Second Readings Bill 15–The Franchises Act

But I would argue that there are many, many franchisees, or would-be franchisees, that do not have that background knowledge, and that they're, in fact, quite dependent on others, in terms of being able to provide the necessary information, or they will get caught up in the sales pitch. I know many minority groups, Mr. Speaker–and especially, you know, one of the nice things about many of the immigrants that come to our province is they will often work very hard in order to accumulate money so that they can invest in a small business. And franchisees is one of those businesses that they invest in, in a very big way. So, quite often, and even it might be a language issue in terms of some of the contracts.

ManitobaCoatofArms.jpg

Legislative Assembly of Manitoba
May 13, 2010

Second Readings Bill 15–The Franchises Act
4th Session - 39th Legislature, Vol. 45b
Winnipeg, Manitoba, Canada

Second Readings

Bill 15–The Franchises Act

Hon. Peter Bjornson (Minister of Entrepreneur­ship, Training and Trade): I move, seconded by the Minister of Innovation, Energy and Mines (Mr. Chomiak), that Bill 15, The Franchises Act; Loi sur les franchises, be now read a second time and be referred to a committee of this House.

Motion presented.

  • (14:30)

Mr. Bjornson: Mr. Speaker, Bill 15, The Franchises Act, will ensure that potential franchisees have access to adequate information before making an investment decision in franchise business and will increase protection from unfair treatment for all parties. The proposed legislation would also give franchisees the right to associate with other franchisees without penalty. The Manitoba Law Reform Commission recommended that Manitoba adopt franchise legislation and this bill is consistent with legislation in other provinces and is based on a Uniform Law Conference of Canada model act.

The Uniform Law Conference of Canada identifies franchising as a business form that has a significant economic impact on the Canadian economy. Employing over a million Canadians, the franchise industry reports annual sales of $90 billion. This is approximately 10 percent of Canada's gross domestic product. In 2005, the Uniform Law Conference of Canada developed a Model Franchises Act and regulations. Franchise legislation has been enacted in Alberta, Ontario, Price Edward Island and New Brunswick, and Bill 15 closely follows the Uniform Law Conference of Canada model act to achieve maximum uniformity with other provinces. This is consistent with the objective of Canada's agreement on internal trade, which was signed by all provinces, territories and the federal government in 1995.

The Manitoba Law Reform Commission recommendation of franchise legislation for Manitoba follows a Manitoba Law Reform Commission study of the Uniform Law Conference of Canada model act research of franchise legislation in other jurisdictions and consultation with franchise industry stakeholders through a discussion paper on franchising in 2007 and a franchise symposium at the University of Manitoba in 2008.

One purpose of the bill is to–of Bill 15 is to ensure that prospective franchisees are given adequate information to make comprehensive evaluation of the proposed business investment. Franchisers would be required to provide any prospective franchisee with a disclosure document before the franchisee signs the franchise agreement or makes any nonrefundable payment.

The requirement for issuance of a disclosure document would apply to new franchises and, in certain situations, on the renewal of existing franchises. The disclosure document would contain all material facts about the franchise, the financial statements of the franchiser and prescribed documents, including information about the franchiser and its principles, franchise fees, franchisee obligation to purchase goods or services from the franchiser, names and location of existing franchisees and conditions of renewal or termination.

Provisions in the act give a franchisee the right to rescind the franchise agreement and to recover losses when the franchiser has failed to provide the required information or the right to recover losses when a misrepresentation in any disclosed information occurs.

Another purpose of this new act would be to increase franchisee protection from unfair terminations, penalties for associating with other franchisees or other unfair treatment. Franchisees would have the right to associate with other franchisees without franchiser interference or penalty, and the act will not permit franchisees to waive their rights under the legislation in response to franchise agreement negotiations. The fair dealings section of the act would apply for new franchises and all existing franchises. The act would be self‑enforced by franchisees and franchisers through the courts. Provisions of the act would prevent the franchiser from imposing a requirement for legal proceedings to be restricted to a venue outside of Manitoba, which would be a significant burden on most Manitoba franchisees.

Thank you, Mr. Speaker. I look forward to debate on Bill 15.

