Canadian Franchise Association, PEI Public Hearing Testimony

The only place where the arbitration was taking place or could take place was in Minnesota. It was cost prohibitive to travel there. So I’m just, I’m a little bit confused that the Canadian Franchise Association would not want to give its members some legal recourse in the place that they do business…Are there many franchisors in Canada that are not members of your organization? RICHARD CUNNINGHAM: Well, as I mentioned earlier, about 400 brand names are members. There are 1,200 systems in Canada.

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Legislative Assembly of Prince Edward Island
October 25, 2001

Public Hearings on draft franchise legislation
Charlottetown, PEI, Canada
Richard Cunningham, CFA

Standing Committee on Community Affairs & Economic Development
Session 2/61

CANADIAN FRANCHISE ASSOCIATION
MR. RICHARD CUNNINGHAM

BETH MacKENZIE (PC) CHAIR: Welcome.

RICHARD CUNNINGHAM: Good afternoon Madam Chair and Committee Members. My name is Richard Cunningham. I’m the President of the Canadian Franchise Association. I’ve held this position for nine years. I was also one of the four founding members of the World Franchise council and served as its first Chair. World Franchise Council is an international body currently with over 40 country associations and promotes franchising on a global basis.

Over the past 25 years the Canadian Franchise Association has worked closely with the governments of Alberta and Ontario in those provinces efforts to develop franchise legislation. In Ontario I participated on a franchise sector working team, an industry consultation group comprised of franchisors, franchisees and concerned industry professionals assembled by the government to serve in an advisory role as it worked toward an industry created solution. I believe that such consultation is essential to sustaining the prosperity of one of Canada’s thriving business sectors.

Just for the record, I’ve never been a franchisor nor a franchisee. I’m not a lawyer. But I’ve owned and operated my own small businesses that required investing my life savings so I am familiar with the problems, stresses and daily issues and hurdles that a small business owner faces. I also feel that I bring a unique view to the table. Unlike most presenters who represent one particular group or interest, my position and exposure to the public affords me the opportunity to hear calls and meet with happy franchisees; franchisees who are upset; excellent franchisors; as well as those who I’ve had to call and decline membership for various reasons. So I’m pleased to be here today to offer our association’s comments on franchising and franchise legislation and to answer questions which you may have regarding that.

I’d like to begin by giving the Committee a bit of a background of the CFA and the role we play in franchising. The CFA was founded in 1967 as a national trade association of franchisors as well as representing the interests of franchisees, suppliers and professionals who work in this industry. Although our members consist of most of the larger systems in Canada we also count many new and emerging franchise companies as our members. You heard earlier statistics that we represent 20% of the industry. That’s actually not true. We represent over 35% of the industry as far as franchisors and 45% of the franchisees in the industry. We encourage newer businesses to join so they have the opportunity to learn and network with the established businesses and franchising icons in the industry, all committed to achieving excellence in franchising.

Unlike most trade associations where membership is voluntary ours is not automatic. We put all new members through a review process similar to the process we suggest the potential franchisee should perform. Many candidates are scrutinized by lawyers, bankers, consultants and franchisee peers for eligibility. We provide a 1-800 number accessible from anywhere in North America to answer questions and to provide information about franchising.

We have a web site where those doing research can find the names of lawyers, bank contacts and seminars that we run across Canada as well as suggested questions for franchisees to use when checking out a system. Our trade shows are limited to traditional franchise forum of businesses only. We don’t allow business opportunities, multi-tiered selling or vending machines and our shows also have very succinct seminars presented by the professionals in the industry on how to buy a franchise including presentations from franchisees and the steps that they took before committing to their business.

Almost all of our print material is developed to assist potential franchisees. Information kits, a comprehensive directory, magazines which feature information on ways trends in franchising and best practices I the industry. We are the only association in Canda that offers seminars in five cities on the process of investigating before you buy a franchise. These seminars are run in conjunction with local governments at very low costs to make them accessible and reach as many of the interested public as possible.

