Canada: Class Actions Not A Guarantee For Franchisees

Ontario's Arthur Wishart Act (Franchise Disclosure), 2000 does not guarantee franchisees the right to commence a class action. The Ontario Superior Court recently stayed a proposed franchise class action in favour of requiring arbitration under the franchise agreement. In doing so, the Court rejected the franchisees' argument that the legislature intended to override their arbitration agreement to allow them to start a class action.

The Decision

In 1146845 Ontario Inc. v. Pillar to Post Inc., Justice Perell addressed whether the Ontario legislature intended the Arthur Wishart Act to guarantee franchisees the right to commence a class action even though their franchise agreements required arbitration. Justice Perell found no intention in the Act to pre-empt the arbitration agreement. He accordingly stayed the class action.

Justice Perell considered the intersection of the Arthur Wishart Act, the Class Proceedings Act, 1992, and the Arbitration Act, 1991. Under the Arbitration Act, courts must stay proceedings where the parties have agreed to arbitrate their disputes, unless the matter falls within a specific exception or the legislature has granted the court the exclusive jurisdiction to resolve the dispute.

This mandatory stay extends to class actions. To get around this, the franchisees in Pillar to Post argued that their right to associate in s. 4 of the Arthur Wishart Act implicitly gave them the choice of either compelling arbitration or commencing a class proceeding against the franchisor.

Justice Perell rejected this argument. The right to associate in the Arthur Wishart Act does not equal a right to bring a class action in the face of an arbitration provision. Where franchisors and franchisees mutually agree to arbitrate their disputes, effect will be given to their agreement. The legislature did not intend to grant the courts exclusive jurisdiction to resolve franchise disputes or to pre-empt arbitration provisions in franchise agreements to allow class actions to go ahead. Arbitration offers an alternate route to a remedy and does not deny franchisees access to justice.

Significance To Franchise Class Actions

Pillar to Post clarifies the law in Ontario that an agreement to arbitrate in a franchise agreement is a complete answer to a proposed class action. The court will stay the proceedings without the defendant having to show that arbitration would be the preferable procedure to resolve the claim.

Justice Perell's decision clearly rejects the theory, which existed for some time prior to Pillar to Post, that the right of association in s. 4 of the Arthur Wishart Act guarantees franchisees the right to associate for the purposes of bringing a class action. In doing so, he distinguished 405341 Ontario Limited v. Midas Canada Inc., which the franchisees cited in support of their position, on the basis that it was not a motion to stay a class action nor did it involve an agreement to arbitrate. Following Pillar to Post, it is clear that the right to associate does not include a right to bring a class action in the face of an arbitration provision.

For more on the effect of arbitration clauses on class actions, see our post of November 22, 2013: 2013 Theme 1: Class Action Waivers Different From Arbitration Agreements?

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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