In Ontario, the law governing franchising is called the
Arthur Wishart Act(Franchise Disclosure), 2000
(the "Act"). It was introduced to level the
playing field between franchisors and franchisees, especially with
respect to their level of informational imbalance. One of its
provisions, section 3, provides that "[e]very franchise
agreement imposes on each party a duty of fair dealing in its
performance and enforcement", and this duty of fair dealing is
later in the Act said to include "the duty to act in
good faith and in accordance with reasonable commercial
standards." However, nowhere in the Act does it
explain what good faith actually means, leaving
franchisors and franchisees guessing as to the scope of their
obligations under this provision. We therefore need to look to
common law legal principles, and the way in which judges have
interpreted the Act, to understand and interpret how
franchisors and franchisees ought to act towards one another.
In short, the duty of good faith requires contracting parties to
act honestly, fairly, with proper motives, and not arbitrarily,
capriciously or in a manner that is inconsistent with the
reasonable expectations of the parties. Good faith also requires
franchisors and franchisees to take the legitimate interests of the
other party into account in their relationship, although this
requirement does not require either party to prefer the
interests of the other, over their own.
There are a number cases that help define the duty of good faith
and help franchisors and franchisees understand what kind of
behaviour will breach this duty.
In a 2012 case, a number of Tim Horton's franchisees sued
the franchisor claiming, amongst other things, that its roll-out of
the Always Fresh system breached the duty of good faith and fair
dealing. Instead of baking donuts from scratch at each restaurant,
the Always Fresh system had the franchisor preparing donut dough at
a central commissary, before delivering it to franchisees where it
would be fully baked and then sold. The franchisor felt that the
system would save preparation and cooking costs for the
franchisees. The franchisee plaintiffs in this case claimed that
they were misled about the cost of the Always Fresh conversion,
that Tim Hortons failed to analyze the effect of the conversion on
their businesses, and that the price of the pre-baked products was
The court found that the franchisor's decision to implement
the Always Fresh system was done in good faith and did not breach
section 3 of the Wishart Act. The decision was made
honestly and reasonably, with due consideration for the interests
of the franchisees. Of particular note, Tim Hortons took reasonable
measures to discuss and involve the franchisees in the development
and in the roll-out of the Always Fresh system. The system itself
was part of the reasonable evolution of the Tim Hortons System and
had benefits for both parties. In fact, even if the immediate
financial benefit to Tim Hortons was greater than the financial
benefit to the plaintiffs, the court held that this would not
constitute a breach of the duty of good faith and fair dealing.
On the other hand, in 2010, the case of Salah v
Timothy's Coffees of the World Inc, is a relatively
straightforward example of "bad faith". A Timothy
franchisee with a location in a mall had an expiring lease.
Timothy's was aware that there was another location available
for lease on a different floor, but did not tell the franchisee.
Instead, the court found that the franchisor had "actively
sought to keep the franchisee from finding out what was going on
with the lease" and deliberately withheld "critical
information and did not return calls". By doing these things,
the court concluded the franchisor had breached the duty of good
faith it owed the franchisee under s. 3(1) of the Wishart Act.
These are but two examples of the jurisprudence that has evolved
to delineate the boundaries of how franchisors and franchisees
ought to behave with respect to one another. However, as more
jurisprudence develops, these authors believe that it will continue
to lead franchisors and franchisees to the common sense result that
they ought to treat each other as they would like to be treated
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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