, to prevent the situation from ever occurring in the first place, require that a franchisee may waive the disclosure document at the time of signing at their own risk, or make the franchise agreement void if it is not preceded by the disclosure document.
(PL)

S. 6(6) Franchisor’s obligations on recession
If s. 6(2) is deleted as suggested, s. 6(6) will not be necessary. In any event, this subsection is impractical.
(PL)

S. 7(1) Damages for misrepresentation, failure to disclose
Delete the right of action against a franchisor’s associate in clause (b) of this subsection.
(CBAO)

Expand the right of action for misrepresentation to include agents and brokers.
(Lessif, Krupp)

Delete s. 7(1)(c). As drafted, it pierces the corporate veil and no officer will sign the agreement.
(PL)

Amend this section to provide that the right of action for damages is available to both current and former franchisees and that they may sue for stress, depression, humiliation, pain and suffering, and punitive damages.
(Sousa, Eva)

The legislation should provide some recourse if the franchisee can prove that he or she has done everything that is expected, and yet cannot succeed in achieving the operating cost and profit projections that the franchisor has told them are attainable. This recourse must not be so costly or time consuming that franchisees cannot take meaningful advantage of it.
(Barge)

Giving a private right of action for breach of contract or violation of the legislation is meaningless for franchisees who can’t afford to litigate.
(CAFO)

S. 10 Rights cannot be waived
Delete s. 10. Franchisees should be able to waive their statutory rights.
(PL)

S. 12 Exemption
Support an exemption from disclosure only for franchisors that meet criteria, which clearly demonstrates that their financial and organizational conditions are sufficient to assure prospective franchisees of stable and viable investments. Adopt the mature franchise exemption threshold proposed in Alberta.
(CFA)

EMERGING THEMES

Due Diligence
Add a requirement that the franchisee must obtain a certificate of independent legal advice (ILA) with respect to the franchise agreement.
(Wishart)

Require franchisees to sign off on having exercised due diligence and having received independent legal advice (ILA).
(Lessif)

Require that new franchise agreements include a declaration that “the parties have read, understand and are in compliance with both the Competition Act and the Franchise Disclosure Act.” Also require the lawyer who drafts the agreement to be a signatory.
(SMEDC)

Stipulate that start-up franchisors (e.g., those not on the market for at least three years), be required to post a probationary bond similar to a direct sellers bond. This shifts some of the research task to a third party (the bond seller) that may be better equipped to access data on a new franchisor than a perspective franchisee. This may also offer some protection in case of default and keep less credible companies from entering or having a negative impact on the franchise industry. it will reduce “fly-by-nights” and criminal intent.
(Sovereign)

Relationship Legislation
There is no need for relationship legislation. There are no objective studies to support it and franchisees currently have a fair chance of receiving justice without it.
(Levitt, CBAO, AT)

Do not adopt relationship legislation. It simply leads to increased legislation.
(Konigsberg)

There needs to be solid research on franchising. Policy decisions on relationship legislation should not be made on anecdotal evidence, which is all that is currently available.
(TH, CFA)

Relationship standards cannot be legislated.
(Lessif)

The problem with trying to regulate the franchise relationship is that it is impossible to develop standards that can apply to all franchise types.
(TH)

Support legislation that requires full disclosure.
(Connolly)

Bill 33 doesn’t go far enough. Relationship legislation is also needed. Franchisees need legislation to address issues such as encroachment and “cannibalization:” sole-sourcing requirements; and failure to give true pre-sale disclosure.
(Kezios)

Support the Bill as far as it goes, it will go a long way to addressing the major problems stemming from matters that arise before the execution of the franchise agreement. But it does not address post-sale problems; the lack of minimum standards of conduct in franchising is the real problem.
(Sotos, OFC, Kawatra)

Positions of bargaining power, level of sophistication and access to resources are so unequal in franchising relationships that the government should legislate as it has in similarly imbalanced relationships such as residential tenancies.
(SSMCC, CAFO)

