Cheri DiNovo, MPP, Second Reading Debates

The terms of the franchise agreement change over time without the knowledge and without the say-so of the franchisee. There are many ways of losing your life savings when buying a franchise.

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The Legislative Assembly of Ontario
September 23, 2010

Second Reading, House Debates
Private Members’ Public Business
Ms. Cheri DiNovo, MPP

The Committee of the Whole
Second Session, 39th Parliament
Toronto, Ontario, Canada

ARTHUR WISHART AMENDMENT ACT (FRANCHISE DISCLOSURE), 2010
LOI DE 2010 MODIFIANT LA LOI ARTHUR WISHART SUR LA DIVULGATION RELATIVE AUX FRANCHISES

MS. CHERI DINOVO, MPP

The Acting Speaker (Mr. Jim Wilson): Further debate?

Ms. Cheri DiNovo: It’s an honour, of course, to help introduce a bill that is sponsored by all three parties. I want to say, first of all, that this is a rare occurrence in this House. In fact, I was part of the first historic one a couple of years ago. That was the first bill in Ontario that had ever been introduced by three parties.

I think it’s a very positive step, because I know that the electorate—those watching—have very little patience for the kind of shenanigans and partisan bickering they often see in this place. I think that voters in this province actually want to see work done here. They want to see people get together, negotiate, come up with solutions and move forward. This is one of those historic instances, and it is historic when that is happening. I commend the member from Parry Sound–Muskoka and the member from Oak Ridges–Markham for being part of this historic venture.

What is this venture? It is a small but significant step. It is an updating of a bill that has been on the books for a while and was an attempt to help franchisees in what is often a very unequal relationship. I know that those watching, out there, will think this might be the case with fly-by-night organizations and people who don’t know what they’re doing. I wish that were the case. Unfortunately, it isn’t. Often, those who are involved in paying for a franchise feel very hard done by, by some very well known household names—big companies.

This is why we need to be involved here. We need to be involved with those who often place their life’s savings on the line to purchase a business, usually because of the good name of that brand or product. We need to help them move forward with their eyes wide open. This is an attempt to do that. You know that franchises account for about 40% of all retail sales across Canada and in Ontario. That is a significant portion of a market.

I also was privy to the horror story that was the inspiration for this bill: a young woman whose family lost $150,000—bang, gone—and that was simply flat-out fraud. But what would have helped her, and what would help any potential franchisee, is to read, in a sense, the fine print, to have the franchisor have to answer some questions and to have the franchisee—there’s responsibility on both sides here—sign off to say they have read it. We’re used to doing this in other transactions that involve major amounts of money; we’re used to doing this in every real estate deal; why not in terms of buying a business, which can often involve as much, if not way more, money as buying a house, which is usually the single greatest investment?

I want to read something here that gives you a sense—you don’t have to go far on the Net to find stories like this. I have taken out the names of the company and of the person who wrote it, but it gives you a sense of the trauma. This person writes:

“Your dream has always been owning a … franchise? Ha ha ha ha! Go ahead. You will sell your soul to slave work and you will throw your life away. There was a discussion about this in another Toronto forum and several … owners joined the discussion. Here are some of the things that were said….

“You will have to buy overpriced … equipment … from … headquarters and not from the manufacturer.” The franchisor “buys it from them and they sell it to you at almost double the price.”

This is an interesting point, because often companies that are reputable—when you think of the growth of the franchise trade, the idea originally was to take a product that was successful or an idea that has worked extremely well and replicate that, and in replicating it, get that product and that brand name out to a far wider audience, and by doing so, share in a little bit of the profit so that more people can be part of this ever-growing company. But I’m afraid that what sometimes happens is that franchisors see the product as the franchise, not as the product that the franchisee is selling, and that changes the spectrum entirely. This was the case for this poor individual:

“You’ve seen a congested intersection and suddenly want to take out a franchise and build it there? Ha ha ha ha! Keep dreaming! When you buy a … franchise, they will tell you where to build it (out of your own money). If they say ‘Nova Scotia,’ you will have to build it there or else take a hike….

“You work hard for 17 hours a day; doesn’t matter if you are the owner and have two slave managers. When one of them quits, guess who is the one that will manage” the franchise “from 7 a.m. to 11 p.m. for the next” many weeks “until a replacement is found?”

You spend 90% of your time “hiring and training employees, only for those employees to leave in two months. You are lucky if you keep them for six months with those low wages and long, erratic hours” that are already set by the franchisor. “When finally you trained a replacement, another one quits and you have to stay another week training his replacement.”

The franchisor “keeps 10% of your gross earnings without them investing a penny or a minute in your risky venture.” They go on.

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This is their experience. This is somebody who lost, or feels they have lost, over $1 million in their particular franchise escapade.

