New Franchises Act: Adding Clarity and Protection

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For many looking to fulfill the dream of running their own business, opening a franchise with an established customer base, well-known brand and proven system may be a great choice. In reality, though, it is not quite as simple as putting up the golden arches and grilling some burgers.

What may not be immediately apparent is the extent to which the operation of the franchise will be governed by the franchise agreement.

In its simplest terms, the franchise agree­ment defines the relationship between the franchisor and franchisee as well as their obligations to each other. Typically, agree­ments are lengthy and cover almost all aspects of the relationship; they can even impose strict restrictions on the conduct of the franchisee.

Good news: British Columbia’s new Franchises Act—the first such legislation for the province—should benefit both franchis­ees and franchisors. It will help clarify fran­chise relations for B.C.’s estimated 10,000 franchise outlets, which account for $14 billion in sales annually and 180,000 jobs.

While it is not yet in force, the Franchises Act means B.C. will join five other prov­inces, including Alberta and Ontario, which have similar legislation. Although many of the new legislation’s provisions are for the benefit of the franchisee, they mirror those already in place and should provide franchisors with the benefit of a uniform system across Canada.

Overall, the new Franchises Act legislates a number of important aspects of the fran­chisor/franchisee relationship. The follow­ing points highlight the benefits expected under the new law:

• A franchise agreement will impose a duty of fair dealing in the performance and enforcement of the agreement. This will include a duty to act in good faith and in accordance with reasonable commercial standards. Parties to a franchise agreement will have a right of action against mutual parties who breach the duty of fair dealing.
• A franchisor will be required to provide prospective franchisees with a clear, accurate and concise disclosure document before the franchise agreement is signed or any payment is made to the franchisor.
• Franchisees will be able to rescind a franchise agreement, without penalty, for up to two years should they not be provided with the disclosure document.
• If a disclosure document contains a misrepresentation, a franchisee will be deemed to have relied on that misrepresentation. If a franchisee suffers a loss because of such a misrepresentation, they will have a right to seek damages against the franchisor, the franchisor’s broker, the franchisor’s associate, and every person who signed the disclosure document.
• Liability for actions brought under the Franchises Act will generally be joint and several, so a wronged franchisee will be able to collect the whole of the judgment from any of the defendants who are found liable.
• Clauses that would attempt to restrict jurisdiction will be void with respect to claims to which the new legislation would apply. This means that franchis­ors will not be able to circumvent the requirements imposed by the new legislation simply by adding a few lines to the franchise agreement.
• The rights provided to the franchisee under the legislation cannot be waived.

Of course, once the regulations are completed and the legislation comes into force, more will be known about this new Act. However, expectations are that it will be interpreted broadly to offer stronger protections for franchisees as similar legis­lation has around the country.

For more information about your franchise or any issues arising in the operation of a franchised business, please contact Robert.

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