The Importance of Communication in Franchise Relationships

Franchisors are greedy and self-interested.  Franchisees are lazy and careless.  These are the common refrains of franchisors and franchisees as their relationships start to break down.  Franchising can be a tremendous partnership between business owners, but can sometimes lead to disastrous results, and even litigation.

Franchise law exists in various Canadian provinces because of a recognition by legislators that, in the franchise relationship, franchisors have a disproportionately larger amount of bargaining power and control in operations.  As a result, franchisees are given certain statutory rights in an effort to protect “the little guy” from being taken advantage of when they are making a significant investment.

Unfortunately, it happens far too often that, despite these rules and regulations, franchisors do manage to exploit the weaker party and charge oppressive fees and impose overbearing controls.  Likewise, a staggering number of franchisees seem somewhat content to flagrantly violate system standards and neglect making required payments when they grow unhappy with their franchisor.

 As a legal advisor to both franchisors and franchisees, I have no dog in this fight, so I do try to counsel my clients about the importance of open communication and consultation.  Franchisees have come to expect this from their franchisors, but it is a two-way street and it is critical that issues are addressed between the parties as they arise.

 In a recent court decision involving Tim Hortons, the Ontario Court of Appeal decided in favour of the franchisor, in part, because of its efforts at maintaining frequent and open communication with franchisees regarding system changes, such as new methods for delivering services and product purchase requirements. 

 As the introduction of system changes, and the associated increased costs to franchisees, are a frequent source of friction between franchisors and franchisees, this level of consultation serves as a high standard for franchise parties to aspire to.  On the other side, I have found that franchisees who perform their obligations in good faith and comply with their franchise agreements will find supportive partners at the other side of the bargaining table when they seek to raise difficult issues with franchisors.

 In maintaining solid and prosperous franchise relationships, the importance of good, honest and frequent communication cannot be overstated.