In Home Instead Inc. v. 244674 Ontario Inc. et al. ("Home Instead"), the Ontario Superior Court of Justice (the "Court") considered the granting of an injunction against the franchisees, 244674 Ontario Inc. et al. ("244") leading to the termination of their businesses where the goodwill and reputation of Home Instead (the "Franchisor") was at stake. The two principles Mr. Weinert and Ms. Reid were allegedly operating their two separate franchises in common ownership in breach of the terms of their respective franchise agreements. Their franchise agreements did not permit the operation of multiple franchises without the express consent of the franchisor.
In summary, the Court held that where a franchisee deliberately violates the terms of its contractual agreement at the potential expense of a franchisor's reputation, goodwill, and ability to maintain the integrity of its services, an injunction should be granted in favour of the franchisor. The Court in this case allowed the Franchisor's motion for a negative injunction against the franchisees thereby terminating their businesses and denied the franchisees' motion for an injunction preventing such termination.
In Home Instead, the Franchisor operated a chain of franchisees providing personal care services to seniors. One term of the franchise agreement restricted the franchisee's ability to operate multiple franchises without the consent of the Franchisor. The court emphasized that the Franchisor operated a system that provided personal care services to a vulnerable group of consumers and that its policy was not to allow a franchisee to be involved in multiple franchises until it had established a lengthy record of strong performance.
Mr. Weinert and Ms. Reid were found to be operating their franchises with joint ownership in breach of this policy. In addition, they were operating a third business from Ms. Reid's franchise office in breach of additional contractual terms.
In granting the injunction, the Court considered the relative strength of the parties' cases, whether any party would suffer irreparable harm, and the balance of convenience. The Court noted that the franchisees had a seemingly weak case. In particular, there were emails between Mr. Weinert and Ms. Reid confirming their business relationships, they held themselves out as co-owners to third party suppliers, and Mr. Weinert's girlfriend had made an offer to buy-out Ms. Reid's share of the business. In addition, adverse inferences were made from the refusal of the franchisees to produce their minute books and banking records.
When assessing irreparable harm, the Court noted that the nature of the harm is more important than the quantity. In the context of this case, the Court highlighted that the irreparable harm that would be caused to the Franchisor's goodwill and reputation in the marketplace should the franchisees continue to operate in flagrant breach of their agreements outweighed the loss of dignity and emotional injury that the franchisee's would suffer from termination of their operations. The court characterized the franchisee as "rogue".
Interestingly, the Court also noted that the Franchisor was under a good faith obligation under the Arthur Wishart Act to enforce its system standards against the franchisee.
Several other factors weighed against the franchisees. First, the Court noted that they could simply recover the value of their businesses if it were found that they were wronged. Second, the franchisees were seeking a remedy in their favour after deliberately violating multiple terms in their franchise agreements. The Court declined to grant an equitable remedy where the parties did not have clean hands. Third, the franchisees were unable to provide a meaningful undertaking on damages as both had limited financial resources.
Home Instead presents a number of important takeaways for franchisors seeking an injunction against franchisees who have violated the terms of a franchise agreement. First, a franchisor's motion will likely be more successful when the nature of its business necessitates maintaining service integrity. Second, adverse inferences may be made against franchisees who refuse to disclose documentation over the course of the litigation. Third, unsecured and limited undertakings for damages can similarly weigh against a party. Finally, Courts will not sympathize with franchisees who are seeking to continue operations in the face of multiple and deliberate breaches of the terms of their franchise agreements.
Nevertheless, franchisor's should carefully consider the facts which inform the decision in this case. Importantly, breaches of terms in an agreement related to the operation of a caregiving facility for a vulnerable group may be viewed with more scrutiny as compared to other types of franchises.
To view original article, please click here.
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.