If you're familiar with the evolution of franchise laws in Canada, you might recall that politically conservative, business-friendly Alberta was the first province to introduce legislation, in the early 1970s, regulating the industry. It was modelled on California's legislation at the time.
Alberta simplified its regulatory regime from a "government reviewed prospectus model" to a "pre-sale disclosure-only model" in the mid 1990s. Franchisors were obligated to prepare, and deliver to prospective franchisees, a comprehensive pre-sale disclosure document containing all material facts related to the franchisor and the franchise opportunity being awarded.
Ontario's Arthur Wishart Act followed in 2000, after which PEI and New Brunswick brought in their respective franchise acts. Manitoba joined the club in 2012, leaving B.C., Saskatchewan, Nova Scotia, Quebec and Newfoundland without legislative regimes to impose specific pre-sale disclosure obligations on franchisors.
One purpose of this type of legislation is arguably to "level the playing field" between a franchisor and a prospective franchisee. Under these statutes, franchisees have certain rights to rescind their contracts and to get some or all of their money back if they have been misled in the sales process or they have not received the required franchise disclosure document (often called an FDD). A duty of good faith and fair dealing is provided for in these acts, and some provide for dispute resolution. All franchise statutes in Canada have remedies in the event of a mis-disclosure or a failure to disclose, and they impose a statutory duty of good faith and fair-dealing obligation on the parties to the franchise agreement.
The British Columbia Law Institute (BCLI) has recently taken an interest in franchise legislation in Canada, and despite being more populous than all the jurisdictions that regulate this industry, except Ontario, it does not have a legislative regime to governs the way franchises are marketed and awarded.
The BCLI is a not-for-profit research agency – one of its roles is to improve and modernize the law in British Columbia and to promote the clarification and simplification of the law and its adaptation to modern social needs. In March, 2013, it issued its Consultation Paper on a Franchise Act for British Columbia, which recommended the adoption of franchise legislation.
BCLI executive director Jim Emmerton stated on release of the paper: "Given the prevalence of franchised businesses in B.C. and their importance to the provincial economy, it is surprising that B.C. has no franchising legislation … The introduction of B.C. franchise legislation would further increase the degree of harmonization of regulatory standards within Canada, while also giving appropriate and needed protection to B.C. franchise owners."
In the course of its study, the BCLI reviewed all provincial franchise laws as well as the Uniform Franchises Act – adopted by the Uniform Law Conference of Canada in 2005 as a "model law" for all provinces – to make the legislation uniform across the country.
It appears the BCLI believes the province should not be a more onerous legislative jurisdiction than others that regulate franchising. Among the recommendations for B.C. are the following:
- B.C. should become a franchise disclosure jurisdiction requiring all franchisors to deliver to prospective franchisees an FDD containing all material facts relating to the franchise opportunity. Legislation would provide for remedies in the event the franchisor misrepresents a material fact relating to the grant, or fails to disclose at all.
- Fully refundable deposits would be permitted prior to disclosure having been made – a deviation from the model law.
- To prevent franchisors from other jurisdictions having to reformat their own FDDs to comply with form requirements, wraparound FDDs would be permitted, as they are in Alberta, PEI and Manitoba. They would allow U.S.-based franchisors to use their FDDs if the information required under B.C.’s Act were in them as well (normally at the beginning and the end of the FDD).
- Unlike Ontario’s Arthur Wishart Act, B.C. FDDs should be deliverable electronically by e-mail, CD/DVD, or other machine-readable form.
- Also unlike Ontario’s act, minor technical deficiencies or irregularities should not nullify a B.C. FDD that substantially complies with the act and regulations. Said the paper: “minor defects that do not influence the prospective franchisee’s investment decision should not lead to the drastic consequences of non-compliance, namely possible rescission of the franchise agreement triggering repurchase and compensation obligations.”
- The proposed B.C. act did not recommend mandatory mediation.
- As in other jurisdictions, the act would create a statutory duty of good faith and fair dealing between parties to a franchise agreement.
- Claims arising under a franchise agreement would be governed by B.C. law and, if litigated, would be heard in B.C. courts.
It's important to note that the release of the paper does not mean franchise legislation is imminent. The consultation paper is just that – a research paper that is out for public comment to stimulate informed discussion among stakeholders. The BCLI is encouraging members of the franchise community to review the paper and to provide comments by Sept. 30, after which time it will prepare a final report for submission to the B.C. legislature.
Whether the legislature enacts a franchise statute based on the BCLI's recommendations is anyone's guess. The re-elected Liberals under Christy Clark may have other priorities over the next four years, including liquefied natural gas and the Northern Gateway pipeline. Since the election platform of the Liberals promised to "free up small business from regulatory burdens that make it impossible to grow," some might say there will be no appetite for legislation that arguably adds to the legal, accounting and administrative cost of being a franchisor in B.C.
But will it? If most franchisors in Canada – including those headquartered in B.C. that are selling franchises in Ontario, Alberta, Manitoba, PEI or New Brunswick – must comply with the legislation in effect within the disclosure provinces anyway, it is arguable this will add little more in terms of compliance costs to B.C.-based franchisors. They will simply adapt their FDDs to include B.C. Franchisors in other provinces will do the same.
A policy question: Why wouldn't B.C. want to grant similar legislative protection to B.C.-based franchisees that Ontario, Alberta, Manitoba, New Brunswick and PEI grant to their respective franchisees and that B.C.-based franchisors have to offer in jurisdictions outside the province?
The best argument in favour of some form of franchise legislation in B.C. might be that all franchisees are, in effect, "small businesses" that men and women normally incorporate and acquire franchise rights from much larger companies headquartered in Ontario or the United States.
And franchisees are often family businesses run by a mother, a father and their kids.
If the B.C. government sees itself as representing these small businessmen and women, and both "families" and "small business" comprise part of their political base, perhaps the new government might wish to seriously consider legislation that actually protects people who choose to own and to operate franchised businesses.
If politically conservative Alberta can do it successfully and not alienate its business community, B.C. can as well.
Tony Wilson is a franchising, licensing and intellectual property lawyer at Boughton Law Corp. in Vancouver, he is an adjunct professor at Simon Fraser University (SFU), and he is the author of two books: Manage Your Online Reputation, and Buying a Franchise in Canada. His opinions do not reflect those of the Law Society of British Columbia, SFU or any other organization.
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Tony Wilson