Franchise bill sparks debate

Gillian Hadfield, a lawyer and economist on the faculty of the University of Toronto, said in an interview she shares Stewart’s concerns about Bill 33. “It doesn’t go far enough,” Hadfield said. “It deals with the problem of disclosure, but the problems go far beyond disclosure.” “What it probably needs most is a clear statement that franchisors are not free to take advantage of their franchisees’ investment,” she said.

The Record
April 26, 2000

Franchise bill sparks debate
Franchisors support legislation, but critic calls it ‘a selling tool’
Dave Pink

The Ontario government is taking steps to regulate the province’s booming franchising industry, but there are vast differences of opinion as to how effective the legislation will be.

Chris McLean, a spokesman for the Canadian Franchise Association, which represents about two-thirds of the province’s franchisor companies, says provisions in Bill 33, the Franchise Disclosure Act, are just right and exactly what the province needs to exercise a measure of control over the franchising trade.

But Les Stewart of the Canadian Alliance of Franchise Operators says Bill 33 doesn’t go far enough to safeguard the rights of franchisees, the people forking over their life savings to buy into the franchise system. Depending on the business, he says franchises range in price from about $2,000 to well over $1 million.

Across Ontario, there are about 40,000 franchisees operating outlets for about 500 franchisors, everything from food stores and coffee shops to auto repair shops and cleaning services. Across Canada it’s estimated that 40 per cent of all financial transactions pass through franchises.

Until now, Ontario has had no specific laws to regulate the relationship between franchisor and franchisee. Bill 33, which was the subject of four public hearings across the province in March, would essentially do three things:

  • Force franchisors to disclose all information, including financial details, that people need to make an informed decision about purchasing a franchise.

*Require franchisees and franchisors to “deal fairly” with each other.

  • Allow franchisees to meet freely with other franchisees and to form franchisee associations.

“It would be better to have nothing, than to have this,” Stewart, a Barrie resident who once ran a Nutri-Lawn lawn care service, said in an interview. “This bill gives the illusion of protection, but all it really is is a selling tool to sell franchises.’

Stewart admits many franchisors and franchisees do enjoy harmonious and profitable relationships. But he said there are too many horror stories to believe there isn’t a widespread problem.

Once a franchisee has committed money to the franchisor, he or she become nothing more than an indentured servant, he said. Their contracts stipulate how the business must be run and where supplies must be purchased. Franchisees are forbidden to speak out publicly about the business.

And if a franchisee doesn’t live up to the contract, Stewart said, the franchisor can take the business over, without refunding the original payment.

And what does Bill 33 really mean when it talks about fair dealing, he asked.

“It sounds good, but what does it really mean? The best legal opinion is: Not a helluva lot. They should be looking to make that a bit more specific.”

Stewart is also critical that Bill 33 won’t create mechanism for resolving conflicts between franchisors and franchisees.

“The only enforcement allowed under Bill 33 is the civil courts, but the franchisor and the franchisee are not equal when it comes to going to court,” he said.

“The franchisors have the deeper pockets and they are extremely motivated because they realize that if they fail to protect their franchises in court it can be used against them in the future.”

“The franchisees tend to give up because they can’t afford the lawyers any more.”

What’s needed, said Stewart, is an objective and affordable dispute-settling mechanism, maybe an ombudsman with a mandate to resolve problems before they go to the courts.

Stewart’s association has just 50 dues-paying members. But, he said, the group is supported by hundreds more franchisees who are simply afraid to go public.

Gillian Hadfield, a lawyer and economist on the faculty of the University of Toronto, said in an interview she shares Stewart’s concerns about Bill 33.

She was an expert witness when an all-party committee of MPPs held hearings on Bill 33 last month.

“It doesn’t go far enough,” Hadfield said. “It deals with the problem of disclosure, but the problems go far beyond disclosure.”

“What it probably needs most is a clear statement that franchisors are not free to take advantage of their franchisees’ investment,” she said.

And if franchisors have any problem with that, they shouldn’t, Hadfield said.

After all, she noted, criminal laws, labour laws and investment laws are all aimed at curbing actions of only those people who would take advantage of others.

“A lot of people don’t realize what they’re getting into when they get into franchising. The very nature of that relationship means that franchisees are in a vulnerable position. But the franchisors don’t seem to have a set of rules to restrain them.”

Hadfield said effective franchise legislation has been on the books throughout the United States for as long as 30 years and that the franchise industry continued to prosper.