Mr. Kevin Lamoureux (Inkster): Mr. Speaker, I have a number of thoughts that I would like to be able to share with members in regards to Bill 15. It is a piece of legislation that ultimately, I believe, does merit a great deal of support, and I say that because I have experienced many discussions in regards to franchises, and I would like to share some of those examples that have been provided to me over the years in just recognizing the need for legislation of this nature. In fact, I'm not too sure in terms of to what degree the government has consulted with franchisees here in the province of Manitoba, in particular the other levels of government or other jurisdictions.

We do note that Manitoba is definitely not leading the pack in terms of bringing in legislation. There have been other provincial jurisdictions that have recognized the value of putting in legislation that will ultimately provide better legislation from a legal perspective or for franchisees to be able to ensure that their interests are, in fact, going to be protected.

You know, a number of years ago I can recall–and as I say I would like to share a couple of thoughts in regards to just–to the degree in which franchisees are left in a very vulnerable position. And there's a lot of irony to this particular example. It had–someone come to me and talked to me about a Robin's Donuts franchise that they were getting set up in. And this particular individual was saying to me now he was happy to be involved, to be a businessman, and found that he had a wonderful opportunity to be able to ultimately have a source of income for him and his family, and spoke nothing but volumes of praise and so forth, if you like, for the franchise, and the franchise was with Robin's Donuts.

And, Mr. Speaker, in this particular situation the individual at the beginning was actually very, very encouraged by what it is that he was being told and felt fairly good about it, ultimately believing that once he's–has the franchise up and running that he would be able to ultimately expand and possibly look into other franchise opportunities. It was just a question of management and through management to be able to increase sales.

And, quite often, you'll find that–if I just digress just for a bit, Mr. Speaker–quite often you will find that that is often the case, where you'll have a franchise that seems to be doing relatively well and at times it'll have highs and lows and quite often–and a lot of it depends in terms of staffing but a lot of it depends in terms of the management of the franchise, and if the management is not good you'll often see that the franchise and the value of that franchise will, in fact, depreciate because it is all about cash flow. And I know that, I've seen it and witnessed it first‑hand.

Well, in this particular example, in regards to the Robin's Donuts and this individual, he was a very capable and competent individual who felt very positive about the opportunity that he had before him, and it was just going to be a question of time, a question of time before he was going to be able to turn things around with that particular franchise and bring it to the degree in which it would be making good money.

And I'm convinced that he did his homework, that he acquired information and had a good assessment of the demographics of where that franchise was located, and ultimately was in a good position to be able to make the decision to move forward.

Well, Mr. Speaker, it was only a matter of months where this particular individual found himself doing quite well, and the numbers were very encouraging, and he honestly believed that it was only a question of a few more months before he might even be in a position in order to open up yet another franchise in hopes of being able to have two franchises, therefore–thereby being able to increase and become more of a manager, maybe not necessarily having to work.

And I'll comment on the multiple franchisee owners and the potential that is there, Mr. Speaker, but suffice to say with this particular individual as the–his franchise was doing relatively well, and he was really encouraged by it, but then all of a sudden, virtually from nowhere, he is told that there is going to be yet another doughnut shop that's going to be established. And this doughnut shop, I believe, was going to be coming from within Robin's Donuts. And he felt that it just wasn't right because if you're familiar with, you know, whether it's the Tim Hortons or other doughnut shops or coffee shops, you'll find that a lot of people that use those–especially those community-based shops–are individuals that are relatively close in proximity to it, or they're–it's in their driving–on their driving range in terms of going from work to home.

  • (14:40)

And the problem with this particular new business that was being talked about was that it was going to have a huge impact on this individual's franchise. He believes that he put in the effort, he did the advertising, you know, did the hiring, and he got the people, you know, to be working in a very productive fashion within his franchise. He's literally turned it around and, as a result, the sales did go up significantly. So, when the franchiser was looking at this and says, well, gee whiz, the sales are good enough that we could justify putting in another franchise.

