Michael Whittaker, PEI Public Hearing Testimony

HON. RONALD MacKINLEY (L): But this here goes both ways. Like your person with the distributor, the franchisor he can go after the franchisees on this one too. MICHAEL WHITTAKER: But this goes too far, Ronnie, I mean you’ve got offences, you’ve got penalties. MacKINLEY: Just a second now, like it goes both ways…I’ve been here 16 years and this is the first time I’ve ever sat on a committee and a private members’ bill, that I know of, came forward. So that means there must be problems with, not the elected officials, but the people of Prince Edward Island that own these franchises.

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Legislative Assembly of Prince Edward Island
October 25, 2001

Public Hearing Testimony on draft franchie legislation
Charlottetown, PEI, Canada
Michael Whittaker, franchisor & Mark Ledwell, lawyer

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

GRECO PIZZA
MR. MICHAEL WHITTAKER

MR. MARK LEDWELL

BETH MacKENZIE (PC) CHAIR: The next presentation from Grinner’s Food Systems Limited. Good afternoon, welcome. You’ve been allocated a half hour for your presentation. If you would entertain questions at the end of your presentation, that would be appreciated.

MICHAEL WHITTAKER: Madam Chair, Committee Members, thank you for the opportunity to speak today on the question of the need for franchise legislation on Prince Edward Island. My name is Michael Whittaker. I’m the president of Grinner’s Food Systems Limited. Our company is the franchising company for Greco Pizza Donair Restaurants. So when you said that if we had 30 minutes, at Greco Pizza, we understand that concept very well. It’s not one that’s alien to us.

My presentation won’t necessarily take the whole 30 minutes. With the committee’s permission, I would like to allow for an Island lawyer to make a few comments on behalf of some concerned franchsors, at the tail end of my presentation, if that would be alright?

BETH MacKENZIE (PC) CHAIR: Certainly.

MICHAEL WHITTAKER: We are an Atlantic Canadian based franchisor from Truro, Nova Scotia. We’ve been franchising in the Atlantic Region since 1977. Greco Pizza operations across Atlantic Canada represent 40 million dollars in restaurant sales in the region. And in Prince Edward Island, we have ten franchise units operated by four franchisees who collectively employ over 200 Islanders, many of whom are youth.

We have found franchising in the Atlantic Region to be a tremendously popular business model and one that has been successful for both our company and our franchisees. One of the earliest Greco Pizza restaurants opened over 20 years ago in Charlottetown, and PEI quickly became a pioneer in our concept. Since that time, our number of units has grown to over 100; over 60 of them are franchise operations. We consider Greco Pizza to be one of the largest Atlantic based franchisors.

Franchising is a very complex business. It’s based on the success of both parties, the franchisor and of course, the franchisee. Franchising is about relationships, but more importantly, it is about the management of relationships. Franchising is also about communication. We believe the better the communication with our franchisees, the better the relationships without franchisees. We are also committed to ensuring that new franchisees thoroughly investigate the Greco system prior to deciding to invest. We firmly believe we must focus on franchisee profitability to ensure our own profitability.

We are pleased to say that in 25 years of franchising, we have never been in litigation with a franchisee. We believe, despite concerns we’ve heard today, that by far the majority of franchise dealings are handled in a fair, proper manner. Communication is critical. Communication in our system takes many forms including advisory committees, made up of elected franchisees that offer their input and advice on critical areas such as advertising issues, policy issues and even purchasing issues. Communication is the heart of franchising.

We believe it is important to have a true understanding of both sides of every issue, the franchisee’s side and the franchisor’s side. In the long run, the long-term objectives are frequently the same. But franchisors and franchisees often operate their businesses under different methods, cultures and principles. As an example, franchisors will often tend to be long term focused making business decisions that may not greatly enhance short term profitability but are important for the long term profitability and sustainability of a concept. Franchisees may question the short-term effect on profitability of these decisions and a conflict can arise.

Franchisors need strong control of their systems to ensure growth, profitability and the ability to protect the system fro all franchisees. Open, transparent debate on difficult issues is, in our opinion, the norm in the franchise industry in Atlantic Canada. We believe the Canadian Franchise Association has made great strides in encouraging ethical standards in the franchise industry.

In my talk here today, I’d like to discuss two specific issues. One is the need for franchise legislation, secondly, the effect of franchise legislation on our business and particularly, the effect of bad legislation on our business.

