Ontario Proposes Key Franchise Legislation Amendments
Late in September 2017, the government of Ontario introduced a bill that will amend several statutes of Ontario law, with the stated goal being the reduction of regulatory practices and burdens on businesses while protecting worker safety, health and environmental standards. This bill proposes various amendments to the current franchise laws in Ontario, namely the Arthur Wishart Act (Franchise Disclosure), 2000. Some of the proposed changes are essentially housekeeping, but others will have an impact on the franchise industry if passed.
The definition of "franchise"
The proposed amendments allow for recognition that the franchisor may be the licensee of the intellectual property of the franchise and not the owner. It also provides that the right to exercise control - instead of the actual exercise of control - may be sufficient enough to characterize a business as a franchise. While the first change is helpful housekeeping to many franchises, the second might increase the number of businesses that fall under the franchise legislation.
Required disclosure delivery circumstances
The amendments state that a disclosure document will not have to be provided before an agreement related to the franchise is signed in some situations. If that agreement only contains terms that require information provided to a franchisee must be kept confidential, prohibits the use of information that may be provided to the prospective franchisee, or designates a territory, site or location for the franchisee, providing a disclosure before signing will not be necessary. This is meant to address industry concerns about whether having a franchisee sign a non-disclosure agreement before providing a franchise disclosure was in violation of current disclosure obligations under Ontario law.
However, it's important to note that this exemption does not apply in some situations, including if that same agreement contains terms that require already-public information to be kept confidential or if it prohibits a prospective franchisee from disclosing information to other franchisees in the same system, the prospect's professional advisors or a franchisee organization. This means that for a non-disclosure agreement to qualify for this exemption, it will have to be limited in its scope.
Changes in Ontario's franchise legislation may be coming in the near future, and as a prospective or current franchisee, it's always important to keep up on any relevant legal updates to franchise laws. You never know how your franchise will be impacted, and it's best to be prepared.