The long-running battle between Tim Hortons and its franchisees is nearing an end after dissident restaurant owners agreed to a tentative settlement of two controversial lawsuits they had lodged against the company.
Franchisees had until last Thursday to opt out of a proposed settlement of the class-action lawsuits but none of the restaurant owners chose to drop out, sources said. The Globe and Mail granted the sources anonymity because they were not authorized to speak publicly about the franchisee decision.
The franchisees’ official response to the agreement is secret under terms of the tentative settlement, said Tom Arndt, a lawyer at Himelfarb Proszanski, which represents franchisee Mark Walker. Mr. Walker’s name is on the two lawsuits on behalf of the 1,500 Canadian franchisees at the 4,000 or so Tim Hortons restaurants in Canada.
Mr. Walker, who owns two Tims restaurants in Mississauga, could not be reached on Monday. Mr. Arndt wouldn’t say whether any franchisees chose to opt out of the lawsuit settlement. One of the lawsuits claimed that the company had misused advertising funds and the other that it was interfering with restaurant owners’ right to be in an association.
The settlement, which an Ontario Superior Court judge will be asked to approve on Friday, calls for the company to spend $10-million over two years for regional and local marketing to build the brand. And it provides for Tim Hortons to pay $2-million toward the association’s legal and administrative costs.
Duncan Fulton, chief corporate officer of Tims parent Restaurant Brands International Inc. (RBI), said he is optimistic about the outcome for the Friday court hearing. Mr. Fulton, who wouldn’t comment on the number of opt-outs, was hired by Brazilian-controlled RBI last year to help find peace between it and its Tim Hortons restaurant owners.
The deal caps about two years of public wrangling between Tim Hortons and a dissident group of franchisees that formed the Great White North Franchisee Association (GWNFA) in early 2017 to take on what they said were attempts by RBI to shift more costs to them.
In a series of 2017 articles, The Globe revealed the simmering tensions and formation of the GWNFA amid its claims that RBI’s actions were hurting the brand’s reputation and franchisees’ bottom line.
In the past year or so, RBI has made a number of moves to improve the situation, including replacing executives at Tim Hortons and introducing new initiatives such as digital ordering, all-day breakfast and a children’s menu. The efforts have helped boost Tim Hortons financial results. As well, the company bought out key GWNFA members and silenced them by having them sign non-disclosure agreements.
Reputation surveys this year suggest that the public perception of Tim Hortons is improving from low points in 2018 after a controversy over some franchisees clawing back benefits from their employees in response to having to pay them higher minimum wages.
Ben Hanuka, a franchise lawyer and principal at Law Works, which is not involved in the Tim Hortons matter, said the proposed settlement amounts to “a substantial compromise” for the franchisees. The lawsuits had been seeking more than $1-billion while the GWNFA wanted to be the franchisees’ sole representative.
“Maybe the franchisees prefer to settle, even on a significant compromise, because they may prefer to avoid litigation risk and get back to operating their franchises without disruption,” Mr. Hanuka said. “And maybe the settlement has more value to the franchisees not so much in the financial terms but in the implicit understanding that going forward they will not have this issue again with their franchisor. … It is also possible that the franchisees are tired of the litigation and just want to move on.”
Franchisees didn’t raise issues tied to the tentative settlement during regional meetings this spring, Mr. Fulton said. And the restaurant owners provided positive feedback about the agreement during GWNFA meetings, Mr. Arndt said.
Mr. Arndt said he is optimistic the court will approve the settlement “so that the larger Tim Hortons organization – both the franchisees and franchisors as well as their customers – can move on in a productive manner.” He said the tentative settlement would be worth a total of $38-million for franchisees, including $23-million for the right to negotiate their own insurance and $3-million for 10-year renewals of the GWNFA board members’ franchises.
The proposed settlement is designed to strengthen the governance of the elected franchisee advisory board, which the company recognizes as the sole representative of the franchisees. The franchisee advisory board would regularly review ad fund spending; board member terms would be shortened by a year; and its members would be elected by electronic voting.