Firstly, on the need. I am not a legislator, and frankly I know very little about politics. But I do understand the relevance of legislation to ensure contractual relationships are managed fairly. I also appreciate the government must be leery of knee-jerk reactions to introduce legislation with a lack of consultation from all parties. Please be clear that as a member of the Canadian Franchise Association, our company follows similar disclosure guidelines currently set out in both the Alberta and Ontario models. We adhere to these guidelines in every province on a voluntary basis, but also as directed by the rules of being a member of the Canadian Franchise Association.

In effect, this means when we franchise in the Atlantic provinces, we are franchising in a similar manner that we would be franchising in Alberta or Ontario. In evaluating whether there’s a need for franchise legislation, it is quite frankly difficult to do without an understanding of the situations or the history of complaints that may have occurred leading up to these hearings.

Today we are hearing from the franchisee community of their concerns and so we should listen. We should listen carefully. However, while every franchise system will have complaints, we think the legislation should only be a factor when it has been demonstrated that a consistent, reoccurring or persistent problem exists where franchisors have improperly or unfairly dealt with franchisees and that no alternative measures are available.

While admittedly, we are not privy to every franchisee dispute that takes place, we do work with other players in the Atlantic franchise community, and we believe that in most systems, fair and reasonable business dealings are the norm of the industry. Unfortunately, there will always be exceptions. The importance for this committee is to determine if the exceptions are frequent enough or serious enough to warrant government intervention. Legislation, in our business, is rarely the best solution to resolve conflicts, but you should be assured of our company’s commitment that in the event that the government illustrates there is a need, we would support it on the basis that is necessary and consistent to emerging national standards, particularly the Alberta law.

In evaluating the need for franchise legislation, we should ask ourselves if we are certain that legislation will fix the problems that have occurred. Will legislation make it more difficult for franchisors, particularly new franchisors to develop and prosper on Prince Edward Island? Will legislation benefit larger franchisors and create impediments for homegrown franchise systems to develop? We all know you cannot legislate common sense. There will always be disagreements and disputes between franchisors and franchisees. Legislation will not stop these from happening, but we ask that you make a clear case on the necessity of legislation based on both a qualitative and quantitative analysis of the facts and not on anecdotal evidence from a few recent disputes. Has it been clearly demonstrated that there is a need for legislation?

Certainly, if conducting a survey of franchisees were asked, would you support legislation, franchise legislation to protect the rights for franchisees? I would expect 100 per cent might agree. Why wouldn’t they? What would they have to lose? But it appears that many franchisees felt it wasn’t necessary since I don’t believe all franchisees have supported the imitative.

The second issue deals with the importance of communication if the government decides that there is a demonstrated need for franchise legislation. As a franchisor, we are extremely concerned about franchise legislation. Franchise legislation that is inconsistent from province to province and that does not understand the true mechanics of how franchising works could inadvertently create an environment on Prince Edward Island could become so onerous for franchisors that they need to evaluate development plans in the province.

Franchising is driven on growth and especially interprovincial growth. This growth is the engine that fuels franchising. Prince Edward Island franchise growth could be irreparably harmed by legislation that tries to control the franchisee/franchisor relationships especially on how they deal with each other following the signing of the franchise agreement. An extremely, large amount of resources, man hours and consultation have taken place in Ontario and Alberta to come up with legislation that is reasonable and appreciates the distinctiveness of both the franchisee and franchisor communities. The concept of franchising works on replication, duplication and systemizing the processes, products operations and marketing.

Regional legislation threatens the very concept of franchising and injects different rules into the system. As an example, when we advertise franchises in the Maritimes, it will often be done through regional publications or even national franchising magazines. The system is developed on treating all investors and interested investors in a similar manner to produce a cost efficient and systemized approach to developing a market.

As a franchisor, if we need to produce separate disclosure documents for each province and deal with different red tape from region to region, it will create impediments to our growth. Last year, Alberta reviewed current franchise legislation and based on the survey of stakeholders, this review produced no significant changes. Their legislation which focused on pre-sale disclosure appears to have created minimal problems.

The document that has been tabled is simply unworkable in our opinion. Clearly, it has not been written with the advice, counsel or input of the franchisor community. It is not possible to debate this document in this form and I do understand it was intended to be a draft. However, just as franchisors should never make unilateral policy decisions without advice and input from franchisees, clearly the same should hold true in this case.

Good legislation is fair, balanced and reasonable, and this can be only obtained through communications, negotiations and a clear understanding of the issues from both perspectives. If legislation needs to be considered, it should focus on pre-sale disclosure. It must be consistent with franchise legislation that exists now in other jurisdictions in Canada. The document that was tabled, although well intentioned, does not recognize the duality of the franchising industry. It should not even be used as a starting point, in my opinion, for franchise legislation. If there is a demonstrated need for legislation, you should begin with the Alberta document that is the result of work from some of the best minds in the franchising industry in Canada.