Support Bill 33 as far as it goes, but it should go farther to include provisions that would regulate the franchise relationship such as those e contained in Bill 35.
(Davies, Wishart, Michael, Barge, SSM)

The legislation must provide for all of these elements: full disclosure, good faith bargaining, dispute resolution and renewal protection for the franchisee.
(Tremblay)

Add to Bill 33 a fair framework to handle circumstances of non-renewal or termination of franchise agreements (notice period, fair compensation, just cause) and a timely, low cost method of resolving disputes.
(CFIB, Meeuse)

Amend the Bill to address the issue of the ‘right to renew’ and provide protection for the franchisee as follows:

• add some type of protection to prevent the franchisor from discarding a franchisee at the end of his or her first term:

• add protection against the franchisor making significant material change to the original agreement at the time of renewal, especially when those changes are made in an effort to get rid of the franchisee;

• add a requirement that franchisors must recognize the goodwill contribution of the franchisee;

• address the fact that the ‘risk and reward ratio’ is much greater fro franchisees (who invest life savings and are out of work if the business fails), than for the franchisor; and

• ensure that no franchise agreement or franchisor will be allowed to force franchise program changes, either during the course of the existing agreement, or as new requirements at the time of renewal, that would prevent the franchisee from acting as a prudent business person (e.g., requiring financially unjustifiable renovation or equipment changes, changes that negatively affect the original profit potential structure of the business).
(Tremblay)

There needs to be franchise relationship legislation to address problems such as franchisors unilaterally adding or changing operating requirements that were not agreed to, with no proof that the change is in the best interests of the franchisees, and with no recourse against the franchisor’s decision. Currently, there is no requirement that these directions be tested or proven profitable.
(Fitzpatrick)

Amend to require “cause” as a pre-condition for the termination of a franchise agreement.
(Benmurgi)

Support the Bill, but it needs to go further. There needs to be protection against predatory encroachment by the franchisor or buy-out of the affected franchisee at “firesale” prices.
(CFM)

The Bill must address the business practice known as “churning.” This occurs when a franchise has a high turnover rate of franchisees with franchisor buy-outs at “firesale” prices.
(Thomas)

Legislation is needed to protect franchisees against the one-sidedness of franchise agreements. If a franchise fails, the franchisor should be required to bear some of the burden, it should not rest exclusively on the shoulders of the franchisee.
(Rosenberg)

Restrictive Sourcing/Centralized Purchasing
The strength and benefit of centralized purchasing would be undermined to a great degree of independent sourcing were permitted.
(Lessif)

The issue of restrictive sourcing and centralized purchasing in franchise agreements must be addressed. It is damaging to the local economy, onerous on franchisees, eliminates consumer choice, and amounts to a restraint on trade.
(SSM, OFA, FD, FAR, SSMEDC, Wishart, Welch, Rosenberg)

There should be ban on restrictive sourcing to allow franchisees to purchase local goods and services. Bill 35 strikes the appropriate balance to protect the franchisor’s need to ensure standards and brands and franchisee’s desire to get goods cheaper and give greater choice to consumers.
(SSMCC)

Concerned about the issue of market access in large chain stores. Address the issue by ensuring that there is some discretion for franchisees to stock local product, and by mandating dedicated retail space for local products with criteria to define “local products,” and to ensure that minimum product turnover is maintained.
(AFA)

Another way of addressing restrictive sourcing provisions and to encourage franchise owners to provide a fair portion of their display case for locally produced and processed dairy products, is to move the decision-making power into the hands of the franchisee through legislation. This would provide a much needed incentive toward small businesses and suppliers to produce products made in the North.
(FD, MJD)

The local products should be given shelf space in local chain stores proportionate to sales volume and should be allowed to display a full line of products.
(LCD)

The legislation should make it illegal to prohibit product access to store shelves, unless it can be proven that: 1) the product is of inferior quality, 2) that it is of a type not normally sold by the store, or 3) that there is not sufficient interest by customers.
(LCD)

