Grand & Toy franchisees to test new franchise law

“Ontario is the wild west where franchisors are free to play by their own rules,” he said, adding that fair compensation requirements and a mediation process should be put in place.

Durham Business News
December 1, 2001

Grand & Toy franchisees to test new franchise laws
Pickering, Oshawa franchisees involved in multi-million dollar lawsuit against company
Glenn Hendry


The first test of Ontario’s new franchise laws will occur in the new year when a multi-million dollar Grand & Toy franchise dispute spills over into a Provincial courthouse.

Twenty-one franchise owners – including a pair of entrepreneurs who operate Grand & Toy stores in Pickering and Oshawa – are suing the parent company for wrongful dismissal and punitive damages after the company announced last June that the franchise agreements would not be renewed after December 31, 2001.

The office products and school supply chain broke the news to its franchisees at a corporate retreat in Muskoka, the day after handing out awards for the top performing franchises. Dwight Beaucage, who is the co-owner of the two Durham stores (with Steve Gray), said Grand & Toy offered no payment for its franchisees, nor did it leave any room for negotiation.

“They just said they’re confiscating the franchises, with no compensation. That’s not a fair process.”

Last year the Province and representatives from both sides of the franchise industry helped get Bill 33 – the Wishart Act – approved at Queen’s Park, legislation that was supposed to protect the integrity of the sector in Ontario, home to 40,000 franchises and some 5,000 annual lawsuits.

The impetus for the legislation, which became law on January, 2001, was the fact that so many entrepreneurs drawn to the business found there was no pot of gold at the end of the rainbow, and there is a lengthy list of those who have left the industry broke, embittered and often embroiled in litigation. That list includes a group of 3 for 1 Pizza franchisees who locked themselves in their own stores in 1998 to avoid eviction for breach of contract; Pizza Pizza franchisees at war with the parent company over the right to associate; and a $50 million class action lawsuit launched in 1999 by Bulk Barn operators over a product purchasing dispute.

Now, Grand & Toy franchisees can be added to the roll.

The Wishart Act isn’t expected to prevent all those lawsuits, but a key component in the bill that was expected to improve the image of the business is the disclosure standard, which required the franchisor to reveal financial information, including previous litigation history. Bill 33 also provides for ‘fair dealings’ between the two sides and allows franchises to freely associate.

It is the disclosure requirement – all new contracts have to adhere to the Act’s provisions – that triggered Grand & Toy into its action, said Beaucage.

“The Wishart Act states that the company has to disclose their books, and Grand & Toy does not want to do that,” he claimed. “The provision was put in place to help the franchisees. It’s ended up hurting us.”

In the Grand & Toy Licensee Association (GTLA) statement of claim, the franchisees alleged the company was attempting to “gag” the association members with lawsuit threats; that it was “cherry picking” GTLA inventory; that it continues to appropriate commercial accounts; that it was company policy not to accept “unacceptable ethnics” as new franchisees, and that it continues to refuse to negotiate compensation with association members.

In Grand & Toy’s defence, the company declared that it took its action because the franchise experiment, which began in 1993, simply “no longer works.” As well, the company disputes the compensation argument put forth by its franchisees, claiming there has been little or no money invested by the operators – some paid a $5,000 franchise fee, while others did not.

Beaucage takes a different view on his financial outlay. “What they failed to say is we had to buy our original inventory, about $200,000 worth. That was financed through investor loans and by cashing in my RRSPs and by putting my house up as collateral.

Opposition MPPs have tried to get the Provincial government to amend the legislation in recent weeks, but the ruling Conservatives have declined citing the impending Grand & Toy lawsuit. (The case has already been before the courts on points of procedure, though no trial date had been set at press time.)

“We thought we were going to get something passed (November 21), but he PCs said no because there’s a lawsuit on the table,” Beaucage said. “I really think they want us to be the guinea pigs on this.”

Tony Martin, an NDP MPP from Sault Ste. Marie, has been pushing to strengthen the legislation (as he attempted in 2000), saying the government’s attempt to regulate the industry has “failed.”

“Ontario is the wild west where franchisors are free to play by their own rules,” he said, adding that fair compensation requirements and a mediation process should be put in place.

Durham MPP John O’Toole, who helped draft the Act as the Parliamentary Assistant to then Consumer and Commercial Relation Minister Bob Runciman (the ministry, now headed by Norm Sterling, has since been renamed Consumer and Business Services) agrees the Act requires some tweaking. He pointed out, however, that Martin voted for Bill 33 when it was passed last year.

“It was adopted unanimously, and we worked very hard to accommodate his wishes for protection of the franchisees, in terms of disclosure.”

O’Toole is confident the provisions in the Act will help the Grand & Toy franchisees receive fair treatment in the courts, did lament the fact there is no compensation requirement in the legislation.

“I think it’s unfortunate that people’s investments aren’t protected,” he said. “So I think there will be pressure on the courts to get both sides to try and resolve the dispute.”

Beaucage, whose stores are located in the Pickering Town Centre and the Oshawa Centre, hopes this is true. “I think this will definitely drag on, but the hope is that somewhere, someone, sits down and mediates this so we don’t have to go to court.”

The franchisees, who weren’t given severance pay when they were converted from ‘employees’ to owners in 1993, are seeking $1 million in damages per store, or $12 million in wrongful dismissal charges. Another $5 million is sought for other damages, plus costs and interest. The franchisees also want a court injunction to prevent Grand & Toy from terminating the agreements.

Grand & Toy, a division of Idaho-based pulp and paper giant Boise Cascade, has 75 stores in Canada, with 26 operating as franchises.

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