Well, when he had heard notice of that nature, the first thing–one of the first things–he did, is he made contact with a number of people, including myself, Mr. Speaker. And we sat down and we talked about it and after having some discussions on the issue, I had indicated to him that it would be good to find out exactly what it is that the franchiser was obligated to do. And were they within their rights to be able to pop up another store relatively close to his store?

And we had a good discussion about it, and he did come back a number of days later, and he had had the opportunity to consult with other individuals, including a lawyer, had gone through all that small print within the franchiser and franchisee agreement, and unfortunately for him, Mr. Speaker, what he found out was that at the end of the day, that the franchiser could do what it is that it was looking at doing.

And, Mr. Speaker, that has a huge, huge impact, and one has to start questioning in terms of, you know, to what degree was there the information being provided that would've at least afforded this individual the opportunity to have a better understanding of exactly what it is, as a franchisee, that he was getting involved in?

You know, it was only a few months prior that he was feeling so good about this wonderful business and because of what the franchiser was now looking at doing, as a direct result he was looking at himself more as a glorified manager as opposed to a franchisee or an owner of a franchisee. And you stop and you think about that, Mr. Speaker, because I believe that there's a lot of merit to that.

You know, if you really get into the nuts and the bolts of a lot of these franchisers and the agreements and the details within those agreements, you will see that, quite often, if you sign on that piece of paper, you're really surrendering a great deal in order to be able to have that franchisee.

And, in this particular case, I would've been inclined to have agreed with him, Mr. Speaker. Where is the line between being a, you know, a glorified manager versus a franchisee in terms of the operation of a particular store? And as we talked about it and as I became even that much more educated about the process through that particular discussion, I was inclined to suggest that it does sound like he is a glorified manager.

So, on the one hand, you know, he is sold the idea, the concept, of buy this franchisee and you're self-employed, you can turn around a store, you can make all this kind of money by just investing your time and your energy and take that chance as a entrepreneur, and you will have the opportunity to make a great deal of money.

And that was the sales pitch, the essence of the sales pitch. I suspect, Mr. Speaker, that, in the presentation of the sales pitch, there would have been a lot more, a lot more than that. There might have even been PowerPoint, you name it. You know, franchisers, especially the larger ones, can provide a great presentation, but that's the message, that's the essence of the package, the message that this particular franchisee was being provided.

And, now, after having gone through the process, the franchisee was starting to receive a different message, and that different message is more like, here's your–this is your store and you're ultimately responsible for a very well-defined region and, if you want to be able to expand because your business is doing well, well, that's going to be all subject to the possibility of someone else coming in, the approval of the franchiser. And I was amazed in terms of just to what degree it was subjected to, Mr. Speaker.

And there was obligations, obligations that included things such as generic advertising that was going to be done, franchise fees, royalties that would have included on every dollar that was being sold. There's a certain percentage of that dollar that actually goes back to the franchiser, and there is certain expectation that you're going to achieve this minimum mark and as long as you're maintaining that minimum mark, generally speaking, there–you won't have any problems in terms of being able to keep that store.

It might become an issue when it comes time for renewals and so forth, but, Mr. Speaker, that was something in which this particular individual was looking at. So he has all the responsibility of being an owner and an entrepreneur, but quickly found out after all the sales pitches were done and after all the hard work in terms of bringing the store around, that the–that it was becoming more and more difficult for him to actually, seriously look at being able to expand, to be able to get that other location.

And the big issue for him at the time was the issue of how he was being treated. He felt that he was, in fact, being unfairly treated. He felt that he didn't have the access to the information that he should have been entitled to, Mr. Speaker, or maybe that the franchiser wasn't being as transparent as they should have been with regards to the establishment of the franchisee. And it's not to say that the franchiser is a hundred percent in the wrong here.

I believe that there are many good franchisers and, quite frankly, it's often, you know, two or three–it's the personalities, quite often, that are within a particular franchiser, especially if it's a large corporation. You get different personalities. But there needs to be more of a process of transparency and feeling that individuals are not being taken advantage of. In certain areas, Mr. Speaker, especially for individuals that are going into business for the very first time, there is a high element of trust, you know, that in going through all these contracts.