The legislation should provide: 1) that it is illegal for franchise agreements to prohibit the sale of any product unless it fails to meet the advertised quality, or the product fails to meet an established standardized format; 2) that “side agreements” that would subvert an open shelves policy are illegal; and 3) that arrangements that would restrict fair trade practices are illegal.
(LCD)

The government should stipulate that egg producers have regions or zones within which particular producers are able to sell their eggs.
(FAR)

There should be statutory obligations on the franchisor to provide the franchisee with products in a timely manner, failing which the franchisee is free to purchase products from another supplier.
(Wilson)

Restraint on Trade
Amend the Bill to stipulate that franchise agreements that contravene either the Competition Act or the Franchise Disclosure Act are unenforceable.
(SSMEDC)

The Competition Act guarantees that customers have the right to be offered alternative products where they are available and to be allowed to make choices without interference. Restrictive sourcing amounts to an interference in this process and violates the Competition Act. Bill 33 is silent on these issues; it should dictate policy with regard to franchise agreements and should provide enforcement options.
(SSMEDC)

By dealing with fairness between franchisor and franchisee and being silent on fairness to the public and to competitors, the Act fails to deal with the systemic problem that franchise agreements cause in restraining trade and denying access to markets of locally produced products and services.
(SSMEDC)

Dispute Resolution
There is no need for a separate dispute resolution mechanism in the legislation because we already have court-annexed mediation, which will capture all disputes including franchise disputes, and other voluntary initiatives such as the Canadian Franchise Association mediation program.
(Levitt, Lessif)

Add an affordable dispute resolution mechanism.
(Barge, SSM, Kawatra, Tremblay)

Add a dispute resolution mechanism like that contained in Bill 35 (mandatory mediation) and also provide for arbitration instead of court proceedings.
(Wishart, SSMCC, Benmurgi)

There needs to be a mediation process prior to entering the court process.
(Sovereign)

There must be a dispute resolution system that included compulsory arbitration or the appointment of an ombudsman. Redress through the judicial system is prohibitively expensive for franchisees.
(Thomas)

Amend the Bill to include mechanisms for low cost enforcement of the rights and obligations. Mechanism could include permitting franchise association/class standing in civil litigation; dispute resolution mechanisms including mediation that would operate outside the civil litigation system.
(Hadfield)

Provide an exit strategy for franchisees to terminate the relationship in certain circumstances such as in cases of arbitrary termination or refusal to renew, or death or incompetence of the franchisee. At a minimum, provide that the strategy should be determined by arbitration.
(Wishart, SSMCC)

Consider adding a “shotgun” clause to all franchise agreements, enabling the parties to easily and cost-effectively part company so that the franchisee won’t be in the position of losing all of his or her investment.
(Michael)

All disputes concerning restrictive sourcing in franchising should be dealt with in the Act as a way of reducing the complexity of settling such disputes.
(LCD, Fitzpatrick)

Amend the Bill to provide for a dispute resolution mechanism with independent third parties to avoid undue influence by franchisors.
(MG, Welch)

Selling Franchises
Support the pre-sale disclosure provisions, but the Bill also needs to recognize the ability of franchise sales people to sell around the agreement, the excitement and inexperience of clients and the sophistication of the agreement. Disclosure documents are difficult to understand and there needs to be recognition in the legislation of the reality that franchisees don’t have the money or sophistication to understand the agreements.
(SSMCC)

Disclosure is not the entire solution to franchisees’ problems. Good sales people can sell around the disclosure document.
(Thomas)

Enact legislation that addresses the selling of franchises. Currently, the industry is riddled with myths about inflated success rates, recession-proof opportunities with no conclusive data or empirical evidence to support these kinds of promotional and seductive claims.
(Kawatra)

Enact legislation that will address pre-sale practices including glitzy brochures and unrealistic sales and profit projections on sales so as to “hook” prospective franchisees; inflated pricing on “authorized products” supplied only by “authorized suppliers,” or the franchisor and restrictive sourcing policies; insurance scams and forced renovations to comply with franchisor’s new criteria; and inflated rents on sub-leases as the franchisor holds the head lease with property owners.
(Vanikiotis)

