Franchise bill strikes the right balance

Recently, outrageous numbers respecting franchise civil suits have been released to the press, but none of these can be substantiated. At the hearings, advocates for tougher guidelines than those proposed in Bill 33 used anecdotal testimony to create a dismal picture of franchise success in Ontario.

The Globe and Mail
April 4, 2000

Franchise bill strikes the right balance
Ontario legislation offers measure of industry regulation without reams of red tape
Opinion by Richard Cunningham, CFA

The positive role played by ordinary Canadians in the retail and business sector’s economic rebound in the last half of the 1990s was in large part facilitated by the confidence small-business investors have in Canada’s franchise systems.

Try to imagine Canada’s retail and service community without franchise businesses. Visit any of the country’s neighbourhoods or walk around any city’s downtown and you will encounter the growing number of familiar enterprises that are expanding their services, often cross-country. Without the willingness of franchise partners to risk their money and time in building these new businesses, particularly in retail and food services, this important economic sector would lack the vitality that has been its hallmark lately.

As the Ontario government wraps up committee hearings into new legislation that would regulate franchise disclosure rules, it is a good opportunity to ponder how new rules will help franchise buyers find the best place for their startup money.

With the exception of Alberta, no province currently regulates the business relations between franchise-buying franchisees and franchisors, the companies granting the right to operate businesses using their trademarks and expertise. The Canadian Franchise Association or CFA has long admitted membership to franchisors based on their willingness to follow guidelines similar to those set out in Ontario’s legislation – Bill 33 – as well as adherence to a code of ethics drafted by our board of directors.

We believe the bill’s requirements that franchisors disclose information pertinent to a buyer’s decision to purchase a franchise is a good idea. Informed decision-making is key to the continued health of the franchise industry. But, we also feel potential buyers should be thorough in their research of the businesses they are investigating. The disclosure document requirements that Bill 33 proposes should be only the starting point for buyers in educating themselves about the company’s validity as an investment.

Recently, outrageous numbers respecting franchise civil suits have been released to the press, but none of these can be substantiated. At the hearings, advocates for tougher guidelines than those proposed in Bill 33 used anecdotal testimony to create a dismal picture of franchise success in Ontario.

Franchising generates $90-billion in sales across Canada every year. Ontario accounts for 60 per cent of those sales. It would be irresponsible to draft legislation regulating industry activity based on evidence that is unsupported, misleading and more often than not inaccurate.

What all parties at the hearing agreed on is that disclosure laws make for a better business environment for conducting franchise agreements. But no amount of legislation can be a substitute for the principle of buyer beware.

Risk-free investment simply does not exist, but buyers can reduce the risks by keeping checklist of questions they should be asking and activities they should be pursuing before they sign on the dotted line. How many other outlets are operating near my territory? Will I receive training and in what form? Are all fees and charges documented clearly in my contract and do I know how they will be applied? Do I have a lawyer with the proper expertise to read my contract and accountant to examine available financial statements? These are only a few of the elements a buyer should be considering before making a commitment.

In the interest of assuring good relations between all parties and the best chances for success in a franchise agreement, the CFA’s code of ethics also requires that franchisors investigate the business acumen of those applying for a franchise. The decision to purchase a franchise should not be taken lightly. Too often, problems arise when novice franchisees have unrealistic expectations regarding the industry. Successful franchisors will endeavor to assure individuals that are a good match for their system helm their operations.

Operating a franchise requires hard skills and long-tem commitments and both parties need ot size up each other from the start to avoid bad experiences. To this end, all efforts should be made to ascertain whether franchisees know what they are doing as well as what they are getting into.

The CFA advocates Bill 33 for its commendable balancing of regulation without red tape. We feel the government goes just far enough toward allowing franchisees access to the information they need to steer clear of unscrupulous sellers. As well, the bill is consistent with the high standards our association endorses in promoting fair dealing. The bill’s protection of a franchisee’s freedom to associate with organizations without interference from the franchisor has always been our position. Further, the time delays and higher costs incurred by excessive regulation are not problems encountered in the proposed legislation.

It is the CFA’s hope that Ontario’s new franchise legislation helps the continued prosperity of the country’s franchising sector. With Ontario following Alberta’s example, certainly other provinces will not be far behind in the movement toward consistent national standards. As an organization that believes fair dealings and educated decisions make for good business, the CFA welcomes this direction for franchising in Canada.

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Richard Cunningham is president of the Canadian Franchise Association

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Risks: Canadian Franchise Association, CFA, Need more statistics, 5,000 new lawsuits per year in Ontario, Canada, Code of ethics, almost never enforced, Horror stories are merely anecdotal, Close ties: IFA & CFA, Endorsed mediation program, in 5 years used zero , Refuses to investigate complaints, Horror stories are merely anecdotal, Canada, 20000404 Franchise bill

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