My office and I personally answer hundreds of calls a week with trying to assist the public. Although we can’t tell people what to do we can direct them to many resources that will help them make the right decision. Many individuals are excited about the prospect of running their own business and in often cases make decisions with their hearts instead of their heads. Decisions are not always completely researched or informed. For many franchising has become a symbol of the large longstanding companies who seldom have failures but the reality is there are pros and cons and the buyer needs to be aware of them.

Our focus over the years has been to encourage healthy, positive and mutually beneficial franchise relationships. It’s more than apparent to the Board of the CFA that fair dealing and mutual goodwill has to be present for a franchisee to be successful in business. To this end the CFA has initiated several new programs that aim at strengthening those relationships between franchisees and franchisors around the country. CFA awards and recognizes companies that follow best practices as a measure of their quality. These best practices are entirely grounded in the relationship between franchisees and franchisors.

The CFA Franchisee Advisory Council mentioned earlier is comprised of franchisees from different types of businesses from coast to coast. The Council has direct involvement in a number of CFA committees and initiatives as well as assisting the collection of data on the franchise landscape and providing the association with valuable insight into the issues franchisees face every day in operating their businesses. The Council mirrors the many franchise advisory councils active in franchise systems of many of our members. We believe that the best way to learn about the latest issues in franchising is to hear it from the front lines.

Finally, the CFA is a sponsoring founding partner of the franchise ombudsman office. This one year pilot project is a free service available to any franchisee in Canada to have a neutral third party in assisting with possible solutions in a franchise dispute. This project will help generate statistics on the nature and severity of the franchise disputes in Canada and provide insight on the best avenues for remedies. As I mentioned earlier it’s also available across Canada at no charge.

The franchise industry has matured greatly over the past decade. The success of franchising over the past ten years has been a highly visible phenomenon. Several Canadian businesses have emerged from their regional roots to become household names right across the country. The industry accounts for $100 billion in sales each year or approximately 10% of Canada’s gross domestic product. Canada’s franchise sector is arguably the most successful in the world with more franchise outlets per capita than anywhere else. More than one million Canadians are directly employed in the franchise sector.

Franchising helps communities. Famous for providing young Canadians with skill building first jobs, the franchise business is a reliable and affordable service oriented mainstay for consumers and favourites in tourist based economies. Their success of course also generates lucrative revenues and employment for their suppliers and many, many mature franchise businesses have established their own charitable organizations and community outreach programs. This is why Canada has traditionally had a very reasoned and cautioned approach to franchise legislation. First in Alberta and then in Ontario provincial governments have looked to disclosure legislation that provides for all the necessary information to make a viable business decision, plus a framework for franchisees seeking remedies.

You know in the disclosure legislation there have been comments on it previously that it isn’t enough. One of the processes that we go through as an association is to call the franchisees of one of our new or approaching new members. I’ve made many of those phone calls myself, hundreds of them. In a call to an existing franchisee or to a franchisee who leaves the system this kind of information is available in the disclosure. You get a wealth of information about what is going on in that system or what isn’t going on in that system. That in itself is a great barometer and great information and the fact that it’s involved in the disclosure document is very helpful information if a potential franchisee is using it.

It’s really not in anyone’s interest to create rules and regulations that would give legitimate franchise businesses second thoughts about entering their market place. In Alberta a complex registration approach was scrapped for just these reasons. Franchisors opened corporately run locations or avoided the market completely because of slow, laborious and costly procedures. Franchisees benefited from it. These additional costs added to the complexity in the regulations and the costs were in turn passed on to franchisees. By replacing those guidelines with legislation based on pre-sale disclosure Alberta established what the CFA believed should the model government consider.