Oversight Body
The proposed pre-sale disclosure is good, but more is needed. There should also be investor protection for franchisees, like the Securities Commission for trades in securities, as is proposed in Bill 35. Require franchisors to file a pre-sale prospectus with the Securities Commission.
(Wishart)

Establish an independent body to conduct research, observe and report on the industry. This body could also perform the functions of independent arbitrator and mediator for franchising disputes.
(Kawatra)

The legislation should not provide for review by the Securities Commission.
(Fitzpatrick)

Based on the negative experiences of other jurisdictions such as Alberta and Iowa, there should not be any oversight by the Ontario Securities Commission or by a franchising ombudsman.
(CFA)

Establish a regulatory entity similar to a Superintendent of Financial Institutions, with powers of enforcement.
(Benmurgi)

Consider the appointment of an ombudman to assess the validity of a dispute. Third party review by someone familiar with franchise sector issues and franchisors could resolve many disputes thus avoiding costly litigation.
(Krupp)

As has been provided for in Alberta’s Franchises Act, Bill 33 should contain a provision allowing for the delegation of industry self-regulation to a body considered capable of governing the persons involved in franchising and promoting fair dealing among franchisors and franchisees.
(CBAO)

Miscellaneous
The government should support the flow of information about franchisors and the experience of franchisees. The information should be made readily available at low cost to prospective franchisees so that they can make judgements about the franchisees. Ensure the publication of franchisor conduct/franchisee experiences by mandating participation in an Internet web site that publicizes such information. This ‘reputation information’ will probably be the most effective check on franchisor behaviour.
(Hadfield)

To the extent possible, the Bill should be made consistent with franchise legislation in the Province of Alberta.
(CBAO, Dillon)

Bill 33 gives the appearance of fairness and government oversight. Instead, it has no real teeth for enforcement, does not provide protection, and leaves the burden and cost of funding lawsuits with the franchisee.
(Kezios, CAFO)

In evaluating the legislation, the following factors should be considered: the openness or transparency of the process; accessibility in the relationship including dispute resolution; flexibility of the legislation including how easily can the law be stripped by lobbying, its adaptability to change; whether it makes the rights and responsibilities in the relationship reciprocal; whether the law is portable and on the right track for international compliance; are the policy goals of the Bill measurable.
(CAFO)

There should be a cooling-off period in the legislation.
(SSMCC)

Portions of a franchise fee that are allocated to tangible goods such as equipment or inventory (if representing a significant portion of the franchise fee) should be required to be held in trust and paid to franchisors only upon delivery in a fashion similar to government agency assistance with funds for goods shipped internationally from Canadian companies.
(Sovereign)

There is nothing in the Bill to protect franchisors. Add that franchisors have the right to impose operating obligations on franchisees to ensure uniform operations within a franchise group.
(PL)

Publish the exemption regulations and make them available to all interested parties for review prior to second reading.
(PL)

Recommend that the Committee exercise caution in regulating this important sector of the economy.
(Dillon)

Provide that “restrictive competition clauses” are void in cases where a franchisee’s continuation in the same type of business is necessary to earn a livelihood. Proper safeguards for the franchisor’s business style, trade marks, patents, etc., should be set out in the regulations.
(Benmurgi)

WITNESS LIST

Abbrev., Organization/Individual, Date of Appearance/Written Submission

AFA, Algoma Federation of Agriculture, Cathy Bonnett and Ryan Connolly, March 7, 2000

AT, Algonquin Travel, Ron Greenwood, March 8, 2000

Barge, Algonquin Travel, Ed Barge, March 6, 2000

Benmurgi, Ruben Benmurgi, Written Submission

CAFO, Canadian Alliance of Franchise Operators, Les Stewart, March 7, 2000

CBAO, Canadian Bar Association - Ontario: Business Law Section, Frank Zaid, March 6, 2000