You know, they'll often be asked, do you, you initial here? You sign here? And we all know the standard answer. Well, make sure you read what–read before you sign. You get your lawyers to go over the documents and so forth. And I don't question that, in good part, there is fairly detailed documentation that highlights the franchiser's rights and abilities to be able to do the things that it needs in order to be successful as a franchiser. But the franchiser, quite frankly, has been in business for many, many years and has the legal expertise and has the experience and knows the ins and the outs of the franchisee, Mr. Speaker, and the chances and the likelihood of success. They have a good understanding in terms of the sales pitches necessary in order to get the franchisee interested, or the would-be franchisee interested in establishing a business.

  • (14:50)

On the other hand, Mr. Speaker, you have the entrepreneur and, quite often, when you think of the entrepreneur, where, yes, there are many examples where the entrepreneur will have many different experiences, maybe he's dealt in business before, maybe he's even been in a franchisee business before, but there is no doubt that there is a good number of them that are very familiar with the process.

But I would argue that there are many, many franchisees, or would-be franchisees, that do not have that background knowledge, and that they're, in fact, quite dependent on others, in terms of being able to provide the necessary information, or they will get caught up in the sales pitch. I know many minority groups, Mr. Speaker–and especially, you know, one of the nice things about many of the immigrants that come to our province is they will often work very hard in order to accumulate money so that they can invest in a small business. And franchisees is one of those businesses that they invest in, in a very big way. So, quite often, and even it might be a language issue in terms of some of the contracts.

There is a sense of excitement if you're an individual who, for the first time, is looking at the possibility of entering into an agreement that will ultimately allow you to be self-employed. And you been, you know, sold the goods. You know, they've explained in great detail in terms of just how good this business opportunity is that's now before you. And it's very easy and, quite frankly, I can understand why people would feel so excited about that particular opportunity, Mr. Speaker.

And that's why–and I'll go back to this particular individual that I made reference to. He himself was from a minority group, Mr. Speaker. And the–what I just cited is many, many. He was one of those many, many, that felt so good about the opportunity that was there. And, at the end of the day, he was quite discouraged because he didn't feel as if there was that much transparency, that, in fact, maybe there could have been a better access to information. You know, this type of legislation does move forward in addressing some of the issues that he had 'broughten' up with myself.

Now, I suspect, and if I had the resources to be able to do the Hansard search, I suspect there is a good chance because this happened a number of years back, Mr. Speaker. I suspect that I would have suggested, back then, that we need to do more to protect our franchisees. You know, I remember individuals like the member from Elmwood, the former member from Elmwood, now Member of Parliament for Transcona. And he often talked inside, both on the record or inside in the loges, inside the Chamber, about franchisees. And I believe that, you know, when–while he was in opposition, he saw the merit of having legislation of this nature.

And, you know, I think that, at the end of the day, it would have been nice to have seen this type of legislation earlier, but it is better late than never. I do recognize that other provinces have already acted on the type of legislation that we have before us, that there has been more of a national demand for action, and I believe that we have seen some in a limited way. I don't believe that this legislation is the answer to all the issues that are there. You know, I would have liked to have heard consultations that the minister responsible for the legislation would have had, and maybe to provide some comment in terms of whether he sees this as the first phase or second phase of this type of legislation. Does he anticipate that we will see more protection for the franchisees into the future? Because, you know, this is just one example that I make reference to. There are other issues.

You know, my brother has been a franchisee owner for many, many years. In Manitoba, at one point, he had nine–interest in nine Domino's Pizza franchises, Mr. Speaker, and that would've been a number of years ago. Yes, they have relatively good pizza, but he's been out of the business here for many, many years.

He's moved on to another province, and I won't go as to why it is he went to another province. He's maintained an interest in franchisees but, you know, I can remember many discussions with my brother in regards to issues related to franchisees. You know that the amount of resources that a franchisee and the sense of commitment that they have to make in terms of having blind faith, to a certain degree, that things will continue to work well, and that your relationship with the franchiser is going to be positive, that your territory is not necessarily going to be cut into.