In closing, I urge the committee to do two things. First, be certain that there is a proven need for legislation in this industry in Prince Edward Island. And secondly, if necessary, focus on pre-sale disclosure legislation that is nationally consistent. Let’s ensure franchising thrives in Prince Edward Island and will continue to grow in the years to come. Those are my comments.

BETH MacKENZIE (PC) CHAIR: Thank you very much. Questions? Did you have a lawyer who was going to make some comments? Maybe if you would like to come forward?

RICHARD CUNNINGHAM: This is Mark Ledwell from Charlottetown who would like to make some comments on behalf of concerned franchisors, Mark.

MARK LEDWELL: Thank you, Madam Chair and panel members. I’ve been asked to speak to you today on behalf of a number of concerned franchisors with business interest in our province including Grinners Food Systems and Tim Hortons. Most of what I have to say is general in nature and it’s not unique to either Tim Hortons or Grinners or to a particular franchisor or franchisee. So I’ve attempted to put together comments that were more general in nature.

In approaching the proposed legislation that I’ve been provided and these issues generally, I’m here speaking to you as a lawyer and a member of the practicing bar in this province and in that capacity; I’ve represented literally hundreds of franchisors and franchisees in PEI and in the Atlantic region over the past 15 years. Sometimes I’ve been asked to get involved at a point where the relationship involves a dispute and I’ve been on both sides of the fence in those disputes. Sometimes this has resulted in litigation and sometimes it has resulted in compromise.

Most often, I’ve been asked to assist in the development of a contract between a franchisor and the franchisee from ground zero, so to speak, and I want to make it clear that, in my experience, that is where the legal relationship between any franchisor and franchisee is made. That is where the deal is cut and that is where with respect, all of this should stay. It should stay in a contract and it should stay in a contract environment. It should not be governed by legislation generally, and specifically, it should not be governed by the type of legislation that has been proposed here.

Let me try and put it another way. The essence of the proposed legislation, I think, is captured best in purpose clauses set out in Section 2, and they say, generally speaking three things: first, we want a law that will require disclosure by franchisors, we want a law that establishes minimum standards of “fair” dealing between franchisors and franchisees. And thirdly, we want laws that provide remedies where there’s a breakdown or a dispute between franchisors and franchisees. If the law, or the proposed law had one attribute that I can think of, that attribute is that it is very clear the law is remedial in nature. It creates strict rules. It creates prohibitions. It creates search powers. It creates penalties and it creates offences.

The act will mandate in strict terms disclosure. It will mandate in strict terms minimum standard, and it will mandate in strict terms remedies. In another section, Section 5, for example, that act is going to prescribe what is “fair” in a commercial environment and it is going to prescribe what is “commercially reasonable” and in my view, that is the equivalent of trying to legislate good taste. It’s not an exercise that you can ever get to with any degree of confidence.

At the moment, all of these things today are addressed by business people in contracts and in negotiations. Some contracts appear more fair than others. Some deals are better than others. What is proposed, of course, is that the act of laws of PEI will dictate franchising agreements in PEI. Not only those in the future, but those that exist today. To that extent, the proposed legislation is both remedial and purports to be retroactive in its effect.

The ability of franchisors and franchisees to make an agreement or to work it out between themselves will be lost if this legislation goes forward and when this is lost, for reasons I’ll talk about in a minute, I thin you’ll see many franchisors taking PEI off their map and looking elsewhere to do business. In this economic climate we’re in today this is a result, I suggest, we should avoid. If anything, we should be exploring more ways to make PEI more attractive to the franchise community, and we should be careful so that PEI is not known by investors or franchisors as some kind of regulatory mine field.

The relationship between the franchisor and franchisee has always been governed by contract, either thick, written material or a handshake. Even if the few Canadian jurisdictions or even in the few Canadian jurisdictions where franchise legislation now exists, the relationship continues to be governed by contract. The contract sets out the terms, the conditions and the limits under which the franchisor will allow the franchisee to use its trademark, use its trade name and to act on the goodwill.

