Kitchener Grand & Toy franchise owner among 21 suing parent firm

The franchisees say they don't want to sue the company, but a civil suit is the only mechanism available to them. The franchising law doesn't provide any mechanism to settle disputes.

The Record
November 7, 2001

Kitchener Grand & Toy franchise owner among 21 suing parent firm
Steve Arnold

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Twenty-one franchise owners and 22 companies operating under the Grand & Toy name are suing the parent company for damages after it announced it would not renew their franchise agreements, putting them out of business.

Janis Snyder's world was shattered in a single moment.

Snyder, who owns Grand & Toy franchises at Fairview Park mall in Kitchener and at Hamilton's Lime Ridge mall, started her day as a reasonably prosperous business owner, operating the two franchised stores for the office products chain. She wasn't going to get rich, but business was good enough to provide a decent life for her two daughters.

By the end of that day, she was staring at a bleak future after company president Peter Vanexan perfunctorily announced none of the existing franchise agreements would be renewed when they expire, all but two at the end of this year.

Only the night before, June 12, Vanexan had handed out awards to the top performing franchisees. Now he was telling them they were losing their livelihoods and the company wasn't going to buy back all of the inventory the store operators had been required to purchase from the company, potentially leaving them with operating loans and no way to repay them.

There would also be no compensation for the eight years of "sweat equity" they had poured into their businesses.

Hamilton Mountain MPP Marie Bountrogianni used Snyder's case to argue in the provincial legislature recently that the government's new franchising law should be strengthened to protect people like Snyder from such arbitrary actions.

"This government was aware that franchise agreements are one-sided, lengthy, non-negotiable contracts drafted by the franchisor," she said.

HALF OF RETAIL
The protection available to franchisees is an important issue because the franchise industry accounts for almost half of Ontario's retail economy.

"I'm just sick about it, this has been devastating to my whole family," Snyder said of Grand & Toy's decision. "They just shouldn't be able to take away a store like this and say goodbye."

Snyder is one of 21 soon-to-be-former franchise owners and 22 companies which have launched a $24-million suit against the retail giant, claiming they're owed something more than empty good wishes.

She's in a slightly better position than most because, while the franchise agreement on her Kitchener store expires at the end of this year, the Hamilton deal runs until 2003.

In their statement of claim, the franchisees seek damages of $1 million per store, or wrongful dismissal damages of $12 million for those who were formerly employed by Grand & Toy. Another $5 million is sought for punitive and exemplary damages in addition to an injunction preventing the company from ending the agreements, plus costs and interest.

Franchised operations included stores in Oshawa, Pickering, Orillia, Brantford, Mississauga, Ottawa, Kingston, Toronto, Orleans, Bramalea, Barrie, Thornhill, Kitchener, Burlington and two in Hamilton. Defendants named in the suit include the company, president Vanexan and other executives.

The allegations in the statement of claim remain to be proven in court. Grand & Toy has not yet filed a statement of defence.

The statement of claim alleges employees who were approached about taking on franchises were pointedly reminded they'd lose their jobs if they didn't take the deal. They were not given severance pay when they stopped being employees of the company and were required to buy all the inventory in the stores they took over, as well as keep all existing staff.

STATEMENT OF CLAIM
The deals were renewed in 1994 and 1998, but "each of the three agreements became commercially more onerous, with the effect of Grand & Toy making substantially more money from the operation of the franchise stores, without any risk, and having the inventory financed by the Corporate Plaintiffs," the statement of claim says.

Under the deal, the franchise owners say they pay Grand & Toy 50 per cent of the profits from their stores plus royalty fees. They are required to purchase all their stock from the company and must sell at prices fixed by the company. They were prohibited from marketing over the Internet and any commercial accounts they developed were appropriated by head office without compensation.

Throughout the arrangement, the franchisees claim, Grand & Toy "operated the franchise arrangement as if it was their personal empire, making unilateral changes to the arrangements … as it suited them, and entirely in their perceived best financial interest."

The operators also allege they were repeatedly told the company was ending its deals so it wouldn't have to make financial disclosures required under Ontario's new franchise law and that "the defendants disclosed that their franchise program was receiving applications only from unacceptable ethnics, and that Grand & Toy was not prepared to extend agreements to such persons."

Lawyer Evert Van Woudenberg, acting for the Grand & Toy Licensees Association, said the company's action amounts to expropriation without compensation.

"That is the practical consequence of what they're doing," he said. "These operators will be out on the street with nothing. Grand & Toy has a good faith obligation here."

The next court date in the suit is set for Dec. 6, to deal with procedural points raised by the company. If the company loses those arguments, it will then be required to file a statement of defence dealing with the substance of the franchisees' complaints.

The franchisees say they don't want to sue the company, but a civil suit is the only mechanism available to them. The franchising law doesn't provide any mechanism to settle disputes.


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