The New BC Franchises Act Means More Protections for Franchisees
Alex J. Chang, Associate
Phone: 604-685-1255
Email: ajc@lmlaw.ca
On February 1, 2017, BC will become the sixth province in Canada to fully adopt its own version of the Uniform Franchises Act. The purpose of the new BC Franchises Act is to offer franchisees protections in their relationships with their franchisors.
In most franchise agreements, the franchisor is entitled to exert significant control over the franchisee’s business so that the franchisor can implement a consistent business strategy and customer experience. This relationship can be mutually profitable for both the franchisor and franchisee. However, the high level of control the franchisor is entitled to exert over the franchise, combined with the franchisor’s typically superior bargaining power, can be abused at the expense of franchisees.
Franchisees are also often very dependent on franchisors for information when deciding whether to acquire a franchise. Missing or misleading information can lead to losses and disputes. Meanwhile, franchisors can potentially stand to profit regardless of whether a particular franchise is successful through fees, sale proceeds, and royalties.
It is these concerns which have prompted BC to follow the lead of other jurisdictions in adopting the Franchises Act. Courts outside BC interpreting their own versions of the Uniform Franchises Act have concluded that they are “consumer protection legislation” designed to protect franchisees from the disparity in power and knowledge with franchisors.[1] This writer expects that courts in BC will follow suit by interpreting the BC Franchises Act in a broad and remedial manner that is consistent with its purpose of protecting franchisees.
The Franchises Act provides the following three general protections:
- A confirmed duty of fair dealing among the parties to a franchise agreement and the right to claim damages for breach of that duty.
- The right of franchisees to form or join associations with other franchisees and the right to claim damages if that right is violated by their franchisor.
- The obligation of the franchisor to provide a “disclosure document” package to the franchise at least 14 days prior to the franchise making a payment in relation to the franchise or signing the franchise agreement. This requirement is central to the Franchise Act and is onerous on the franchisor. The disclosure statement must set out the required warnings, information and documents set out in the Franchises Regulations, along with all material facts. The franchisor must advise of any material change before the franchise agreement is signed or the franchise makes a payment with respect to the franchise. The information must be set out accurately, clearly and concisely. Failure of the franchisor to properly provide a complete and accurate disclosure document may allow the franchisee to rescind the franchise agreement or claim damages.
Stay tuned for future articles on these new rights and remedies afforded to franchisees under the new Franchises Act.
Have questions about the new Franchises Act? Please contact Alex Chang.
[1] Essa v Mediterranean Franchise Inc, 2016 ABQB 178; Hi Hotel Limited Partnership v. Holiday Hospitality Franchising Inc., 2008 ABCA 276; MDG v. MDG, 2007 CanLII 69849; 2219338 Ontario Ltd. v. Grill It Up!, 2012 ONSC 6621
THIS ARTICLE IS NOT LEGAL ADVICE: This article provides general information and should not be relied on upon without independent legal advice.
Lesperance Mendes Lawyers
900 Howe St #550, Vancouver, BC V6Z 2M4
(604) 685-3567