By using contracts, the business practice of franchising has flourished in Canada and in PEI. Franchises dominate the business landscape in PEI and most of us might not think about that until we’re forced to sit down to think about it, but franchises are everywhere. In many business sectors, the franchise concept is really the only way to get a new business off the ground. If the franchisor loses its ability to enter into contractual arrangements, as I think is at the heart of this proposed legislation, which will eliminate the franchisor’s willingness to operate in a jurisdiction. And PEI faces the prospect, with this type of legislation, of facing reductions in capital investment and spin-offs associated with those capital investments in the nature of ongoing franchise type businesses.

If restrictive, remedial type franchise legislation is enacted, potential franchisors, it seems to me, may choose to do business through other structures. So rather than setting up a franchise system in a restrictive jurisdiction, the franchisor may want to look at a branch office type of business structure or an independent operator or some other business arrangement where the business is run really from another place like Halifax or Toronto or some other larger centre.

The proposed legislation on the table today represents a significant, and in my view, unnecessary intrusion into a private parties freedom of contract. And it also represents the use of government regulation far beyond what any other jurisdiction in Canada has considered. When you measure what’s proposed with other jurisdictions, this is far reaching and in my view, overbearing type legislation.

The proposed act would legislate strictly terms and conditions that have always been within the contractual control of parties. The potential impact of this is not easily understood but it’s clear that it could lead and probably would lead to a significant reduction of capital investment by franchisors in PEI. In my view, even if government is going to seriously consider the Alberta model, it should still consider the consequence of doing so. This is the regulating of business activity that crosses a great number of sectors and haws never been subject of government regulation in our province in the past.

In order to even begin to look at any change or enter in the field in this area, government should be satisfied that there is a real need to do so. There are times granted, when our laws must be used to protect Island interests. For example, our Lands Protection Act, laws relating to the environment, laws relating to farm practices, to name but a few. But the question is, is there a compelling need to enter into and frankly, take over franchising relationships in PEI?

The answer we say, frankly, is a resounding no. We say, there is no legitimate public interest capable of being defended here. Let private interests make the deal and let private interests defend the deal. Really, if you’re going to get involved, you’re going to establish another regulated industry in this province in sectors where there’s no demonstratable need to do so.

In my view, Madam Chair, we must work to maintain a business environment where well known, top quality franchisors will be ready and willing and wanting to locate and to invest in PEI. The enactment of legislation that attempts to regulate franchising will serve as a barrier for franchises to enter into the PEI marketplace and that will make our jurisdiction a less attractive place to invest, not only for franchisors but for franchisees as well.

There seems to be a belief in some quarters that franchisors always benefit from all franchising arrangements or agreements. In my own experience, what I have to say is this: no two are alike. It’s true that franchisors benefit from the expansion of their business into new markets. However, franchisors run the risk of damaging the goodwill they have built up in a market. They run the risk of tarnishing their trademark and trade name, to name only a few concerns. The point I’m simply trying to make is this, is there’s risk on both sides of these transactions. They are not one-sided.

The goals for the PEI franchising market should be to maintain a legal jurisdiction that is at least consistent with other jurisdictions in Atlantic Canada. To my knowledge, none of our sister provinces here in Atlantic Canada have enacted franchise legislation, to my knowledge, and you may have better information than I do on this point. None of our sister provinces are contemplating doing so. Most Canadian provinces have not enacted franchise legislation. So the question is, why PEI? And why now?

A franchise agreement is a private, contractual agreement formed between the franchisor and the franchisee. The enactment of legislation in the area of franchising will inevitably increase the cost of doing a business in PEI for everyone concerned. It will probably result in more business for people like me, but by increasing the costs and by creating a regulatory environment, other jurisdictions, frankly, will be more attractive to franchisors and franchisees as places to do business.

Madam Chair, It’s wrong to think, in my view, that franchisees are not protected in PEI. Before entering into a franchise agreement, a franchisee can and indeed should, request relevant information on the state of the franchisors finances through a review of financial statements, for example. And the franchisee can and should review and negotiate terms of the franchise agreement. No one is forced to do a franchise deal.

In my experience, it’s simply not the case that terms are inflexible. If they are, I always advise the potential franchisee to walk away. A good franchisee gets a lot of attention and a lot of respect from a franchisor. Many Islanders, Madam Chair, are leaders in their franchising chains. Think of, for example, operations like the Dairy Queen or McDonald’s or Tim Hortons or Pizza Delight or Greco. In hardware stores, think of operations like Canadian Tire, the Home Hardware; and pharmacies, think of stores like Shoppers and Lawtons in vehicles, Fair Isle Ford or D. Alex MacDonald. I could go on and on and on. But all of these businesses are pillars in our community and they are examples, frankly, of how the franchise system flourishes and continues to flourish without the kind of regulation proposed in the act.