You know, I can remember some of the bigger decisions that he had to make in regards to relocation. You know there's a number of NDP MLAs from the northeast quadrant of the city–and you might recall–for example, there used to be a Domino's Pizza on Henderson, and that Domino's Pizza was actually relocated years ago back onto Springfield. Well, it was my brother that actually facilitated that move. But what surprised me was who had to cover all the costs. And I can tell you the franchiser is not the one that comes to the table saying here's the money in order for you to make all the necessary renovations.

And it's not to pick on Domino's. I just use it as an example. You will find this with many of the franchisers. You know, it's not the franchiser that says, you know, well, your tiles are going to cost $70,000; we'll pay 35,000 of that. That's not the way, typically, it works. Typically, what'll end up happening is if you want many of these different types of franchisees, you'll pay a certain fee in order to have that right. You know, the prime one, of course, that many will try to get will be that McDonald's franchise, and that can be a tough one. It can be a very–that can be a very expensive one.

Some have suggested maybe I might have some dividends in a McDonald's somewhere. But no, no dividends. I do frequent it far often than my doctor likes me to, but the point is that's one of those franchisees that is exceptionally costly. A number of years ago it was three-quarters of a million dollars. I suspect if you check today, you will find that it is well over a million dollars in order to get one of those franchisees, Mr. Speaker.

You can look at some of those other smaller franchises, and I don't believe you'll find any national franchisee where you're going to be paying less than $150,000 for a franchisee today, Mr. Speaker, in terms of ones that have any sort of a profile. And I'm talking a lot in terms of the, you know, like the fast-food type of franchisee because that's where I have my greatest experience.

But what you'll see is that, quite often, you pay that X number of dollars for the franchisee and–for the franchise rights in that particular location, and then you have to identify the landlord. And you might try to work out an agreement with the landlord for, let's say, a leasehold improvements. And, if you're fortunate in which you have a generous landlord that's prepared to extend your rent–which means your rent is going to be that much more money. But, at the end of the day, you could end up costing anywhere from 60,000 to a million dollars in terms of renovations required in order to meet the standards. And that's–and I would underline that–the standards of the franchiser, Mr. Speaker. It's not like you can just go to Home Depot and say, I'll take this tile, this tile and this tile. Quite often they will speculate–or, not speculate–they will specify the types of tiles that you will use, the type of colours that you'll use, and the line goes–and it goes on and on and on.

  • (15:00)

Members might be surprised in terms of to what degree franchisers will require a franchisee to be able to do virtually every aspect of the business. And that is something in which my one constituent, the number of years ago he had raised with me, or issues in which I've witnessed first-hand through family members, Mr. Speaker. And that is the reason why, you know, from a personal standpoint, I believe that government does need to do something. And that's why I look at the legislation, and I don't have any problems in terms of saying that, you know, sometimes the government does do some good things and I'm encouraged to see this legislation before us.

Mr. Speaker–[interjection] Well, that's gettin' a bit of a challenge, if we start naming a lot of things. But the point is, is that this legislation is, in fact, I believe, a good starting point. You know, it is something that will, in fact, make a difference, and that's really what it is that we would like to be able to see.

You know, there are many individuals that are out there today that are exploring opportunities, and many of those opportunities are in the franchise world. You know, we'll have conventions here in Winnipeg, throughout Canada, where you will see that there are individuals–only two minutes left, Mr. Speaker? You'll find that there individuals that will attend the conventions and they will see literally hundreds of potential franchise opportunities. And, I believe, more and more, every day, that we need to feed those dreams and those ambitions, as small business is so critical to our province. That is the best and most effective way of creating a job in our province.

So we need to encourage it, and if we're encouraging it, I believe there's a responsibility for us to protect those individuals and the monies that they would like to be able to invest because these are the people that are creating jobs, real jobs in our communities, Mr. Speaker. And that's why, you know, when we decided to introduce this bill today, I felt that it would be appropriate to stand up and share my thoughts on it, because at the end of the day, legislation of this nature has the potential to have a very strong, positive impact in the province of Manitoba. It's something in which I would have liked to have seen years ago because, at the end of the day, it will make more people better educated about a decision that is not only going to affect that individual and their family and friends, it affects the entire province, because the entire province–and I don't know if the minister responsible for the legislation could give us an idea of how many people employed within franchisees, but it would be an interesting number to find out.