Above all the CFA cannot support a legislative approach to franchising that is onerous and punitive. Franchising is a business model based on informed contractual relationships. Relationships to be successful must be drafted uniformly in every jurisdiction the franchisor does business in. If nothing else a government must keep this important fact in mind when considering franchising. The key element that ensures a franchise’s success is that consumers know what to expect no matter what they’re in, no matter where they are. Franchisees must run their businesses following the highest standard of consistency from the way they do business to the products and services they provide to the agreements they sign. In a typical franchise network there’s little difference between how a franchise works in PEI from one that works in Victoria.

The industry is very concerned with government approach to franchising which require contractual obligations that are out of step with other provinces. Most franchise systems operate in many provinces. If a government prevents franchisors from placing restrictions on the way that franchisees run their stores, franchisors view this as onerous because it is contradictory to the fundamental reasons franchising works. When governments draft legislation it requires franchises to revisit their operational models, their supplier arrangements, and their franchise agreements. Franchisors must calculate and weigh the additional expenses and risks of doing business in most jurisdictions. Certainly any regulation that adds to the cost of doing business does not encourage the growth of a business and these inevitably, as I mentioned earlier, are passed on to the consumer and harm the franchisees’ competitiveness.

Of even greater concern are legislative approaches that are punishing in their intent and threaten the investment of franchisors. It’s extremely inadvisable for a province to pursue regulations that attempt to criminalize contractual arrangements entered into with the consent of both parties. The CFA cannot support provisions that would be retroactively applied to existing contracts to release franchisees or franchisors of their agreed obligations. Similarly to make the director of a business, someone with no day-to-day involvement with a franchise’s operations, personally liable for the actions of a salesperson would be chilling to the marketplace to say the least. Franchise senior management teams that we speak to would not open new outlets in this type of regulatory environment and some would go so far as to reduce their potential exposure to litigation by closing down their operations in that province.

I’d like to point out two important facts for this committee to consider. Recently an international legal organization called UNIDROIT initiated hearings to examine the benefits of drafting a uniform model law for franchising so the countries could have a starting point for drafting such legislation if needed and so that an international approach could be developed in the interest of promoting commerce between countries. It’s worth noting that the universally advocated approach that was considered was a disclosure model and the Alberta was used as a prototype for this international model. You heard earlier that franchisors were against this disclosure policy and tried to deter what was being put together in Ontario. It should be noted that within the UNIDROIT group and the council that worked on that project there were no franchisors involved. The group consisted of lawyers representing franchisees and franchisors and franchise associations from throughout the world as well as judicial bodies at federal government bodies from around the world and their conclusion was a disclosure model.

Second, I’d like to draw your attention to the recent findings of the United States General Accounting Office, which was referred to earlier, The Enforcement of Franchise Rules. In its study of the effectiveness of the US Federal Trade Commission’s franchise regulations, which again are limited to pre-sale disclosure provisions, the GAO reported that there is no evidence of systemic problems with franchising that requires further government regulation. The isolated incidences of franchise relationship problems, the report says, do not justify the FTC developing new rules that would address terms and conditions of franchise contracts. That study by the way was conducted over a seven year period and only found 20 cases serious enough by the FTC to warrant court action in a jurisdiction where there are 4,800 franchise systems operating.

Also this year Alberta in its mandated review of its franchise legislation after five years found no need to make amendments to its legislation beyond minor clarification of some wording. Franchise legislation in Canada is limited to a model of pre-sale disclosure. The reason for this is because it works, it’s adaptable to any marketplace and as many of you have heard today in the discussions and in what I hear and I fear the most and was found in the five years of meetings in Ontario, franchising is complex. It involves everything from the people who spray your lawns to hotel chains. What might be fair and reasonable to someone who sprays a lawn or rents a car might not be fair and reasonable to somebody who rents a hotel or sells pharmaceutical products or deals in a retail or fast food environment. It’s very complex and very difficult to legislate. However, disclosure works for everybody.