In summary, and to sum up, PEI should not, in my view, create barriers to the Island in the franchise industry. We all gain from franchises locating in PEI. The franchise industry should remain uniform, especially here in Atlantic Canada. Currently, none of our sister provinces have legislation in this area and PEI should take steps to remain competitive and not take steps to become less competitive. And in summary, Madam Chair, in my view and on behalf of my clients, we say that you should not accept this invite into the franchise game. It’s not good business for government and it’s not good business for the franchise industry across the province. Thank you.

BETH MacKENZIE (PC) CHAIR: Thank you very much for your presentation. Mitch Murphy, question?

HON. MITCH MURPHY (PC): Thank you for your comments, Mr. Ledwell. We’ve heard from some of those good Island franchisees or some of those good franchisees, I should say, on Prince Edward Island earlier in the day. Some of which agreed with your comments and some of which disagreed. Some of them reported that they’d like to see franchise legislation, indicated that the current draft that is before the committee and supported it in its current form.

I guess my question to you is and I require an explanation of this, how after a franchisee signs that contract and I believe that, as you’ve said, the individual has an obligation to be fully aware of the terms that’s in the contract. However, what happens, what protection is there for the franchisee when changes are made unilaterally during the life of that contract that have a dramatic effect on the franchisee and their business, that they were not cognizant of at the time that they signed the contract? How do you purport to address that situation?

MARK LEDWELL: Well, I heard from people who were here this morning that those kinds of comments were being made and I don’t know how you unilaterally change terms of the contract and get away with it. In other words, do it with impunity. I think the strain of thinking that I’ve heard is that because the franchisor is bigger, they can do things like that and get away with it, and it’s hard for the little guy to challenge unilateral changes in a signed contract that might be imposed on the little guy by the big franchisor.

I’ve been involved in situations like that and it seems to me that really it’s incumbent on the franchisee to call them on it, and take them to task on it. Sometimes that then gets into a problem of jurisdiction that I think is addressed by this legislation as well. But especially when you have the kind of detailed contracts that we often see in franchise legislation unless there’s a clause that says that they’re allowed to change it on their time or at their whim. I don’t know how they can do that.

HON. MITCH MURPHY (PC): I guess just as a follow-up on that, I’m going to ask you to speculate a little bit. I know lawyers don’t like to do that.

MARK LEDWELL: Do it every day.

HON. MITCH MURPHY (PC): How, like I see that as problematic. How is a franchisee, like the course of action that I understand that they would have to take is that maybe some violation of contract law or whatever, they would have to contact an attorney to start a legal proceeding or try and talk to the franchisor and work something out. But let’s say, that they had to go the legal route. You know, it’s my sense that a lot of people who are starting into the franchisee business, are prohibited from following that remedy for practical reasons. They may have their assets invested in the franchise, trying to get it up and running, and they certainly do not have the resources as easily as the franchisor, if you want to go the full legal route.

I guess my question is do you see anything wrong in the legislation in the part that proposes that it gives the franchisee an option to go through a some type of mediation process perhaps not the one that’s written in the legislation but there is some type of mediation arbitration process established and then following, if there’s a nonsuccessful conclusion from that, have access to the PEI courts through a piece of legislation. What’s wrong with that in the bill in your mind?

MARK LEDWELL: Well, what’s wrong with it is that it’s difficult, it seems to me, to mandate mediation or to force people to mediate anything. And when I read the proposed legislation, that’s what’s contemplated. Maybe it doesn’t go that far, but that’s the direction it appears to be going in. You know, I think the problem is, is that a lot of people can’t afford to go to court. It’s costly. Lawyers’ fees are expensive. It seems intimidating or a high mountain to climb and when I’m negotiating these things and I’ll try and answer your question more fully in a moment.

Often what we try to convince the franchisor to do or the franchisee, as the case maybe, is to write these kinds of things into contracts, to put a mediation clause in the contract, to put an arbitration clause in the contract. And often, we’ll try to ground that to PEI. So it’s here. It’s home and it’s not as expensive to get into a dispute resolution style issues. But when you get into courtrooms, no matter where you are, that’s more expensive. The better solution, it seems to me, is to encourage people to do this in contract and that’s why associations on both sides are good because they bring a lot of attention to that kind of thing and they are the ones who will try and get these uniform standards in franchise relationships in the form of contracts.