Franchisors, on the other hand, are very much on the side with the bill as it now stands, McLean of the Canadian Franchise Association said.

“We don’t want to see this bill bogged down in red tape.”

With the rules clarified, he said “we think this will go a long way to preventing these disputes.”

Already he noted, Canadian Franchise Association members must follow a strict code of ethics to retain their membership.

“The CFA supports it, for all the right reasons, and we support it,” said Mac Voisin, a partner in M&M Meat Shops Ltd., which has franchise stores across Canada.

Voisin conceded there are some franchisors that take advantage of their franchisees, but said most do not.

“There are thousands of people in franchising that are very happy.”

”And if someone is not dealing appropriately they are held accountable, and I’m all for that. This bill can only go so far to protect all of the people all of the time.”

Voisin said would-be franchisees owe it to themselves to check on what’s available, and to sign on with a company with a proven reputation.

“It amazes me that some people will get into franchising without checking the franchising base (for and appropriate choice). There are people out there that just sign up. I don’t know why they don’t check it out with the CFA.”

And if a franchisor is not a member of the CFA, “bells should be ringing and lights should be flashing.”

Les Protopapas, a lawyer with the firm Arindale and Partners in Kitchener, said he believes Bill 33 is an honest attempt to level the playing field for the franchise industry.

“It allows the franchisee to go in with their eyes open. Its intentions are good.”

The concept of “fair dealing” is likely to be settled by the courts, Protopapas conceded. But, “at least something is there.”

“Overall, I don’t think this legislation will hurt,” he said. “It will help the industry by bringing these concerns to the table, so people know what’s expected.”

QUOTES

“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.”
Former franchisee Sue Ricketts, testifying in March before an Ontario legislature committee
studying Bill 33, the Franchise Disclosure Act.

“Why do hard-working, bright, competent people get themselves into a situation where it seems that there is almost a system to strip life savings away from you?”
Les Stewart, founder of the Canadian Alliance of Franchise Operators, testifying at hearings by the same committee.

“For many, the word ‘franchise’ has become a symbol of large, long-standing companies that seldom have failures. But the reality is that there is risk, there is failure and the buyer needs to be aware of that.”
Richard Cunningham, president of the Canadian Franchise Association, testifying at hearings by the same committee.

“There are thousands of people in franchising who are very happy. And if someone is not dealing appropriately, they are held accountable. And I’m all for that.”
Mac Vosion, partner in M&M Meat Shops Ltd. of Kitchener, a franchisor.

BACKGROUND

  • Bill 33, the Franchise Disclosure Act was introduced in the Ontario legislature by Consumer and Commercial Relations Minister Bob Runciman on Dec. 14, 1999. It is currently under review by the legislature’s standing committee on regulations and private bills.
  • Franchising as a means of doing business is expanding rapidly. Franchises currently account for an estimated $45 billion in annual sales in Ontario, about 40 cents out of every retail dollar.
  • Bill 33 has three main components:

1. Set standards for the disclosure of information by franchisors to potential franchisees;
2. Ensure franchisees have the right to associate;
3. Require ‘fair dealing’ by both parties to a franchise agreement.

*Alberta is the only other province with a law specifically regulating franchises.

INFORMATION

Canadian Franchise Association
Phone: 1-800-665-4232
Web: www.cfa.ca

Canadian Alliance of Franchise Operators
Phone 1-705-737-4635
Web: www.cafo.net

Ontario legislature hearings
Web: www.ontla.on.ca/hansard/comproindex.htm


Brought to you by WikidFranchise.org

Risks: Opportunism (self-interest with deceit), Canadian Franchise Association, CFA, Les Stewart, Canadian Alliance of Franchise Operators, CAFO, Life savings lost, Weak law worse than no law, Can’t talk to media, Must buy only through franchisor (tied buying), Indentured servant, Dispute resolution means franchisee goes broke, Fair dealings: treat assets as if they were their own, Professor Gillian K. Hadfield, Access to justice, Disclosure document: best franchisor selling tool, War of attrition, Affordable, early and non-legal dispute resolution mechanism, Ombudsman, Commission with investigation, publication and enforcement powers, Universities provide unbiased expert knowledge and pursue objective truth, Arthur Wishart Act (Franchise Disclosure), 2000, Canada, Disclosure laws: 10 per cent solution, Canada, 20000426 Franchise bill

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