ONTARIO ENACTS FRANCHISE DISCLOSURE LAW
Companies offering franchise business opportunities in Ontario will soon have to provide prospective franchisees with key information about their operations. A new franchise disclosure measure, Bill 33, was passed by the provincial legislature in late May. It will become law once the Ministry of Consumer and Commercial Relations drafts rules and regulations for its implementation.
The law is similar to a U.S. franchise disclosure rule adopted in 1979. One difference is that the Ontario law allows franchisees to sue companies that violate the law. In the U.S., enforcement has been left entirely to the Federal Trade Commission and franchise business owners may not seek redress through the courts.
The bill was presented by the Ontario government in response to a growing number of complaints from franchisees. There are 40,000 franchise businesses in Ontario—and 5,000 new franchise lawsuits every year.
During four days of public hearings, lawmakers heard from dozens of small franchise business owners about growing abuses within the industry. Franchisees testified that they had risked their life savings only to discover that they had little control over the business and that the franchise company reaped the bulk of the financial rewards.
The new law requires franchise companies to disclose financial and other relevant information at least 14 days before the franchisee enters into a contract with the company.
It also protects the right of franchisees to form associations and imposes a duty of fair dealing on both parties to the franchise contract. This last provision is significant in that for the first time franchise companies must conform to legally defined standards of good faith dealing, similar to those governing a landlord’s dealings with his tenets or a banker’s responsibility to her depositors.
Les Stewart of the Canadian Alliance of Franchise Operators hopes the new law and the public hearings will serve as a springboard for additional reforms. Franchise companies, for example, should not be allowed to terminate a contract without good cause. He’d also like to see the government create an affordable dispute resolution process. Most franchise owners can not afford the legal fees necessary to bring a case against a large franchise company to court.
A far more comprehensive franchise protection bill was introduced earlier this year by Ontario Parliament Member Tony Martin. His bill was adamantly opposed by franchise companies, who backed the disclosure law as a means of deterring more stringent regulations. Martin plans to reintroduce his bill this fall.