I’ve looked at the dispute resolution section, I was thinking of the Family Law Act when I was reading it because it seems to encourage dispute resolution through non-litigious means and anywhere where you can encourage that either in legislation or in contracts, it seems to me that’s the way to go and that’s the trend in commercial contracts today.

MICHAEL WHITTAKER: If I may, I think there’s also the question of trying to define what is a significant change to a franchise agreement or a franchise relationship. Franchisors will typically be, their systems will constantly be evolving and emerging and one of the concerns that we would have with mediation processes is that we may switch from green olives to black olives on a pizza. For the most part, we demonstrated good purposes for it, there isn’t a problem. But there maybe, there will always be some franchisees who will completely disagree with changes like that and they’ll see that as possibly damaging their business. Maybe they feel their local market doesn’t like black olives. I’m using an extreme in this case. But certainly, there’s always disagreement. Any good franchisor is always trying to improve their system and one of our concerns is we’d be constantly in mediation.

HON. RONALD MacKINLEY (L): Mark, you talk about you need to legislate farmers and how much they should plant and all this and land use and other things, there’s probably only one per cent of farmers that’s causing any problems. So why should you, if you use your argument, we shouldn’t have any environment regulations for farmers or anything, because there’s only one per cent causing a problem. Now we’ve heard from different sides. We’ve heard from people like the Canadian Tire owner, they’re 100 per cent happy and some other people. Then there’s got to be some people aren’t happy or we wouldn’t be here today. This was brought in by a Private Members Bill; it came to the House.

Now my question for you is, for instance if, let’s use a store, a IGA which I’m looking at here and they had the lease for ten years. And they’ve got the store up and everything went good. They had good relations with their parent group, their franchisor. All of a sudden, the company wants another three or four per cent or five per cent or all of a sudden, they want them to redesign the whole store etc. etc. Where is the justice for the people that built up this business? Why should they have to go to court and hire lawyers or whatever to fight this just because they’ve been there? They’ve worked in good faith. They’ve been working pretty well. They’ve had a few arguments. So all of a sudden, maybe that company away wants to do another idea and maybe they want to just eliminate the problem.

And the second part of it is, I heard of people that had like one day to get out of their business after they lost their franchise or they said it was taken away. I don’t think that’s fair. There’s got to be a certain time. I mean it’s altogether, like we have real good ones. We have maybe a few ones, that’s why we’re here today. And that’s why you have laws is, even though there’s probably 90 per cent of farmers aren’t causing any problem. But probably there’s one per cent is, so you got to make a law for everybody. They’ve got to fit within the law, go through it, the costs and everything else, the cost of doing business. But you’re saying you don’t want that in this group, but you want it for agriculture or something like that.

Like I mean if, like even if you’re a lawyer and you’re from Moncton, you can’t practice over here unless you go through the Bar Society. Everybody is regulated some way.

MARK LEDWELL: Well, it seems to me, let me say this and answer it in two ways if I can. I’ve acted for franchisors, for example, who’ve had to deal with problems with franchisees involving theft, fraud, deceit, dishonesty, so there are problems on both sides and it would be naïve to think that every franchisor and every franchisee functions the same way, they don’t. Some are wonderful to deal with and some are hard to deal with. Some are greedy and some are benevolent. So they’re not unlike any other business analysis, there are different kinds of companies all over the map. In dealing with those, if I can call them unscrupulous franchisees, we had to resort to the courts. It wasn’t easy. It was difficult and no franchisor that I know of enjoys doing that. It’s bad for business, so there’s the other side of the picture that shouldn’t be lost in this discussion that’s going on abut he franchisor/franchisee relationship.

The other thing is that in my experience, courts are pretty good at coming to terms with good faith and bad faith. The courts now have accelerated dispute resolution rules. The courts are trying, at this moment, and you’ve hear the new Chief Justice on this, that courts are trying to come up with ways to speed things that are conflated in part 5 here or part 4 of the act. So I think that the one bad apple scenario shouldn’t be allowed to carry the day in this. And the reason why I rose, I raised an issue like the Lands Protection Act is because they’re dealing with a policy issue that involves something unique to PEI. And here you’re dealing with franchisors that deal either across the country or across North America. And if you’re going to single out and make PEI a special and put it as a strict place to do business on the map, it’s not going to be good for business.

HON. RONALD MacKINLEY (L): But this here goes both ways. Like your person with the distributor, the franchisor he can go after the franchisees on this one too.

MICHAEL WHITTAKER: But this goes too far, Ronnie, I mean you’ve got offences, you’ve got penalties.