Alberta and Ontario are the only two provinces currently with the legislation and very different consumer cultures and have had also very different reasons for approaching the legislation. Both ended up with almost identical laws. In both provinces after very extensive research and industry consultation, and as I mentioned in Ontario five years to complete this, the same conclusion was reached. What was needed was an approach that sustained the health and growth of the industry while also arming potential franchisees with the tools they need to make an informed business decision. And in both provinces disclosure legislation was found to be the most suitable solution. Our own association initiated disclosure rules some five years ago as part of our code of ethics in our membership criteria.

Even with disclosure legislation no law can be a substitute for buyer beware. The government can only go so far on behalf of a businessperson to make a good business decision. It must be the responsibility of the individual to use the information they have provided in order to do their due diligence. If legislation is necessary it should be ensured that potential franchisees again receive all the information they need to make decisions with their eyes open. A balanced approach would afford franchisees with certain protections without driving up the price of entering the business through expensive and excessive over-regulation.

I’d like to re-emphasize the crucial need for full and comprehensive industry consultation.

As I mentioned earlier franchising is complex. What works for one company and one type of franchise doesn’t necessarily work for another. Franchising crosses 40 sectors of this country’s economy. If franchise legislation is deemed necessary by the Government of Prince Edward Island, these hearings can only be the first step in the process. The learning curve on franchise industry is extremely steep and as franchising is active on almost every business sector the government needs to gather the information necessary for drafting rules that will not just affect one type of business, but as I mentioned earlier, be ready to address many types of businesses and some that you will, probably unexpectedly will have repercussions, that you didn’t even realize were franchised.

It should also be emphasized that in discussions today there is some confusion, what is a business format franchise and what is not and what is a dealership or a distributor arrangement. All of these will be affected depending on how you design and draft the franchise regulations.

The other point that I’d like to make, and I’ve heard repeatedly as well, is that franchise systems are large, multi-million or billion dollar organizations and the franchisee is a small operator. The situation in the US and Canada is quite different. In the US it’s not unusual for a franchisee to have hundreds of locations and be a very sophisticated operator. The franchisors in that country as well can be extremely large with literally thousands of locations. In Canada it’s typical that a franchisor, in fact the surveys right now that we have say that the average franchise system in Canada has 60 locations, 60 with about 10 people in their head office; no in-house legal counsels. These are not in fact multi-million dollar organizations. There are only a handful of those companies with that magnitude in Canada.

In fact when Ontario passed the regulations and put in the mature franchisor exemption, which meant that a company had to have $5 million in assets, 25 locations and five years in operations, less than two dozen companies qualified for that. And that’s in a province where 65 per cent of the franchises are headquartered. So we have to put in perspective just where the playing field exists in this country.

The CFA looks forward to our continuing support. You have our support, involvement with the government as it looks into this matter. We believe that with our experience we have an important role to play in ensuring that PEI continues to have the prosperous and vibrant franchise sector it deserves and are pleased that the ministry already assured us that we will be consulted and we look forward to working with the ministry officials in this matter. Thank you.

BETH MacKENZIE (PC) CHAIR: Thank you very much. You’ll entertain questions? Who’d like to start?

HON. RON MacKINLEY (L): Let’ say you were going to open up a franchise, get a franchise in PEI, your organization, you’re head CEO, could an individual that’s out looking into it phone your organization and ask them a rating on this franchise they’re looking into?

RICHARD CUNNINGHAM: A couple of things would happen. First of all we have a regional franchise council that operates, we have five of them across the country, there’s one in Halifax, they meet on a very regular basis. We would have a new franchisor, we’d encourage them to contact that council and ask them; and they work very closely together to assist that new franchisor in developing their plans. And if they run into any problems or have any questions that council would assist them and that happens across the country.

HON. RON MacKINLEY (L): Like in a case like Debbie Tanton there, would you have any knowledge or let’s say that was in Canada, maybe you wouldn’t have it in the States, but let’s say she signed up with a company in Canada, would you rate these companies, how they are, how they work or anything like that?

