Canada: New Franchise Legislation In Canada

Last Updated: June 27 2014
Article by Christopher G. Graham

British Columbia, which presently does not have a franchise specific statute, recently took one step closer to implementing such legislation when the British Columbia Law Institute ("BCLI") recommended the passage of a franchise act in its recent report titled Report on a Franchise Act for British Columbia (March 2014) (the "Report"). This was a followup to the Consultation Paper on a Franchise Act for British Columbia (March 2013) (the "Consultation Paper") and took into consideration the feedback generated by the Consultation Paper.

The BCLI stressed the positive response received to the implementation of British Columbia franchise legislation, noting that all respondents to the Consultation Paper saw benefits in the introduction of franchise legislation in British Columbia and none opposed the enactment of franchise legislation in principle.

As a result, the Report recommends that British Columbia enact legislation (the "Proposed Act"), based on the Law Reform Commission of Canada's Uniform Franchises Act, similar to that which other Canadian provinces have adopted.

Passage of legislation by BC would further harmonize the regulatory regime in Canada and the recommendations of the BCLI appear to improve upon the existing provincial statutes. Of course, recommendations by the BCLI may not result in the passage of legislation soon or ever. Although, the odds are that the British Columbia legislature will take up the suggestions of the BCLI and sooner than later.

The Report also recommended that the Proposed Act:

  • should not include an exemption from disclosure requirements for investments below a prescribed amount;
  • should not require location assistance for the exemption from disclosure requirements for grants of a franchise agreement with a term of less than one year that do not involve non-refundable franchise fees;
  • provided other criteria are met, should not require franchisors with a minimum net worth of $5,000,000 (or $1,000,000 if the franchisor is controlled by a corporation with a net worth of at least $5,000,000) to disclose their financial statements to prospective franchisees;
  • should not include compulsion for mediation of franchise disputes;
  • should provide that disclosure documents are valid if they are in substantial compliance with the legislation and regulations (minor defects should not to lead to consequences such a right of rescission);
  • should permit fully refundable deposits to be paid to a franchisor prior to disclosure;
  • should require that the disclosure documents specify whether or not an exclusive territory will be granted under the franchise being offered;
  • should require that the disclosure documents specify if a franchisor is reserving any rights to sell goods and services directly by such franchisor and specify the intended distribution channels;
  • should permit delivery of a disclosure document by electronic means;
  • should include a statutory right to sue for misrepresentation for misleading statements made in financial projections supplied by the franchisor before a franchise agreement is signed unless cautionary language is included in the projection;
  • should permit wrap-around disclosure documents (being disclosure documents that comply with the legislation of a different jurisdiction and which are supplemented with additional information required by the Proposed Act);
  • should specify that the application of the Proposed Act cannot be avoided in respect of both claims arising under the Proposed Act and claims arising from a franchise agreement by including a jurisdiction clause or foreign law clause. This section should also expressly state that it applies to arbitration;
  • should specify that any statutory right of rescission does not bar the franchisee from pursuing statutory damages provided that double recovery does not occur;
  • should clarify that any statutory presumption deeming reliance on a misrepresentation in a disclosure document by a franchisee cannot be used by a franchisor to assert that the franchisee would have entered into the franchise agreement even if the franchisee had been aware of the trust facts; and
  • should specify that any statutory bar to waiving or releasing a right under the Proposed Act does not prevent a waiver or release that is part of a post-dispute settlement.

The report can be found at uploads/2014/03/Franchise_Act_ReportwithCover-forPrint- FINAL.pdf and provides a detailed review of the proposed legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Christopher G. Graham
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