HON. RONALD MacKINLEY (L): Just a second now, like it goes both ways. So I know the world is not perfect. If the world was perfect, we’d probably, there’s problems on both sides. We know that, and that’s why we’re here, and there’s very few probably on both sides. But the thing is, this would make is so much simpler. You could just supply to the, put a complaint in and let the province look into it and go from there. It ends up being settled in court and you’re saying the court system is trying. They’re trying, but they haven’t accomplished it all yet.

Like we’ve got to have protection, like if PEI, like if this law comes in, I can’t see Canadian Tire pulling out tomorrow. I can’t see some of these major corporations pulling out tomorrow because they make money here. The reason they’re here is to make money. They’re not here to create jobs. They’re a franchise selling to make money and that’s what they’re here for. And if they can make a dollar, they’ll be here. And if they leave, somebody else will fill the spot. Now you can finish.

MICHAEL WHITTAKER: You know, I think you have to recognize that franchise opportunities in PEI, there’s still a lot of opportunity for growth, and ten years ago, we could have said that this was a mature system in terms of franchise development. And in the last ten years, there’s been more franchises open sure than the previous ten years. And I would expect that same thing is going to hold true in the next ten years. So whether or not franchisors will look at leaving, it would be a question to them. It probably is not likely, but new franchisors will certainly look at our province. I know we certainly would where we felt that there were, that there was red tape that would possibly create a lot of problems for us down the road. We would really have to consider whether we would, put in on the back burner. I’m not saying we would, I’m just saying that we…

HON. RONALD MacKINLEY (L): But if you were a good franchisor, and you seen a simple process, if you come in and you get hooked up with some franchisee from PEI and they’re not treating you right, you can just apply to the Justice Department and they would have a look at it. Think of the money you would save too. Like you know, this could take care of your bad apple.

MICHAEL WHITTAKER: …solution is not going to be good for a good franchisor.

HON. RONALD MacKINLEY (L): Well, if they’re good, it should be good for it. It works both ways. They’re not exempt and their franchisee in it.

MICHAEL WHITTAKER: I am seeing your point, I’m just, the issues are never that black and white. Sometimes they are and when they are, it’s clearer.

HON. RONALD MacKINLEY (L): Like is Walmart is a franchise, I don’t know?

MICHAEL WHITTAKER: Pardon?

HON. RONALD MacKINLEY (L): Is Walmart a franchisor?

MICHAEL WHITTAKER: No.

HON. RONALD MacKINLEY (L): It’s a company store.

MICHAEL WHITTAKER: But the issue of mediation would just be, is extremely scary for a franchisor only because of the number of issues they deal with on a daily basis.

HON. RONALD MacKINLEY (L): I think if, yeah, but if you looked at it from a business point of view, when you’re on PEI, and you’re looking at something there that you think you can make money for, and you’re going to build a building and spend three or four hundred thousand dollars, probably I don’t know. You’re going to sink it in. And if you’re assured that elective officials are looking over your shoulders to make sure everything’s done fairly, you’d probably have more of these people on PEI in order to sign up for the franchisors because that’s where they make their money.

MARK LEDWELL: But one of the problems with the proposed legislation is that you’re trying to develop a standard of what’s fair and you’re trying to develop a standard of what’s commercially reasonable. And if I buy potatoes from you at price X and somebody comes along and buys them from me at price Y, what we think might be fair will be very different. And the problem in here is that contracts aren’t always about fairness, they’re about what people decide to agree upon and every franchisee agreement, every franchise relationship that exists today on PEI and any potential new one is going to be faced with somebody trying to figure out what all this means. And all I can say is that it wouldn’t be simple, in fact, it would be very difficult. I can’t sit here and even begin to speculate what’s commercially reasonable or what’s fair. I mean, I just don’t know.

MICHAEL WHITTAKER: The question in Alberta is with the legislation that they have it appears to be successful and it appears as though its addressed a lot of concerns of franchisees and franchisors so, you know, I guess our point is always less legislation. It’s better to err on the side of less legislation if it works.

HON. RONALD MacKINLEY (L): But the trend is we’re regulating the farmers now whether they’ve got to fence their cattle out of the brooks, for instance, if you want to go to agriculture, but yet they’re not doing it in other provinces. You know, like these are all, like if you look at the reason we’re here, I’ve been here 16 years and this is the first time I’ve ever sat on a committee and a private members’ bill, that I know of, came forward. So that means there must be problems with, not the elected officials, but the people of Prince Edward Island that own these franchises. The franchises must have been wrong because they’ve asked the members to look into this. Those are the ones that elect us to the Legislative Assembly to be their voice or whatever and then we have committee hearings. We don’t have any franchisors coming in and asking us to do it. So this tells me there is some problems.