Thank you, Mr. Speaker.

Hon. Jon Gerrard (River Heights): Mr. Speaker, I rise to comment on Bill 15, The Franchises Act, and, like my colleague, we are both in support of this legislation and feel that it could actually have been brought in earlier. In fact, we actually looked at bringing in this legislation a number of years ago, but decided at the time that it was fairly complex and that maybe we should leave it to the government. And I'm glad that they have now brought this forward.

Ms. Erna Braun, Acting Speaker, in the Chair

The importance of franchising to the economy, to businesses, to jobs in Manitoba has already been talked about at some length. It's a significant area, and it's important that we are starting to follow other provinces in having franchise legislation. Franchise, of course, being a contract between two businesses where the franchiser grants the franchisee the right to operate its business system in return for a payment of fees or royalties. It may include intellectual property, trade names, trademarks, the right to sell products or services, access to business knowledge and methods and assets and so on.

The franchiser often provides a fair amount of support and direction to the franchisee, and the franchising is a common distribution method that's attractive for franchisees because, in many ways, it helps minimize risk while a franchiser is established–when a franchiser is established and offers a successful business system.

Of course, there are advantages and disadvantages to franchising. An advantage, perhaps, for franchisers include business expansion, earning revenue from fees and royalties. Disadvantages for franchisers including giving up some of the control and some of the profit. And, indeed, conflicts, as my colleague has mentioned, sometimes can arise between franchisee and franchisers in these relationships due to the lack of precontract disclosure, misrepresentation about aspects of the franchise, excessive prices for goods, equipment and services obtained from the franchiser or suppliers and when franchisers implement system-wide changes, which may create issues, problems, disruptions, improvements, hopefully, for the franchisee.

I think it's pretty apparent that the market today is not the same as it was many years ago, and that with economic globalization the rapid increase of cross-border movement of goods and services, technology and capital, obviously, is facilitating–some might even say requiring–a greater economic integration between nations, between–among provinces and, of course, extension of franchises around the world. And in that context, whereas most of the franchise legislation, for example, in the United States would be federal, here in Canada it's important that we have a provincial response in provincial legislation. And it's important to have this legislation harmonized with other jurisdictions, so that you limit the additional costs that franchisers would have in complying with, say, Manitoba's requirements, compared to other provinces.

We want to be able to attract industries and grow commerce in Manitoba, and it's vital, really, to provide consistent commercial legislation and regulations with other provinces and with other countries.

Mr. Speaker in the Chair

In some respects, this matter relates to what's happening at the moment, where the Manitoba government has opted out of an agreement with British Columbia, Alberta and Saskatchewan, which have got an agreement to boost their joint economies, to harmonize in a number of areas, to have improved economic activities in their provinces. And in some ways that would–is a disappointment that this government is going in that direction. And certainly there are opportunities, Mr. Speaker, which we should be taking advantage of, and that's as a result of the sort of economic development, and so on, that can occur through franchisee–franchises as well as in other ways.

And, certainly, we want to encourage the businesses, whether interprovincially or transnationally, to establish franchises in Manitoba. And having legislation which protects business people who are franchisees in Manitoba makes a lot of sense, and allows, then, where there are conflicts, to be dealt with in Manitoba courts.

  • (15:10)

Now, this legislation is modelled after legislation in other provinces. Of course, Alberta was the first to enact franchise legislation in 1971. They updated their Franchises Act and their regulations in the mid‑'90s–about 1995–and the Alberta act is, I think, really the basis for how we're moving forward, as well as in August, 2005, the Uniform Law Conference of Canada, which recommended the adoption of a Uniform Franchises Act, provided such a model bill and regulations and recommended that they be adopted by provinces and territories.

Now, it has taken Manitoba five years after that recommendation from the Uniform Law Conference of Canada, but we're pleased that, in fact, it is happening and that we are moving forward.

Ontario was the second province to enact franchise legislation in the year 2000. It was, sensibly, largely based on the 1995 Alberta act, and it provides for a duty of fair dealings and the right of franchisees to associate. It doesn't provide for document registration or government oversight.