CCGD, Canadian Council of Grocery Distributors, Dave Wilkes, Kevin Ryan, March 6, 2000

CFA, Canadian Franchise Association, Richard Cunningham, March 8, 2000

CFIB, Canadian Federation of Independent Business, Judith Andrew, March 6, 2000

CFIG, Canadian Federation of Independent Grocers, John Scott, Peter Knipfel, Gary Sands, March 9, 2000

CFM, Cameron Food Market, Bill Cameron and Bob Uhrig, March 9, 2000

Connolly, MailBoxes Etc., Mark Connolly. March 8, 2000

McCartney, Color Your World, Tony McCartney, March 6, 2000

D’Angelo, Marco D’Angelo, March 8, 2000

Davies, Neil Davies, March 6, 2000

Davy, M&M Meat Shops, Brian Davy, March 9, 2000

Dillon, Peter Dillon, March 9, 2000

Eva, Eva, Written Submission

FAR, Ferme Avicole Robert Ltee., Brian Brownlee and Rene Robert, March 7, 2000

Faubert, Lynn and Steve Faubert, March 9, 2000

FD, Farquhar Dairies, Don Farquhar, March 7, 2000

Fitzpatrick, Country Style Donuts, Jim Fitzpatrick, March 7, 2000

Gibson, Charles Gibson, March 8, 2000

Hadfield, Gillian Hadfield, March 8, 2000

Hale, Christopher Hale, Written Submission

Hendricks, Lynda and Tony Hendricks, Written Submission

Kawatra, Vijay Kawatra, March 8, 2000

Kezios, American Franchisee Association, Susan Kezios, March 6, 2000

Konigsberg, Alex Konigsberg, March 8, 2000

Krupp, Bob Krupp, March 9, 2000

LCD, Lock City Dairy, Vic Fremlin, March 7, 2000

Lessif, McDonald’s, John Lessif, March 9, 2000

Levitt, Ned Levitt, March 6, 2009

LMG, Loyalty Management Group, Written Submission

Meeuse, Second Cup, Diane Meeuse, March 9, 2000

MG, March Group Inc., Hal March, March 9, 2000

Michael, Pizza Pizza, Dave Michael, March 6, 2000

MJD, Mrs. Jersey’s Dairy, Peter Gass, March 7, 2000

OFC, Ontario Franchisee Coalition David Sterns, March 6, 2000

Pilat, Mark Pilat, Written Submission

PL, Party Land, Victor Martin, March 9, 2000

Ricketts, Sue Ricketts, March 9, 2000

Rosenberg, Crabby Joe's, Howard Rosenberg, March 9, 2000

Ryan, Kevin Ryan, March 6, 2000

Sotos, Sotos LLP, John Sotos, March 6, 2000

Sousa, Eva Sousa, Written Submission

Sovereign, KOA, Lewis Sovereign, March 9, 2000

SSM, City of Sault Ste. Marie, Stephen Butland, March 7, 2000

SSMCC, Sault Ste. Marie Chamber of Commerce, Ben Pascuzzi, March 7, 2000

SSMEDC, Sault Ste. Marie Economic Development Corp., Duane Buchanan, March 7, 2000

TH, Tim Hortons, Nick Javor, March 7, 2000

Thomas, MailBoxes Etc., Peter Thomas, Written Submission

Tremblay, IGA, Normand Tremblay, March 8, 2000

Vanikiotis, Country Style Donuts, Tony Vanikiotis, March 8, 2000

Welch, IGA, Kelly Welch, March 8, 2000

Wilson, Lloyd Wilson, Written Submission

Wishart, Wishart & Partners, Gerald Nori, March 7, 2000


Brought to you by WikidFranchise.org

Risks: Alpha Male attorney, Professor Gillian K. Hadfield, Universities are in the business of pursuing objective truth, Universities provide unbiased expert knowledge, Les Stewart, Universities provide unbiased expert knowledge and pursue objective truth, Canada 20000331 Summary recommendations

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License