As set out in a previous article, section 4 of the new BC Franchises Act guarantees the right of franchisees to associate with other franchisees and to form or join an organization of franchisees. Provisions in a franchise agreement that purport to interfere with this right will be void.
So what does the right to associate mean for franchisees? What practical benefits does it give them?
Courts in other jurisdictions have held the right is one of the ways the Franchises Act mitigates the power imbalance that exists between franchisors and franchisees. The right to associate can be used by franchisees to share information and even exert collective power when dealing with a franchisor similar to how a labour union might seek to collectively get a better deal from management.
However, the right to associate may not mean that franchisors are obligated to facilitate or recognize franchisee associations. The Ontario Superior Court recently described the obligation on a franchisor as a “negative duty”, meaning that a franchisor does not need to help its franchisees form or join associations. Thus, franchisees may still have to invest thought and effort to form effective associations.
The Franchises Act confirms the right of franchisees to claim damages against franchisees for interfering with the right of franchisees to associate. The following are some examples of when such a claim could arise:
- The franchisor includes provisions in a franchise agreement restricting franchisees from participating in franchisee associations or group activities, including a class action.
- The franchisor tries to prohibit or punish franchisees for participating in a franchisee association or group activity, such as class actions.
- The franchisor shows favouritism to franchisees that do not participate in franchisee associations or group activities, such as class actions.
The Ontario Court of Appeal has also confirmed that the right includes a right of franchises to participate in class actions for the purpose of enforcing their rights against their franchisors under the statute or otherwise. If applied in BC, this case could pave the way for franchisees to more easily claim damages or enforce their rights against their franchisors with respect to issues of common concern.
Franchisees considering individual or collective actions against their franchisors should consult with a lawyer.
Do you have questions about the new Franchises Act? Please contact Alex Chang
THIS ARTICLE IS NOT LEGAL ADVICE: This article provides general information and should not be relied on without independent legal advice.