Prince Edward Island enacted its Franchises Act in June of 2005–their Franchises Act with their regulations. And then New Brunswick enacted its Franchises Act in June of 2007. That act, although it's been passed, has, I believe, not yet been proclaimed.

As I've already said, in the United States, franchising is regulated federally. Several state governments also have acts. And in Australia, there is a mandatory franchising code of conduct which requires mandatory franchiser disclosure 14 days prior to a contract being signed and mandatory mediation for any dispute resolution.

Now, there are some concerns which have been raised against franchise legislation. I mention these just to–for reference. Some argue, for example, that there shouldn't be franchise legislation because it can have an adverse effect on the attractiveness of Manitoba as a business location. They argue that people should have the freedom to contract without government interference.

But, on the other having–hand, having franchise legislation enables in many respects an easier route, a more uniform, harmonized route, for businesses to engage in franchises in Manitoba, particularly when Alberta and Ontario and New Brunswick and Prince Edward Island have very similar acts.

There is some restriction in terms of courts. This bill restricts the jurisdiction of disputes to Manitoba courts, and trumping terms in contracts that would make the jurisdiction elsewhere. For people in Manitoba, that's a significant advantage. It means that you don't have to be hiring lawyers working in other jurisdictions and provides the obligation of the franchiser to address concerns which relate to franchises in Manitoba in Manitoba courts, which makes sense.

Some have argued that we shouldn't have franchise legislation because there should be freedom to contract without government restrictions to attract businesses to Manitoba. In my experience, that what is most important is that you've got clear rules for how businesses should operate, and, I believe, in this instance, having the franchise legislation, in fact, sets clear rules and allows businesses to proceed harmoniously and smoothly with less conflict because the clear rules of action are already on the table and determined.

We, of course–and this is part of the goal of this legislation, which is positive–we need to protect certain franchisees who may not have as much business experience from being taken advantage of. Regulations can benefit the franchisees and, without some regulation, Manitoba could develop a reputation as a haven for disreputable franchisers. And, of course, that would not be good. We want to make sure that our businesspeople, people who are franchisees in Manitoba, are protected, and know the legal basis in which they operate and the jurisdiction on which issues can be taken to court.

It's obviously important that this legislation strike a fair balance, between providing freedom to businesses to contract and placing restrictions that protect both parties to their contracts. And I believe that this legislation does that. The fact that it has been tried and is working for some time in Alberta and in Ontario and Prince Edward Island, now, is–means that we have some basis on which to move forward. And we know that there shouldn't be too many surprises coming from this legislation.

It's also vital, when one considers franchise legislation, that we recognize the inherent balance of power inherent in franchise relationships, and that this inherent balance of power is–that the little guy, the franchisee, is protected, but that the franchiser is also protected at the same time. Not all franchisees may have or will have corporate lawyers to protect their interests, or even the educational background and business experience to protect themselves adequately through a franchise relationship. And having this legislation should be helpful. Considering the imbalance of power, the disclosure of all material facts, as required, is paramount to protecting the prospective franchisees.

So this bill provides some help in addressing this balance-of-power issue, by requiring the disclosure, by requiring statements of material changes, so that when there is a significant change being made by the franchiser, that the franchisee has to be notified. Fair dealings by both parties and, at the same time, giving the franchisees a right to associate so that the franchisees can talk with one another and work together and make sure that their interests, their common interests, are well served and well protected.

The disclosure that is required in this legislation requires the franchisers to give each prospective franchisee a copy of their disclosure document 14 days before signing agreement for paying for a franchise. These disclosure documents need to include all the material facts, the financial statements, the agreements to be signed by both parties, statements about making an informed investment decision–a statement that was recommended by the Manitoba Law Reform Commission, which looked at this legislation and, indeed, recommended the enactment of this franchise legislation in Manitoba in the Franchise Law report, 2008. And this report made a number of other recommendations, including this one. Other information or prescribed documents, where relevant, need to be disclosed. And other documents, if they allow–or where mediation or arbitration is allowed, the disclosure must include information about the rules and procedures and the criteria governing the selection of an arbitrator and the arbitration process, as well as the costs.