RICHARD CUNNINGHAM: We never rate companies. Our approach is that if they approach us for membership we would call their franchisees, we would do credit rating, credit checks on them, we’d publish their names in a national newsletter. A committee of lawyers, bankers and consultants review it and decides whether or not we should accept them as a member. If the material that they’re using…and everything is reviewed, including their sales material…we either accept them or decline them.

HON. RON MacKINLEY (L): So if somebody has, a company is all across Canada, somebody wants to set up a store of theirs here and they have their own building, they can check to see if they’re on your membership list.

RICHARD CUNNINGHAM: That’s correct.

HON. RON MacKINLEY (L): And you do a check. So if they’re on your membership they should be good to do business with?

RICHARD CUNNINGHAM: Yes.

HON. RON MacKINLEY (L): All right, now how much does it cost a company to join your outfit or how does that work?

RICHARD CUNNINGHAM: It depends on the number of locations they have. It’s as low as $600 and as high as $3,600 for the franchisor.

HON. RON MacKINLEY (L): For the people with the franchise.

RICHARD CUNNINGHAM: Correct.

HON. RON MacKINLEY (L): And the franchisee, what do they pay to join?

RICHARD CUNNINGHAM: Franchisees don’t have to pay anything. When the franchisor becomes a member the franchisee automatically have the privileges of membership.

HON. RON MacKINLEY (L): So let’ say there was Jet Set or something like that which is a ski company or something so I want a franchise here. I can phone your company in Halifax and if they’re on your list, you consider them good to do business with.

RICHARD CUNNINGHAM: Yes.

HON. RON MacKINLEY (L): And if they’re not on your listing they’ve either asked or you don’t consider them (INDISTINCT).

RICHARD CUNNINGHAM: It could be a number of reasons.

HON. RON MacKINLEY (L): All right.

BETH MacKENZIE (PC) CHAIR: Wes?

WES MacALEER (PC): Is the Canadian Franchise Association affiliated with the US organization of similar structure?

RICHARD CUNNINGHAM: The International Franchise Association is a member of the World Franchise Council.

WES MacALEER (PC): Where are they headquartered?

RICHARD CUNNINGHAM: Washington, DC.

WES MacALEER (PC): Washington.

RICHARD CUNNINGHAM: And we’re all part of that council.

WES MacALEER (PC): How many members of your association would be US based?

RICHARD CUNNINGHAM: Sixty per cent of our members are franchises that began in the US and at this point probably ten per cent or less would be actually based in selling franchises out of the US. The rest would have sold masters into Canada and be selling for a Canadian master. So they’d have a local office somewhere in Canada and be selling from that office into the Canadian market.

WES MacALEER (PC): Are you saying 90% then are US based franchises?

RICHARD CUNNINGHAM: Let’s go back, 60% of all the franchises in Canada were either created originally in the US; 40% were created in Canada. Of the 60%, I’d say about 10% of those are companies that would be selling franchises out of the US and would not have a Canadian office. We encourage American companies; and in fact these days we have companies coming out of Australia and the UK and a number of other countries; we strongly encourage them to open a Canadian office or in most cases, which they will do, is sell the rights to the country to a Canadian company to franchise for them.

WES MacALEER (PC): Can you lead me through a process where a member of your association were found to be in violation of your code of ethics? What happens in that particular case? Are they automatically suspended? Is there a group that decides whether or not they have met the criteria of the organization?

RICHARD CUNNINGHAM: A couple of things happen. First of all, we have a complaint process. Right now with our ombudsman program, if the ombudsman has a member of ours who has a complaint and it’s not being dealt or they feel they’re unethical or they’re not dealing in it within the code of ethics, they would tell the franchisee to file a complaint with us. We would get the documentation from the franchisee and the franchisor, and the material would go before a membership review committee. The review committee would decide whether in fact, would give both parties, give the franchisor an opportunity to correct the situation and be heard. If it was found that they didn’t cooperate or that they were operating unethically or against our code, they’d be terminated.

