Grand & Toy pressuring franchisees

…alleges the company is ending the deals so it wouldn't have to make financial disclosures required under the Wishart Act and because too many "unacceptable ethnics" were applying for stores.

The Hamilton Spectator
November 22, 2001

Grand & Toy pressuring franchisees
Steve Arnold


Grand & Toy franchise owners are facing new legal threats from the company as they mount a public campaign they hope will save their businesses. The operators were told in June their licence deals with the office products company won't be renewed at the end of next month, putting most of them out of business. In protest they have started taking the dispute to their customers with a form letter inserted in every shopping bag that leaves their stores.

Addressed "Dear Valued Customer," the short note thanks customers for their business over the years and tells them that effective Jan. 1 the store will become a corporate function again.

"This decision will not only be affecting the owners and their families, but also many of the staff you have become acquainted with. As local business owners, we have combined hard work and dedication with a strong sense of community," it reads. "We have all made many financial and emotional commitments, and are disappointed that our business relationship is ending with you, our customer."

Stung by customer response, Grand & Toy president Peter Vanexan responded with new threats of legal action, alleging the notice "is damaging the name and goodwill," of the company and ordered an immediate halt to any further distribution, citing clauses in the franchise agreement that prohibit franchisees from "operating in any manner which could reflect adversely on Grand & Toy's name or goodwill" and require company permission for anything to be posted in the stores.

"This notice, that is posted and being used as a bag stuffer or circulated by other means, is interfering with the ongoing relationship between Grand & Toy and its customer … " he wrote. "In light of the damage being done to Grand & Toy, we are hereby giving you notice that you are to immediately remove the notice from the premises and cease and desist from further distributing or posting, this or any other literature that has the effect of damaging the reputation and goodwill of Grand & Toy."

In another development last week, the company evicted a Toronto-area franchisee from his store after he failed to make a $22,000 royalty payment by a company-imposed deadline.

In a notice posted at the store, the company said it was simply enforcing its rights under the licence agreement to end a relationship with any franchisee who misses three or more royalty deadlines in any 12-month period. The operator claimed he missed the deadline because he was out of the country attending his brother's funeral, and when company officials arrived to change the locks he was out of the store getting a cheque to cover the missed payment.

The store was closed for two days following the incident and has since reopened under corporate management.

Although the Grand & Toy franchise dispute has been simmering since June when the company announced it would not renew the agreements, it has gained steam in the last two weeks since it was raised in the Ontario Legislature and began getting media attention.

The problem returned to the Legislature yesterday when an Opposition member introduced a private member's bill stiffening the legal protection for franchise owners.

Since January, Ontario franchise owners have been covered by the Arthur Wishart (Franchise Disclosure) Act which requires both parties to a franchise contract to deal fairly with each other and mandates minimal financial disclosure by the franchisor. Any disputes are left to the civil courts.

NDP MPP Tony Martin will seek to change that with a package of amendments which require:

· each side to evaluate a deal as though roles were reversed, a test designed to ensure one side
doesn't abuse a dominant position;

· when a deal is not being renewed the franchisee should be allowed to operate independently or the business should be purchased back at fair market value;

· minimum of six months notice of termination;

· allow damages to be claimed for failure to disclose;

· mandatory mediation prior to legal proceedings.

Les Stewart, president of the Canadian Alliance of Franchise Operators, says the last point is the most crucial.

"We need some kind of mediated settlement system before everybody lawyers up," he said. "The fact is once the lawyers get involved the chances of salvaging the relationship are pretty much nil."

The Grand and Toy operators are suing the company for damages of $1 million per store, or wrongful dismissal damages of $12 million for those who were formerly employees of the company. 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 Hamilton.

Defendants named in the suit include the company, president Peter Vanexan and other executives.

The statement of claim, which must be proven in court, alleges the company is ending the deals so it wouldn't have to make financial disclosures required under the Wishart Act and because too many "unacceptable ethnics" were applying for stores. The company has denied those allegations in interviews, but has not yet filed a formal statement of defence.

In a letter to corporate store employees, Vanexan wrote that the franchise system worked well for the company when independently-operated stores performed better than corporate locations, but that has changed now and with the franchisees pushing for a richer financial deal it was time for a change.

Vanexan also flatly rejected any suggestion the franchisees were being treated unfairly — noting they were offered a three month extension to their agreements and the chance to apply for jobs as store managers if they signed away their right to sue. The company has also hired most store employees, relieving the franchisees of severance costs and will buy back most of the inventory the operators were required to buy from the company.

"The Arthur Wishart Act and Grand & Toy values require us to deal with these licensees in good faith," he added. "I can tell you that I believe that Grand & Toy has done that and I believe that Grand & Toy is continuing to do that as we go through this dispute."

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

You can contact Steve Arnold by e-mail at moc.rotatcepsnotlimah|dlonras#moc.rotatcepsnotlimah|dlonras or by telephone at 905-526-3496.

Canadian Alliance of Franchise Operators

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Risks: Converted managers into franchisees, Bad faith and unfair dealings, Office, Les Stewart, Canadian Alliance of Franchise Operators, CAFO, Refusal to renew contract, Expropriation without compensation, Threatening letters, Threats of lawsuits, Franchisor takes franchisee stores, Private Members’ Bill, Non-compete restrictions, Opportunism (self-interest with deceit), Race, Immigrants as unacceptable ethnics, Tony Martin, Arthur Wishart Act (Franchise Disclosure), 2000, Canada, Canada, 20011122 Grand & Toy

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