Just across the border

So Ontario finally got around to enacting that franchise law we’ve been talking about for …how long? That’s right, almost 30 years.

Franchise Times
January 2001

Just across the border
Philip F. Zeidman

So Ontario finally got around to enacting that franchise law we’ve been talking about for …how long? That’s right, almost 30 years.

So what? Alberta has had a franchise law for years, and the new reports describe Ontario’s as quite similar…and Alberta’s law has always been viewed as closer to the U.S. Federal Trade Commission Rule than any other foreign law.

And that’s not all. After all, we’re talking about a province that hardly seems “foreign” at all: where English is spoken; where the goods and services can be found just across the border; indeed, where the residents get most of their news and commercial messages from the United State.

So what’s the big deal? For the many U.S. franchisors doing business in Ontario, or planning to, won’t it be just like selling franchises a few miles to the south?

Not quite.

First, the disclosure provisions of the law are by no means identical. In essence, of course, they’re quite similar…

  • Franchisors are required to furnish pre-sale disclosures in writing to franchisees prior to signing contracts or paying money.
  • A disclosure document must be furnished not less than 14 days before an agreement is signed or money is paid.
  • A disclosure document need not be furnished, reviewed or approved by any provincial regulators. Rather, the disclosure document simply must meet with the requirements of the law.

But there are differences, some of them subtle:

  • Ontario law imposes a private right of action for failure to comply with the law or misrepresentations made in connection to it.
  • Ontario law requires an audited financial statement for the most recent completed fiscal year of the franchisor’s operations and a financial statement of the most recently completed year of operations. U.S. law requires two to three years of audited statements.
  • If franchisors use external mediation or alternative dispute resolution methods to settle disputes with franchisees, the Ontario law requires inclusion of a statement describing the methods used.
  • If franchisees are required to contribute to a national advertising fund, the Ontario law requires inclusion of statements describing what percentage of the fund is retained by the franchisor and whether reports on advertising activities financed by the fund will be made available to the franchisees. U.S. law simply requires a statement concerning the right to review records
  • Ontario law requires a description of every license, registration, authorization or other permission the franchisee is required to obtain, under any applicable federal or provincial law or municipal by-law, to operate the franchise.

Second, this new law is not simply the disclosure legislation, which for many years seemed likely to emerge. Consider the “relationship” aspects the law:

  • A duty of fair dealings is imposed on all parties.
  • Franchisees have the right to associate with other franchisees, and franchisors are prohibited from imposing penalties on such activities.
  • The Ontario law, forum and jurisdiction are imposed on franchise relationships.

The new law becomes fully effective at the end of this month. And U.S. franchisors are already beginning to realize that complying with it requires a good deal more than changing a few words and a few practices.

Philip F. Zeidman is a senior partner in the Washington, D.C. office of Piper Marbury Rudnick & Wolfe, where he heads the Franchise and Distribution Law Group practice. He is general counsel to the Internatinal Franchise Association.

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Risks: Investments in franchising will stop & be lost if law passed, Alpha Male attorney, Fear mongering to clients increases industry fee market, Canada: An American Perspective, Arthur Wishart Act (Franchise Disclosure), 2000, Canada, Alberta Franchise Act, Canada: least franchise-investor protection in the industrialized world, General counsel, International Franchise Association, IFA, Canada, United States, 20010101 Just across

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