John Gerretsen, MPP, Second Reading Debates

I've seen franchise agreements where that was explicitly forbidden, where basically these individuals couldn't talk to similar operations elsewhere in the province, which when you think about it is almost like, I don't know, an edict against the freedom of speech concept we hold so dear in our democracy…We support this bill. I'm in favour of it, but I think it's only a first step.

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The Legislative Assembly of Ontario
May 17, 2000

Member of Provincial Parliament Statement
Toronto, Ontario, Canada
Mr. John Gerretsen, MPP

Hansard Reporting and Interpretation Services
1st session, 37th Parliament

Orders of the Day
Second Reading Debate

FRANCHISE DISCLOSURE ACT, 1999
Consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors

JOHN GERRETSEN, MPP

Mr John Gerretsen: Let me first of all say that it is nice to stand in the House on an occasion when, in effect, all three caucuses agree on a bill. Sometimes people get the impression that the people in the opposition always oppose everything a government brings forward. This is a perfect example where it does not if it's good and sound legislation.

I would like to pay tribute, though, to the member from Sault Ste Marie. We don't often pay tribute to members from other caucuses here, but I will do so because I know it was his persistence over the last number of years on this issue-at least since I've been here, since 1995-that something had to be done with respect to franchise agreements. It shows you that if you're persistent enough, you can effect a change if you have a government ministry that is willing to listen to those concerns and deal with them.

I'd also like to pay tribute to Mr Runciman for taking up the challenge that Mr Martin threw out, saying, "Yes, let's get together, let's come up with a bill that may not go as far as the franchisees may want to take legislation of this nature, but that's a step in the right direction."

We've already heard quite a bit about the disclosure requirement, and that's certainly needed. Over the last 20 or 25 years in my practice as a lawyer, I've probably dealt with about a dozen or so individuals in my community, usually people who had great dreams about getting involved with a franchise, usually sinking in their entire life savings, quite often mortgaging the house they had, trying to put every penny together to get a franchise. Unfortunately, quite often after a few years their dreams turn to disasters.

Mr Mike Colle (Eglinton-Lawrence): Nightmares.

Mr Gerretsen: Nightmares. There's no question in my mind at all that the franchisors hold all the power in the franchise agreements that are out there currently. That's why legislation is needed. At least this is a step in the right direction to somehow level the playing field a little bit between those people who want to get involved with a franchise and the franchise holders that certainly seem to hold all the cards.

It's interesting; I have an information sheet here. Just to give the people of Ontario some idea how many franchisors are out there in Ontario, there are over 500 of them, and there are 40,000 franchisees. Nowadays just about every small and large retail operation seems to be a franchise of some sort. You go to some malls and you literally don't see any local stores at all; it's all franchise.

Quite often these people pay a hefty price to get involved. Statistically the average investment is $135,000 to get involved in one of these franchise operations. Of course they're based on royalty payments-monthly, quarterly, yearly-although usually at least monthly and quarterly-whereby the
franchisor gets anywhere between, I suppose, 3% and 4%. I've seen as much as 10% of the gross sales. That's a significant amount in a lot of cases. It's not unlike a lot of the shopping centre leases that kind of work like franchise agreements. They're almost set up in the same way these days. If you want a store in a shopping centre, you basically pay your rent on how much you sell. The better the business, the better the franchisor, the better the landlord does.

It's been my experience that usually it was a "take it or leave it" situation. The proposed franchisee signed the agreement, and if you wanted to make even one meaningful change to the agreement, the franchisor usually wasn't interested in talking to that individual. It's a one-way street. Having this cooling-off period whereby financial disclosure has to be given and there are a certain number of days allowing the proposed franchisor to get out of it I think is a good idea.

As has already been stated, though, this bill basically deals with the initial agreement, with the rights of the parties as they enter into these agreements. It really doesn't deal at all with what happens if disputes arise with respect to the agreement while it's in operation.

It provides legal recourse in accordance with the laws of Ontario, because some of the franchise agreements out there right now, believe it or not, don't even provide for the laws of the province of Ontario to apply; it's wherever the franchisor originally started, which may be in one of the American states etc. But that's cleared up in this act as well.

The other thing that's kind of interesting is that the franchisees now have the right to form associations and to find out how other similar franchisees of that particular name store are doing elsewhere. I've seen franchise agreements where that was explicitly forbidden, where basically these individuals couldn't talk to similar operations elsewhere in the province, which when you think about it is almost like, I don't know, an edict against the freedom of speech concept we hold so dear in our democracy. It was included in some agreements.

Mr Colle: A gag order.

Mr Gerretsen: A gag order, as my colleague says. That's now specifically allowed, and if there's something in a franchise agreement that forbids that, that's overriden by the provision of this act-another good idea.

Unfortunately the bill fails in that it doesn't set out specific penalties for franchisors who fail to abide by the terms of the legislation. That's a failing in the bill. That should have been included in the bill. Hopefully, once we get to the second stage of actually coming up with a bill that deals with the continuing relationship between franchisor and franchisee after the initial agreement has been signed, we can remedy that in the next piece of legislation. We support this bill, but on the clear understanding that this is only a first step and not the last step towards franchise legislation.

There are a couple of other interesting provisions in the bill. One deals with the issue of-where is that again? I know it's right here. Well, I've spoken about the fact that there aren't specific penalties for a franchisor who fails to abide by the terms of the legislation. If I could urge the people of Ontario to do one thing, and not only the people of Ontario but people who are interested in getting involved with these franchises-I'm speaking from having personally dealt with a lot of these individuals over the last 10, 15, 20 years-it's that if you are interested in getting a franchise, go and talk to similar franchise holders in other communities.

Find out what their experience is. There are some excellent franchisors out there who want to do the right thing with the franchisees; there's no question about that. They are co-operative. They want to make sure that their franchisees are happy and successful, because the more successful they are, the more money the franchisor will make as well. But there are also some franchisors out there who don't seem to have that same kind of attitude. This may be rather difficult to believe, but as a lawyer I firmly believe that in a lot of these situations it's not so much what's in the legal agreements that counts, but that the way in which people, franchisors or franchisees, deal with one another in actual fact is a heck of a lot more relevant than what is actually in the written document.

I would suggest to anybody out there who's thinking of fulfilling their dream, of getting involved in running their own business, of getting involved with a franchise, that they talk to somebody who's already in that field, that they talk to one of the other franchise holders in those communities.

One final little thing: I've seen many franchise agreements that do not include an automatic renewal clause for the franchisee and where in effect the franchisee at the end of a five- or a 10-year period is completely under the control of the franchisor as to whether or not that franchisee will still continue in that operation. That is something that I feel should be legislated into law.

If all the rules of the agreement have been adhered to, then there should almost be an automatic renewal at the behest of the franchisee. You could theoretically have situations where somebody has built up a tremendous business and after 10 years or whatever the term happens to be, the franchisor states, "I'm not interested in dealing with you any more; I'm going to deal with somebody else." The people in that particular case who have been the franchisees will lose a tremendous amount of money, their investment, their years of service etc.

We support this bill. I'm in favour of it, but I think it's only a first step.

This document is a verbatim copy of this MPP’s speech. To review the original transcript:
http://www.ontla.on.ca/web/house-proceedings/house_detail.do?Date=2000-05-17&Parl=37&Sess=1&locale=en

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Office of the Legislative Assembly of Ontario
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