Canada: Superior Court Of Québec Confirms Validity Of Percentage Royalties Paid By Pharmacist-Owners To Franchisor

The Superior Court of Québec (Court), presided by Justice M. Monast, recently ruled on an important point of contention for franchise pharmacies, by confirming the validity of a percentage royalty clause contained in a contract between a pharmacist-owner and his franchisor. The decision confirms the validity of the business model recommended by a number of franchisors, for both pharmacists and other professionals that exercise their practice within a franchise framework. Blakes represented Groupe Jean-Coutu (PJC) Inc. (GJC) in this matter.


This decision dealt with a dispute originating from an ethics complaint lodged by the Quebec Order of Pharmacists (Order) against Michel Quesnel, a pharmacist-franchisee of GJC in 2008. As a franchisee, Mr. Quesnel remitted royalties to GJC representing three to four per cent of his gross sales, including medication sales, in exchange for the rights, services and benefits provided by his franchisor. The Order argued that in paying this royalty, Mr. Quesnel was effectively sharing the fees and profits derived from the sale of medication with his franchisor, in violation of the Code of ethics of pharmacists, (Code). Section 49 of the current version of the Code reads as follows:

Pharmacists may share the profits from the sale of medications or from their fees only with another pharmacist and to the extent that such sharing is consistent with the division of their respective services and responsibilities.

Before the Order's disciplinary committee, Mr. Quesnel pleaded guilty to this count because at the time, he thought he had no valid defence to present. The following day, he instituted an action against GJC in which he alleged that the royalty clause contravened section 49 of the Code, was contrary to public policy and was consequentially void. He also claimed the reimbursement of all royalties paid to GJC in the preceding years.

The Court considered whether "a contractual clause, which creates the obligation for a pharmacist to remit to the franchisor a royalty based on the profits derived from the sale of medication, contravene public order and section 49 of the Code of ethics of pharmacists."

According to the Court, a literal application of this provision would lead to absurd results, given that pharmacists would not be able to use the profits derived from medication sales to pay for expenses related to their pharmacy's operation. The Court emphasized that the provision's objective was to preserve pharmacists' professional independence, to prevent non-pharmacists from becoming pharmacy-owners and to ensure that they would not be able to exert any undue influence on the exercise of the pharmacist profession:

We cannot infer that by using profits derived from medication sales to pay for the operational expenses of a pharmacy, including a royalty for the licences and services received, a pharmacist would be jeopardizing the integrity of their profession or the protection of the public. We also cannot infer that the payment of a royalty threatens the professional integrity of a pharmacist nor their exclusive right of ownership of a pharmacy.

To conclude otherwise would mean that a pharmacist can avoid paying expenses related to the business by simply invoking his or her ethical duties. This interpretation is compatible with that of the Professions Tribunal in the case of Cadrin c. Pharmaciens (Ordre professionnel des).

In this context, the Court reasoned that the fact that a pharmacist uses profits, including profits derived from the sale of medication to pay for franchise royalties, is not contrary to public order, so long as these royalties represented the market value of the services and benefits provided by the franchisor. The Court analyzed the franchise contract between GJC and Mr. Quesnel, as well as the products, services and other benefits that he received in exchange for the royalties. It concluded that the value of this exchange, including the value of the rights of use of the GJC name and trademarks, is reflected in the royalty amount paid by Mr. Quesnel and that the royalty clause, as such, did not contravene section 49 of the Code.

The Court added, as a matter of principle, that the royalty is paid as a percentage of the gross revenue of the franchise, whereas the prohibition contained in section 49 of the Code uses the word "profits" rather than "revenues" — "the English version of this provision uses the word 'profits'. The lawyers for GJC argued that the French version's 'bénéfices' refers to the accounting notion of net earnings, whereas 'profit' corresponds to the accounting notion of net profit."

In the present dispute, the annual royalty which is paid pursuant to the terms of the franchise agreement is calculated based on gross sales. It is thus not a share of revenues or profits, within the juridical and accounting meanings given to these terms. In addition, the evidence submitted before the Court demonstrated that the franchisees of GJC remitted a royalty in consideration of the rights conferred to them and the services provided.


This decision confirms that the pharmacist profession can be validly exercised within a franchise network in Quebec, including the payment of a royalty to the franchisor, based on a percentage of gross sales realized by the pharmacist-franchisee, in exchange for the goods, services and benefits received from the franchisor. This decision is also pertinent for other professionals that exercise their profession as a franchisee, in a network that functions on similar terms and effectively puts an end to the controversy surrounding this issue.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
12 Sep 2017, Seminar, Toronto, Canada

Please join us as we take an in-depth look at the legislation and the impact on the industry.

14 Sep 2017, Seminar, Toronto, Canada

Change, stress and uncertainty are ever]present factors in todayfs legal environment, and specific aspects about the practice of law make it difficult to thrive in the profession long term. Luckily, there are specific research]based strategies that have been shown to help lawyers thrive and lead to more effective ways to manage stress and pressure.

5 Oct 2017, Seminar, Toronto, Canada

Blakes is proud to host our New to In-House Series, designed to bring together junior and mid-level in-house counsel for a candid exchange of insights to highlight and address some of the challenges and opportunities facing in-house lawyers in their roles today.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.