  • (15:20)

The Manitoba Law Reform Commission report, which I spoke of, is in favour of presale disclosure, in general, through prospective franchisees, thus making the franchisers disclose the material fact as is required in this law. The Manitoba Law Reform Commission recommended that the franchiser 'explend' the disclosure regarding all people who have a management responsibility related to the franchise and to all franchiser affiliates significantly connected to the franchiser.

The commission also recommended disclosure be required about the history of a franchise outlet being offered and the closes other–and the closures of other outlets. This is relevant to one of the items which my colleague raised earlier on in terms of outlets being put too close together. The commission recommended disclosure on when a party related to the franchiser subleases a franchisee–premises.

The commission recommended that relief be provided for franchisers, for minor errors and irregularities in disclosure documents and ensure that disclosure documents are valid so long as they substantially comply with the act and the regulations. I think that this is an important point which, when this is taken–legislation is taken into account by the courts, that the definition of misrepresentation be used in a way that is appropriate, but is not going to get tangled up where there are minor errors and irregularities in disclosure documents. And hopefully, the courts will use their judgment wisely, but, certainly, where there are major errors and problems, these must and do need to be identified.

Now, the franchisers can avoid disclosing unfavourable background information by assuming a new corporate identity. So the commission recommended extending disclosure requirements to franchisers' predecessors, and I believe this would be an important step. The regulation should require disclosure of the number of lawsuits initiated by the franchiser against franchisees and vice versa, and the number of disputes resolved through mediation arbitration so that individuals who are getting involved as a franchisee, working with a franchiser, will know a history of the individual or corporation which is the franchiser.

In the section which deals with the material change, this requires the franchisers to give franchisees written statements describing material changes. This is a change that, when reasonably expected to have a significant adverse effect on the franchise's value–and certainly that is very important that this be disclosed–and that franchisees are made aware of a material change introduced by franchisers.

Disclosure documents around this need to be accurate, clear and concise. There needs to be fair dealing by both parties in the performance and the enforcement of their agreements, and that's, I think, pretty important. As I've already mentioned, this act provides the right to associate, and at the same time, it imposes penalties for franchisers against franchisers for threatening franchisees who associate with one another, which makes sense.

The area where we're dealing with misrepresentation in The Franchises Act, misrepresentation is defined in the act, includes an untrue statement of a material fact or an omission to state a material fact that is required to be stated, or is necessary to make a statement not misleading in light of the circumstances in which it was made. This definition is consistent, I believe, with other provinces and, from it being tested thereby in previous examples, should enable us to move forward in a reasonable fashion.

One of the aspects of this bill is that it will apply to existing franchises, and this will apply to a franchise agreement entered into before the coming into force of this legislation, if the franchised business is operated partly or wholly in Manitoba. It is important that the regulations set out clearly the transition for existing franchises with franchisers and franchisees.

The bill is very important in specifying that Manitoba is the place to settle disputes as a jurisdiction. This is consistent with the model Canadian act and helps protect franchises in an agreement because they needn't get lawyers in other jurisdictions. The right to settle matters legally in Manitoba can't be waived in an agreement.

At this point, one of the aspects of this legislation which I suggest that the government have a look at is what is in the Prince Edward Island act, which allows the use of electronic delivery of disclosure documents, that is, the–current with commercial practices, and this, of course, reduces the franchiser's cost. This bill does not provide for such electronic disclosure, but I suggest that that is an amendment that should be looked at in making sure that this option is available–how it would be available and how the records and checks and appropriate balance is kept in terms of handling this sort of information.

So, Mr. Speaker, that's an overview of the act and some of the pluses and minuses. As I've said, we are certainly in favour of this act and look forward to there being many more franchises being–occurring in Manitoba, and that the interaction of franchisers and franchisees goes more smoothly as a result of this legislation. Thank you.

Mr. Stuart Briese (Ste. Rose): I move, seconded by the member from Lac du Bonnet, that debate now be adjourned.

Motion agreed to.

http://www.gov.mb.ca/legislature/hansard/4th-39th/vol_45b/h45b.html


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