This is not a problem of small potatoes here; this is a problem of large sums of money people have invested—people, quite frankly, who often have some business acumen under their belts.

What this bill will do is make them read again what they think they know—because people often think they know the terms of the agreement without actually reading them. It will make them read those terms again, it will suggest more steps they can take, it will give them more information from the franchisor so they can make a more informed opinion, and it will require that they sign that they understand what these terms are, what the history of the franchisor is. As the member from Oak Ridges–Markham said, the advantages of getting a lawyer are paramount, a good lawyer who knows that particular franchisor—and also to check with other franchisees in the history of the company, in terms of selling franchises and what those franchisees’ experiences have been with that franchisor. All of this is covered in this bill, plus, of course, the Arthur Wishart Act, which this bill amends.

That’s what we’re asking for here. It’s not a lot. As the member from Parry Sound–Muskoka said, there is very much a role here in the development of this bill to be played by the franchisor and their lawyers. We’ve received letters from their lawyers about this bill, and I’m glad for that input; I think we all are. We welcome that input. The place for that input will be at committee, once this bill moves to the committee. They can bring their input. We can then have that debate. We can do it clause by clause. We can refine and approve the bill, maybe, and move it forward. That’s what we’re hoping. We’re hoping that by moving it forward, by looking at it at committee—hoping we have all-party consent, because just because it’s a tri-party bill, it doesn’t mean every member has to vote for it—I hope every member does vote for it today. But as we move it forward, we can provide added, absolutely necessary protection for those who are putting their life savings on the line.

I couldn’t do better than what the member from Oak Ridges–Markham did in providing you with a history of this. I find it interesting also, of course, that we have police present, because so often this becomes a matter for the police or for the lawyers. It’s not only, for example, the case that was given right off the top of a young woman whose family lost $150,000 investing in a franchise that never materialized—they just took the money and ran. Not only does she have to do that, but then she had to go to the police, go through the police—and really, this is a business matter, so the police’s hands are hampered in terms of processing this and, again, trying to hunt down the perpetrators. And then she had to go to lawyers, too. This is not unusual for those who have had horrible experiences, who have lost their life savings one way or another. You heard the member from Parry Sound–Muskoka speak about another way of losing your life savings. The terms of the franchise agreement change over time without the knowledge and without the say-so of the franchisee. There are many ways of losing your life savings when buying a franchise.

But the next step is usually the police and the lawyer. Not only have you lost the $150,000, the $1 million or your retirement savings, but then you have to spend more money out of pocket to try to get a lawyer to try to chase them down and bring them to justice. Of course, we know how that looks. You usually spend more on the lawyer than you recoup from the perpetrator.

This is a situation we have to rectify. It really affects too many small businesses in Ontario. I’m the small business critic for the New Democratic Party, and I can tell you as the small business critic for the New Democratic Party, small business represents 90% of the new jobs in this province. As I said at the front, 40% of all retail sales are done through a franchise. How many small businesses are franchises? Many of them, is the answer—many of them. We want to protect them because they then create jobs, and we’re living in a province where jobs are an issue and where we want to do everything we can to protect the jobs at the other end as well as the small business owners who provide those jobs.

Of course I’m going to support this. I commend both my colleagues from the Progressive Conservative Party and the Liberal Party for coming together over this bill and over this important issue. I wish it happened more often in this House. It would be nice to see. I hope that it means, for this particular bill, that this becomes law much more quickly than it would if there were only one of us bringing it forward. I know that’s all of our hope. I state that hoping that cabinet ministers who are present and who are listening listen and hear and do the right thing in terms of not only getting it to committee but getting from committee back here for third reading and then made law. That’s our hope.

It’s a very good day in the Legislature, a day without fractiousness, a day without yelling, a day where all parties act in harmony towards the good of not only the consumer but also of small business owners in Ontario.

This document is a verbatim copy of the Official Report of Debates (Hansard):
http://www.ontla.on.ca/web/house-proceedings/house_detail.do?Date=2010-09-23&Parl=39&Sess=2&locale=en#P953_222324

Copyright (c) 2010
Office of the Legislative Assembly of Ontario
Toronto, Ontario, Canada


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Risks: Appropriate franchise law, Arthur Wishart Act (Franchise Disclosure), 2000, Canada, Arthur Wishart Amendment Act (Franchise Disclosure), 2010, Canada, Attempts to rehabilitate image, Awareness, Call for franchise law, Caveat emptor canard, Deceptive business practices, Fraud, Gouging on supplies, Life savings lost, Must buy only through franchisor (tied buying), Police intervention, Predatory actions, Private Members’ Bill, Sharecropping, Canada, 20100923 Second DiNovo

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