News & Updates

The Duty of Good Faith & Franchising

September 18, 2011

Everyone is aware of the old maxim ‘do unto others as you’d have done to you’.  But did you know that in franchise law that golden rule is actually the law?  Franchise legislation so far exists only in the provinces of Ontario, Alberta, PEI and soon New Brunswick (with Manitoba coming soon).  Each of those statutes includes a duty to act in good faith in the course of a franchise relationship.  Rather than delve into a lengthy discussion concerning the judicial interpretation of these words, for the purposes of this blog, it will suffice to say that this obligation boils down to being good and reasonable in the dealings of your franchised business.

Numerous courts have considered exactly what that boils down to, but the reality is (as with most conclusions in law), that the determination as to whether a party acted in good faith or not really depends on the circumstances, and is analyzed on a case-by-case basis.  As the allegation of bad faith tends to be one of the most-frequently litigated aspects of the franchise relationship, we have lots of examples that can guide us in dealing with franchisors and franchisees.

If you are a franchisee, you are probably already aware of the inherent imbalance of power in any franchise relationship, which favours the franchisor.  However, the duty of good faith does not just apply to the conduct of a franchisor towards its franchisees.  This codified duty has mutual application, and a franchisee who has acted in bad faith towards its franchisor will find himself/herself very likely to be in contravention of this important law.

It should also be noted that, although the duty of good faith is enshrined in the 5 provincial franchise statutes in existence, it has its place in Quebec’s Civil Code and in the common law of each of the other provinces across this country.  So be sure, in your franchise relationship, if not always in life, to be decent to one another.

Tags: Franchising