Whether a U.S. parent company ultimately would be held liable is
open for debate, because the Ontario Court of Appeal simply
considered whether the alleged claims were so fundamentally flawed
that they were obviously doomed to failure. The court held they
The background facts involve the General Motors restructuring.
Canadian car dealers who entered into dealership agreements with
General Motors Canada Limited ("GMCL") alleged that
GMCL's U.S. parent company, recently emerged from U.S.
bankruptcy proceedings in 2009, was liable for breaches of good
faith and fair dealing under Ontario's Arthur Wishart
Act (the "Act") because it was a
"franchisor's associate" under the Act.
A "franchisor associate" may be liable for a variety
of claims under the Act, including liability for rescission damages
and misrepresentations. Typically, proving that someone is a
"franchisor's associate" requires evidence that the
person is "directly involved in the grant of a franchise"
or "exercises significant operational control over the
The Ontario Court of Appeal refused to strike the claims,
concluding that the plaintiffs had pleaded sufficient ties to the
U.S. parent that the claims should be determined on the basis of a
"full record." With respect to the "grant" of a
franchise, the Court of Appeal concluded it was arguable that
conditions stipulated by the U.S. parent were conditions that
needed to be met before obtaining "the right to engage in a
business." The plaintiffs also alleged that the U.S. parent
"exercises significant operational control and direction over
GMCL and [the dealers] through the terms of the [alleged franchise
agreement]," and that "GM US directs and controls the
composition and structure of the GMCL dealer network, the products
that will be distributed by GMCL in Canada, the pricing of those
products, and marketing initiatives and spending." Taken
together, these elements of control were sufficient to allow the
plaintiffs' claims to survive against the U.S. parent as
"franchisor's associate," even though it was not
party to the Canadian franchise agreement.
"Joint employer" issues involving potential franchisor
liability for employment laws are hot topics, particularly in the
U.S. The Court of Appeal's decision shows there are still other
significant potential sources of liability for parent companies to
consider when structuring their Canadian franchise systems.
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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