Franchisee class actions on the rise in Canada

Legal actions of this size and nature are more familiar to parties litigating in the United States, but for an arguably less litigious population like ours is in Canada, this particular development is still somewhat novel and its impact on the future of franchise relationships still remains to be seen. Given the results we have witnessed so far, and the media attention that franchisee class action receives, it is likely this legal trend will continue to rise.

The Financial Post
December 13, 2010

Franchisee class actions on the rise in Canada
Chad Finkelstein

Quizno’s, Tim Hortons, Midas, General Motors and Shoppers Drug Mart are all large corporations that have discovered in the past several years that they have one big thing in common — they are or have been the subject of large franchisee class-action lawsuits.

Essentially, a class-action is a lawsuit initiated by a large group of people with similar issues against the individual or corporation they feel is responsible for their collective problems. In the realm of franchise law, class-action suits have become the legal action du jour because franchisees can group together to try to prevent a franchisor from acting in a particular way that they perceive to be damaging to their businesses.

Franchisee class actions have taken a number of forms. Typically, the allegation of a franchisor’s breach of its statutory duty of good faith is raised. As discussed in a previous blog entry, the duty of good faith basically means the parties have to act fairly and reasonably in their dealings with one another. Amid other particular allegations of offences committed by a franchisor, the more general and subjective duty of good faith is likely to be raised.

In recent history, we have seen franchisee class actions address some of the following allegations against franchisors: undue elimination of a preferential purchasing system; wrongly changing the terms of a franchise agreement; overpricing for food and supplies; or the franchisor’s retention of too much profit from its sale of supplies.

Legal actions of this size and nature are more familiar to parties litigating in the United States, but for an arguably less litigious population like ours is in Canada, this particular development is still somewhat novel and its impact on the future of franchise relationships still remains to be seen. Given the results we have witnessed so far, and the media attention that franchisee class action receives, it is likely this legal trend will continue to rise.

Chad Finkelstein is a franchise lawyer at Gowling Lafleur Henderson LLP and can be reached at moc.sgnilwog|nietsleknif.dahc#moc.sgnilwog|nietsleknif.dahc

http://business.financialpost.com/2010/12/13/franchisee-class-actions-on-the-rise-in-canada


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