What are your Rights?

Franchisee associations have enabled franchisees to band together and to lobby more effectively for greater collective rights. There is still a considerable distance to go, particularly in securing collective bargaining rights and obtaining class certification.

Franchise Canada magazine
September/October 2001

What are your Rights?
Examining franchisee empowerment in Canada
Daniel J. MacKeigan, B. Comm., L.L.B.

The modern franchise industry is relatively new to Canada, having really only become a popular method of doing business in the 1980s. In the short time that franchise systems have been around in our country, they have matured and franchisees have become more sophisticated. As a result, there has been a shift in bargaining power away from the franchisor, toward the franchisee.

The empowerment of franchisees has been facilitated through increased government regulation of the franchise industry. Alberta passed franchisee-friendly legislation in 1971, which in 1995 became known as the Alberta Franchises Act. Ontario followed suit in 2000, passing the Arthur Wishart Act (Franchise Disclosure), 2000,S.O. 2000, c.3. One of the government’s primary objectives in enacting such legislation was to protect the inexperienced and sometimes naïve investor from fly-by-night unsavory operators.

Right of Association
Critical to the empowerment of franchisees has been the right of association. Franchisees, by necessity, must have access to the franchise group in order to act together to deal with common problems, whether those problems be dealing with a difficult franchisor or obtaining discounts that might be available to a large buying group.

Franchisees in Ontario and Alberta enjoy a statutory right of association. Section 4 of the Ontario Franchise Disclosure Act and section 8 of the Alberta Franchises Act provide that franchisees may associate with other franchisees absent interference or penalty (direct or indirect) from franchisors. If a franchisor violates these rights, both Acts entitle franchisees to commence an action against the franchisor.

Associations and Advisory Councils
A franchisee association or advisory council is an organization of some or all the franchisees in a particular franchise who meet with each other on a regular basis to discuss matters of common concern to the franchise. In some cases these franchisee associations will also meet with the franchisor to address concerns and expect that the concerns will actually be incorporated into the franchisor’s future policies. Franchisee organizations typically address everything from marketing of the franchise to the contractual rights and benefits of the individual franchisees.

The principle difference between franchisee associations and advisory councils is that the former exist completely independent of the franchisor, whereas the latter are created by the franchisor and exist only with the franchisor’s continued support. Many franchisors now recognize and accept franchisee associations as important channels of communication and dispute resolution with their franchisees.

Association and Collective Bargaining
Although franchisee associations do not possess collective bargaining rights, they might be headed in the direction of acquiring such rights. In 1991, an Ontario Court held that a particular franchisee was an employee, not an independent contractor of the franchisor, and as such, was entitled to the rights and benefits accorded to employees. The judge found that the franchisee had very little influence in the franchise relationship and was much like a company-store manager. On the other hand, in subsequent cases, especially where the franchise agreement clearly stipulated that the franchisee was to be an independent contractor, it was decided that no employment relationship existed between the franchisor and his franchisees. As such, the franchisees were not found to be employees of the franchisor.

With increased pressure from within and outside the franchise system there is the possibility that franchisees might acquire collective bargaining rights or something similar in the future. Armed with collective bargaining rights. Franchisees would be able to compel franchisors to deal with them and, like unions, be able to bind their franchisor to certain agreements and terms not found in the original franchise agreement.

Mediation versus Litigation
Which is the most effective means of resolving disputes between franchisee associations and their franchisors, when peaceful negotiations are no longer an option? Unlike labour formed unions that generally deal with labour disputes; there are no legislative restrictions on what is a proper topic for negotiations or a proper means for achieving the desired result with franchisee associations. Both the topic and the format of the negotiation are limited only to the dynamics of the particular situation.

Many business-minded individuals believe that mediation is preferable to litigation. The primary reason is that mediation is more timely and cost-effective than litigation. In addition, mediation allows the parties to draft their own creative solutions to the dispute.

The Future
Franchisees have come a long way in their pursuit of greater bargaining power in the franchise relationship. Some have achieved their objectives through collaborative efforts, others through adversarial means. Whatever the means, franchisee associations, bolstered by recent franchise legislation, have been instrumental in the process. Franchisee associations have enabled franchisees to band together and to lobby more effectively for greater collective rights.

There is still a considerable distance to go, particularly in securing collective bargaining rights and obtaining class certification.

Dan MacKeigan is a lawyer with Siskinds, The Law Firm, and practices in franchise litigation. He can be reached by e-mail at moc.sdniksis|nagiekcam.nad#moc.sdniksis|nagiekcam.nad or by phone at (519) 672-2251, ext. 361.

Risks: Mediation, Franchisee association, independent, Franchisee advisory group (lap-dog), Alberta Franchise Act, Canada, Canada, 20010901 What are

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