You can get into what’s fair, it is fair that, say I’m a certain size farmer and all of a sudden I’ve got somebody growing 50 acres, wouldn’t have too much trouble to compete with me but yet somebody like a large corporation could say we want yours. You know what I mean. Very hard to police all that and I know where you’re coming from there. So that’s very hard to police. But then also every time a franchisor comes into PEI that could be the death of some other business that’s beside there that’s doing a job in the community too. Like there’s a whole bunch of things we’ve got to look at here and it’s hard and it’s not easy sitting in this place and this why the committee is here.

BETH MacKENZIE (PC) CHAIR: Thank you for your comments, Honourable Member. I do have two other members that would like to ask questions and we are just about out of time. Go ahead Wes.

WES MacALEER (PC): Two short questions, one is you have over a hundred locations, congratulations. It’s nice to see Atlantic entrepreneurs.

MICHAEL WHITTAKER: Thank you.

WES MacALEER (PC): Are any of these operating in Ontario?

MICHAEL WHITTAKER: Not at this point.

WES MacALEER (PC):I’m just wondering whether you have any experience under their legislation?

MICHAEL WHITTAKER: We are looking at opening in Ontario probably within the next six months.

WES MacALEER (PC): Okay. So their legislation is not at this point a major prohibition.

MICHAEL WHITTAKER: No, it isn’t. It’s not perfect legislation but it’s palatable for us. We think that it’s reasonable. There are some difficulties in the regulations that we think need to be addressed; but it’s workable. It focuses on pre-sale disclosure. And units we’ll be opening in Ontario would not likely be franchise operations. They would be a different type of operation.

WES MacALEER (PC): Your emphasis on pre-sale disclosure and it’s more or less (INDISTINCT) after that, is there unique features about each sector? You’re in the food service business.

MICHAEL WHITTAKER: Correct.

WES MacALEER (PC): I assume that a lot of franchises are centred in that sector. Do you see yourselves as being uniquely impacted as a result of government legislation because of the sector you’re in? In other words, we have had a variety of people appear here who were in different businesses and a lot of your arguments support the position that it would impact on your businesses as opposed to somebody in the airline business or whatever. So you feel that legislation is particularly difficult because you are in the food business?

MICHAEL WHITTAKER: You know that’s a really good question. I think it does. I think it will affect all franchisors possibly negatively if it’s not good legislation. But certainly in the food service industry we operate on extremely thin margins. You know, the difference between profitability can be a few percentage points. Anything that, you know, that can affect the cost or the way we do business, you know, can certainly have the possibility of a stronger effect. But aside from that I’m not really certain. I know that the food service industry is constantly struggling with government regulations and payroll taxes and all kinds of issues that I know other industries are struggling with as well. But it is possible since we operate on such thin margins that it could affect us possibly slightly more than other segments. It’s a possibility.

WILFRED ARSENAULT (PC): A question to Mr. Whittaker. In your presentation you’ve used the term “proven need” as far as legislation on PEI. What’s your interpretation of proven need? Could you briefly expand on that?

MICHAEL WHITTAKER: That’s a good question. When I say proven need I guess, you know, we’ve come to these hearings without a lot of benefit of understanding really why we’re here. I understand that there have been some complaints that have been placed and I’m sure those have to be taken seriously. I know that you don’t want to introduce legislation every time there is a complaint in the business community so I guess we say, how big is the problem? Does one problem or two problem or seven problems, does that justify legislation? So I guess when I say proven need I’m talking about trying to quantify how big is this problem. We think that most of our franchisees are quite satisfied with the way franchising works. Certainly hopefully the way we’ve done it. That doesn’t mean that we haven’t made mistakes and we’re not a perfect franchisor. But proven need is just having a better understanding, how many phoney complaints, you know, is there. What is the nature of the complaints and when and how they occurred. Every complaint has a lot of history to it. It’s never something that could be explained in a paragraph or two. So proven need is, let’s not have legislation because of one or two isolated incidents if the industry has been acting in a fair and equitable manner.

BETH MacKENZIE (PC) CHAIR: And I guess on the basis of proven need we’re here because we feel there is a concern and we’ve been addressed by our Legislature that we should look into the matter and find out both sides of the story and make a decision on what we will recommend to the House from what we hear today from both sides. So I thank you for your presentation.

MICHAEL WHITTAKER: Thank you very much.

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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