Ontario Court Rules to Protect Franchisor from "Rogue" Franchisees

Author: BeTheBoss.ca

Date: JAN 2nd, 2019

Topic: Franchise News

 

The Ontario Superior Court of Justice has just granted a large home-care franchisor an injunction against some of its franchisees, who were operating several businesses without having consent from that franchisor. That action, according to the court's ruling, violated the franchise agreement that was in place.

 

According to the court filing in the case, the senior home care franchisees were running two separate franchise businesses with common ownership and were therefore in violation of the terms of their franchise agreement. The franchisor had a policy in place that required franchisees have an established record of performance before consent is given for an additional business. The franchisees in question were violating this policy and also running another business from their own franchise office, which was in violation of other agreement terms.

 

The court in this case found that the franchisees had no significant defense to the allegations, especially since there were emails that confirmed the business relationships provided to the court. According to those emails, the franchisees also considered themselves the co-owners of a third-party supplier, and one of the franchisee's relatives even offered to buy out a share of that business. In addition, the franchisees would not provide their banking records or minute books to the court, and the sum of all their actions in this case led the court to describe them as "rogue" in their final decision.

 

Ultimately, the Ontario court ruled that if the franchisees were to continue to operate in breach of the agreement, the franchisor would experience actual and irreparable harm to its marketplace reputation and goodwill, harm that outweighed the emotional injury and dignity loss the franchisees alleged they would suffer as a result of a termination. The court gave the franchisor an injunction against the franchisees, which fell under the good faith obligation granted to franchisors to enforce system standards under provincial franchise law, and denied the franchisee's motion for an injunction against the franchisor that would prevent the termination.

 

This case illustrates exactly why it's so important for franchisees to understand and follow their franchise agreements to the letter. As a franchisee, you will be bound to the terms of your agreement with the franchisor. If you fail to honor those terms, you will face penalties, including the potential loss of your business. Before you sign a franchise agreement, confirm that you understand and are willing to follow those terms.