We have to keep in mind, as I mentioned earlier, it’s a voluntary organization. We’re not the Real Estate Board or the Law Society. We have no legislative authority. However, we do have quite a bit of clout because our magazines, our trade shows, our web site, are exclusive to members so because of these marketing tools, membership is valuable.

WES MacALEER (PC): It was suggested by my colleague, the follow-up question is should your franchisor be suspended from your association? What impact does that have on the franchisees that that franchisor may have? I know that’s an academic question, isn’t it?

RICHARD CUNNINGHAM: Yes.

HON. MITCH MURPHY (PC): If I may interject, but it is an important question. If I’m a franchisor who’s violated the code of ethics and I lose membership in your organization, what does that do for the franchisee who has a contract of agreement with myself? Does your organization have any authority to adjudicate the terms of that contractual agreement if one of your member organizations is in violation of your code of ethics?

RICHARD CUNNINGHAM: We don’t have the authority to do that, but there is a good answer to this. And the answer to it is this, in most cases, very seldom have we had to terminate a membership. In a couple of cases where we had complaints within an organization, and there’s always one here or one there of a system. But if it’s something that’s running throughout the system, I’ve met with the president of the organization myself and said, you’ve got a problem and here’s what it is, and we want to see you fix it. Usually they’ll do what they can to cooperate and try and fix the situation. We’ve even had situations where retired CEOs of franchise systems have gone in and worked at a very low fee, to work with the franchisor to help them fix the problem.

The franchisor is the last thing they want to see is their membership terminated. So they’ll try and work with us as best they can. And there is a lot of moral persuasion that comes because of our board and because of the Good Housekeeping seal of franchising which our logo has positioned itself to be. So they work on every effort that they can to try and resolve a problem., and we have resolved problems within systems. So in answer to your question, if there is a problem in the system, I think we can help th franchisees a lot of the time by putting this pressure on the franchisors to work on the problem and try and resolve it.

HON. MITCH MURPHY (PC): I just have a couple more. I think disclosure is always a good thing. My difficulty with disclosure is that it’s almost impossible to disclose everything on a disclosure statement. So we’ve heard testimony here today from a person who is participating as a franchisee, and then along the way some things changed, where their line of clothing was dropped or some things in that contractual arrangement changed. Now it maybe that in that contract that says a franchisor reserves the right to make those decisions. But a decision like that, that has such a negative impact on a particular business, I don’t understand the Canadian Franchise Association’s position that that person shouldn’t have right to a dispute resolution mechanism or if need be, legal recourse in the place that they’re doing business.

Now in this particular case we heard this morning, the head office was in Minnesota. The only place where the arbitration was taking place or could take place was in Minnesota. It was cost prohibitive to travel there. So I’m just, I’m a little bit confused that the Canadian Franchise Association would not want to give its members some legal recourse in the place that they do business.

RICHARD CUNNINGHAM: As I understand and we’ve done some quick research on this because this has come up a number of times during the day today, and I’ve not heard this before in any great extent, different franchise systems handle this problem in different ways. Some of them actually have it in their contractual agreement that they will deal with the problem where the franchisee exists. Others don’t; so it’s not consistent. I can’t tell you because we don’t know the statistics on how many have that kind of a clause in their agreement that they will deal with the franchise problem in their jurisdiction with which the franchisee operates.

It’s an interesting question. It’s one that we certainly will do more research on. I guess part of the problem with this is that in a situation where franchisors are operating in almost every province which is often the case, it really depends on the resources, as I mentioned earlier, not all these systems are the size of the big conglomerates that you’ve heard of before. And so it’s just as expensive and difficult and time consuming for them to try and move out to all these other different jurisdictions to try and deal with a problem in that locale.

Obviously, there is an issue here. However, I’ll come back to the other point that you made about disclosure. A franchisor discloses in that agreement where they will or will not deal with problems such as this. And before we even get to when there is a problem, the disclosure document gives you access to the franchisees so that when you call them, you’ll find out if there’s been problems.

