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U.S. franchisees sue Tim Hortons parent over alleged price gouging, equity theft

Patrons approach the doors of a Tim Hortons coffee shop on Division Street in Cobourg, Ont. on Jan 10 2018. A group of U.S. franchisees, accounting for almost half of the company's American locations, is suing parent company Restaurant Brands International Inc., alleging they are the victims of price gouging and equity theft.

Fred Lum/Globe and Mail

A Tim Hortons franchisee group that operates almost half the chain’s locations in the United States is suing parent company Restaurant Brands International Inc., alleging they are the victims of price gouging and equity theft.

The Great White North Franchisee Association-U.S., says its members run more than 300 Tim Hortons stores in the United States, and says they are being overcharged for a slew of items such as bacon and vinyl gloves, which they are required to buy from the company’s designated suppliers.

The lawsuit also contends that franchisees are facing “equity theft” because those looking to sell their franchises are forced to first offer their restaurants to Tim Hortons for the price of their depreciated furniture, fixtures and equipment.

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Restaurant Brands International “established a very aggressive and improper investment strategy in the Tim Hortons franchisee system, which resulted in the economic squeezing of Tim Hortons franchisees by RBI," the lawsuit reads.

Related: Tim Hortons franchisee group threatens protests over licence renewal dispute

Opinion: How Tim Hortons lost its connection with the Canadian public

Jerry Marks, a lawyer representing the franchisee association, says the parent company’s suppliers charge US$104.08 more for each case of applewood bacon and US$23.85 more for boxes of diet and regular Coke than Wendy’s locations pay for the same products.

“Their charges are unreasonable, sometimes more than 50 per cent,” Mr. Marks said. “That actually is an undisclosed royalty, which makes the royalty much more than you think you’re paying, and that violates all sorts of franchise laws."

RBI said in an e-mail that the lawsuit is not based on facts. The company also disputed the association’s statement it represents 300 stores.

“This lawsuit has been filed by a small group of US-based franchisees and does not at all reflect the facts – or our commitment to the growth and success of the Tim Horton’s [sic] business in Canada and around the world,” the company said. “We will respond in due course with the facts to this US-based claim.”

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There are almost 700 Tim Hortons restaurants in the United States and 3,900 in Canada.

Brazilian private-equity firm 3G Capital took over Tim Hortons in late 2014 and merged it with its Burger King chain to create RBI. It moved quickly to put the 3G stamp of heavy cost-cutting on Tim Hortons, prompting pushback from some franchisees, who formed the Great White North Franchisee Association.

Tensions are already high between Tim Hortons and the association, which also represents more than half of the Canadian locations. It already has two active lawsuits against Tim Hortons and RBI in Canada, with one claiming the company has misused their advertising funds and the other accusing it of intimidation and breaches of contract. The association is awaiting a court decision to classify them as class-action lawsuits. Both are still in the preliminary stages, with the next court dates set for the fall.

The group threatened to protest at Tim Hortons’ head office in Oakville, Ont., last month when the company revoked the licence of franchise owner Mark Kuziora after he was critical of the company.

Meanwhile, in the United States, Mr. Marks says the price-gouging lawsuit is similar to one launched by Quiznos franchisees in 2014. The judge in that case found that the supplier, which was entirely owned by Quiznos, charged US$23 for a monthly music subscription service that usually cost US$19 and US$22 for a case of towels that other restaurants could buy for US$16. The franchisees eventually received a US$206-million settlement.

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