Ontario's Franchise Law Needs an Upgrade
Jun 30, 2012
Franchise law is due for an upgrade. When advising franchise clients, franchise lawyers frequently lament the relative infancy of the industry’s legislation in Ontario. Enacted only in 2000, the Arthur Wishart Act (AWA) has not been around long enough to have resulted in enough litigation and court guidance to instruct us on how many of the provisions are to be interpreted.
This ambiguity can be frustrating for businesses who seek answers to valid questions and sometimes receive only educated guesses.
However, much about the way we conduct business has changed since 2000, and many provisions of the AWA are outdated, antiquated and, generally, impractical.
For instance, one of the hallmarks of the AWA (and franchise law in general) is the requirement that franchisors provide Ontario franchisees with the prospectus-like disclosure documents to aid franchisees in making informed investment decisions. Disclosure documents can be anywhere from 50 – 300 pages, depending on the franchise system, and franchisors need to deliver this, regardless of where they might be based.
Sadly, the AWA is entirely silent on whether a disclosure document can be provided electronically, and this seeming nuance is a tremendous source of stress for franchisors and sometimes forms the basis of litigation when it’s not complied with. The requirement that it only be delivered personally or by registered mail generally slows down negotiations between franchisors and franchisees who would prefer to send and receive it by e-mail.
The AWA also states that a disclosure document must be given to a franchisee at least 14 days before that franchisee signs any agreement relating to the franchise. Much to the chagrin of franchisors, this rule is worded just broadly enough that it likely includes non-disclosure or confidentiality agreements within its scope. This means that when a franchisor provides its disclosure document to a prospective franchisee, it must wait at least 14 days before it can require the franchisee to keep all of the information contained in it confidential. Given that disclosure documents include the franchisor’s financial statements, proprietary information and estimates of operating costs, this is no minor inconvenience.
The only (small) comfort that franchisors with franchisees in Ontario can take is that all of their competitors are dealing with the exact same issue.
The AWA’s legislative counterparts in Alberta, PEI, New Brunswick and Manitoba have managed to address these, and other problematic, requirements in their respective language. The AWA is a mere 12 years young, and is already creaky and out of touch with business realities. The time for a refresher is now.