We have recently witnessed some major changes to franchise
legislation in both California and Australia. Developments in these
jurisdictions are of importance to the global franchise world; in
particular, shifts in California's regulatory landscape are
significant given its role as a global pioneer of franchise
legislation. In fact, California was the first state to enact
franchise legislation in 1970. Australia, on the other hand, toyed
with all manner of indirect and voluntary regulation before
adopting a fairly stringent regulatory regime in 1998.
Franchising is a global industry – what happens in one
jurisdiction often travels to others, albeit sometimes years (or
even decades) later. Fundamentally, what drives franchise
regulation are edgy business practices, widespread harm, and a
receptive political climate. Changes in Australia and California
are noteworthy because they represent the latest thinking as to
where things are going when the franchising relationship breaks
down or becomes unduly frayed.
Changes to franchise legislation that came into effect in
January 2016 have been referred to as "unprecedented",
"monumental" and a "game-changer". The
California Franchise Relations Act (the "CFRA")
was amended to provide franchisees with greater protection by
imposing additional obligations on franchisors when terminating
franchisees, in addition to other amendments.
Key changes under the CFRA include the following:
Franchisors may only terminate when there is "substantial
noncompliance" – all other terminations are no longer on
Franchisors must provide a written explanation for termination
and are required to repurchase a franchisees' assets at the
value of the price paid, minus depreciation, upon termination or
non-renewal (with specific exceptions carved out);
Franchisees have more time to address deficiencies under
franchise agreements and are also entitled to a longer notice
period in the case of termination (with certain exceptions carved
In a wrongful termination, franchisees have additional remedies
available – they may be awarded the fair market value of the
franchised business and assets.
Living up to its antipodean geography, Australia recently
introduced new legislation which regulates franchising through
amendments to the Australian Securities and Investments
Commission Act (the "ASICA") by extending protection
to small business contracts under an existing provision on unfair
contract terms. Basically, if a franchise agreement falls within
the definition of a small business contract, an unfair term in the
agreement will be void. An unfair term is defined under ASICA as
would cause a significant imbalance to the parties' rights
and obligations under the contract;
is not reasonably necessary in order to protect the legitimate
interests of the party advantaged by the term; and
would cause detriment to a party if it were to be applied or
A list of examples of unfair terms is provided under ASICA and
includes terms (as in California) such as one that permits only one
party to vary the terms of the contract and one that limits a
party's right to sue another party.
This sad state of affairs was entirely predictable as it was
preventable. Caution to Canadian colleagues to heed the rule of
reason: All successful business relationships are structured so as
to balance risks and rewards such that everyone has an opportunity
to reap a reasonable return on their investment. Franchise lawyers
are uniquely positioned to influence the development of
economically sustainable relationships through legal drafting.
Encouraging business arrangements that do not reflect this
principle not only do a disservice to clients but also to an
industry that has revolutionized the small business world.
Is Canada Next?
What do changes in California and Australia mean for Canadian
franchising – will these significant regulatory changes find
their way into Canadian legislation? While the relational balance
of power is a topic of ongoing discussion, especially in British
Columbia with the recent development of franchise legislation, such
amendments are not in Canada's foreseeable future. Unless
unanticipated events transpire in the next few years that
forcefully steer discussion towards the need for change, the status
quo across provinces will, in all likelihood, prevail.
That being said, the changes discussed above will have an impact
on Canadian franchisors who operate internationally or plan to
expand into California or Australia – the changes in
California affect all franchise agreements entered into or renewed
on or after January 1, 2016, while the Australian legislation
applies to applicable contracts entered into or renewed on or after
November 12, 2016.
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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