I can tell you, as I mentioned earlier, after making literally hundreds of calls and speaking with franchisees everywhere in this country, I personally have found that within a few phone calls of both franchisees who are in the system, and those who have left the system, which disclosure gives you access to, you know how franchisors deal with problems. And you know whether they try to resolve them in an amicable manner or whether they don’t. And franchisees are usually very forthcoming about whether they’re unhappy with their franchise system; whether they’ve had problems or they haven’t. And I can tell you, even if a disclosure document had nothing else on it, if it had that information, you could almost make a decision as to whether or not you wanted to buy into that franchise or not based on talking to those franchisees.

HON. MITCH MURPHY (PC): Well, I respect your opinion on that, and I’m not going to get into an argument because there are other questions but we could have quite a debate on that point if we wanted but I’ll leave it at that.

BETH MacKENZIE (PC) CHAIR: Wes, did you have a further question?

WES MacALEER (PC): Just a follow-up one. My colleague was talking about your role as the Canadian Franchise Association where 40 per cent of your franchises are Canadian based and 60 per cent are US or foreign based, I was wondering, are you doing anything as an association, as a Canadian association now, to protect your members as Canadian franchises or franchisors, I should say?

RICHARD CUNNINGHAM: Let me back up. When we talk about based only ten, I would say that of our 400 brand names that we represent, probably less than ten per cent of those are based outside of Canada. In fact, the numbers are probably lower than that. The rest are Canadian companies that bought the rights of an American franchise or some other country’s franchise and brought it here and are selling franchises from a Canadian-based office.

So the numbers, if we talk about the number of franchises in Canada, of which the numbers right now, leaving car dealers which we’ve heard about earlier and some of their businesses which are not considered franchises out of this, there are about 1,100 franchise systems in Canada. Fewer than ten per cent of those are actually selling franchises from an American location. The rest of those are selling them in Canada from a Canadian location.

WES MacALEER (PC): I was wondering what influence your association would be receiving from US based corporate headquarters because you were saying that a lot of these are small-staffed companies with no legal counsel, etc.

RICHARD CUNNINGHAM: In Canada, yes.

WES MacALEER (PC): And I guess my observation is when you’ve got a huge backup in the United States, why would you have to have a large, if you can call on any number of their resources in Washington?

RICHARD CUNNINGHAM: Well, there are two issues with that. First of all, we identify new members doing business in Canada for less than two years. A franchisor is identified as an associate member. I don’t care if they’ve been in business for 50 years in the US. If they’ve been in business for two years or less in Canada, they’re new to this market and it’s a different market than it is in the US. And they’ve had successes and failures in Canada, just as the reverse has been the case in the US.

So in answer to protecting the Canadian marketplace against franchisors coming new to this market, we identify those types of members with a different type of membership name. We also run them through the process the same way that a franchise system would if they were Canadian. The difference would be that we would have access to their FTC documents, the franchise and we would check with the association in their country, in this case, the IFA, to see if they were a good player in the US coming into Canada, before they came into Canada. So we do a due diligence on them.

WILFRED ARSENAULT (PC): Thank you. Are there many franchisors in Canada that are not members of your organization?

RICHARD CUNNINGHAM: Well, as I mentioned earlier, about 400 brand names are members. There are 1,200 systems in Canada.

WILFRED ARSENAULT (PC): And if there’s any dispute between franchisee/franchisor, are you asked to be an arbitrator in some circumstances?

RICHARD CUNNINGHAM: There have been some situations. First of all, in the case of the ombudsman pilot project, it doesn’t matter whether the company’s a member or non-member, they will deal with both. And it’s been my experience in the nine years I’ve been there that I’ve had franchisees call who from non-members and I have involved myself in situations with non-members. Not often with as much success as a member, but still having some success.

BETH MacKENZIE (PC) CHAIR: No further questions? Thank you very much.

RICHARD CUNNINGHAM: Thank you.

This document is a spelling-corrected copy of the Verbatim Transcript of House Committee Proceedings, Province of Prince Edward Island, Canada.


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