Canada: Must All Franchisors Have An Operations Manual?

Franchising Bulletin
Last Updated: May 13 2019
Article by Jean H. Gagnon

Some court decisions rendered over the last few years indicate that a franchisor who fails to provide an operations manual to each of its franchisees commits a breach of its legal obligations towards the franchisees.

Consider the judgment of the Superior Court of Québec rendered on April 20, 2017 in Duchesneau c. Gestion Milsa Inc. (available in French only) and the judgment of the Court of Québec rendered on September 1, 2017 in Morales c. Ménage-Poly Inc. (available in French only).

In each of these cases, the court concluded that the franchisor was in default of several of its obligations towards its franchisee, including, among other defaults, by not providing a proper "operations manual."

This raises the following question: Is every franchisor required to have and provide its franchisees with an operations manual?

With all due respect for the court judgments that seem to indicate that this would be the case, I would answer this question in the negative, unless, of course, the franchisor had undertaken to provide an operations manual under its franchise agreement.

However, what is very important, even fundamental, is that the franchisor actually has a genuine, experimented and tested know-how as well as adequate tools to transmit it to each franchisee, rather than a particular means (such as an operations manual) by which to communicate the information.

With regard to the standards, rules and policies, what matters most is that these are clearly and promptly communicated by the franchisor to each franchisee, rather than the specific means by which the franchisor communicates this information.

Moreover, in some sectors, such as professional services, both transmitting the franchisor's know-how and communicating the rules, standards and policies of the franchise network may be achieved more effectively when other tools (such as guides, reference documents and training modules) are used, rather than only an operations manual.

With the technological tools currently available, there are many other means, some of which are much more user-friendly and instructive than an operations manual, to transmit the franchisor's know-how to the franchisees as well as to properly and promptly communicate the system's rules, standards and policies.

This could include, among others, presentations or modules (audio or video) stored and updated regularly on a computer platform accessible at any time by franchisees, or even a library of guidelines (written, audio or video) each addressing a theme or a subject regarding the operations of the franchisee's business, which each franchisee could access at any time, as needed.

Once again, the key issue is not the means of the transmission or communication, but the existence of the franchisor's actual, experimented and tested know-how and of proper tools and means that allow the franchisee to have access to and benefit from that know-how to properly operate its business.

However, the problem often arises (such as in the two decisions cited above) during the drafting of the franchise agreement.

For example, if the franchisor does not yet have a comprehensive operations manual or if the franchisor chooses to use a means other than an operations manual to transmit its know-how and communicate the rules, standards and policies of the franchise network to the franchisees, the franchise agreement has to reflect this intention as well as the franchisor's preferred method for communicating the information.

All too often, new franchisors, as well as their legal counsels, use generic franchise agreement templates or franchise agreements of other franchisors to prepare and draft their own franchise agreement.

By using this approach to draft their franchise agreement, those franchisors may well find themselves compelled to perform obligations (such as providing an operations manual) that they do not properly understand, that they do not want or that they are unable to properly fulfill as provided in their franchise agreement.

This type of situation provides an excellent opportunity for the franchisees' lawyers who wish to make a claim against the franchisor or to terminate a franchise agreement. It is very difficult for a franchisor to explain to a judge that it is unable or unwilling to comply with one or more undertakings it took in an agreement that was drafted by the franchisor itself or by its own legal counsel.

It cannot be stressed enough : Every franchise agreement must be designed and drafted based on the characteristics, management, resources, operations and procedures that are specific to each franchise network and it is always risky to attempt to use a franchise agreement that does not truly reflect the franchisor's business, resources and operations.

Fasken has all the necessary expertise and resources to help you design, structure and draft complete and adequate agreements that fully protect your rights, while avoiding potential pitfalls.

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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