A Brief Intro to Canadian Franchise Laws & Legal Issues

Date: OCT 15th, 2007

Topic: Industry Experts

Introduction
For those looking to invest in a Canadian franchise opportunity, the process and legalities are quite similar to those in the United States. Not all franchise systems offer a Canadian counterpart simply because of the additional resources required to maintain a sister division under a different set of franchise laws. Operational procedures for a Canadian franchise may differ slighly than those in the US; or, some products or services may not be available in Canada that may be in the US or vice versa.

Franchise Legislation in Canada
Unlike the legal requirement for disclosure in 15 states in the US, only three of the ten provinces in Canada currently have franchise disclosure laws: Ontario, Alberta and Prince Edward Island. Further, Canada’s provinces have no disclosure registration requirements like those required in the 13 registration states.

Canada’s disclosure statement is simply called the Disclosure Document and like the UFOC has a set of similar categories that Franchisors must address to make this document acceptable. These categories vary among the three provinces as per the respective Acts that passed the laws:

Ontario
- The Arthur Wishart Act, passed in 2000

Alberta
- The Alberta Franchises Act, passed in 1972 and overhauled in 1995

Prince Edward Island (PEI)
- The PEI Franchies Act, passed in 2006. Disclosure Document provisions go into effect January 1, 2007.

New Brunswick – franchise legislation in progress
- New Brunswick will be the four Canadian province to eventually pass its own franchise legislation.

Disclosure Requirement
As a prospective Franchisee, the Franchisor must disclose you not less than 14 days prior to you signing the Franchise Agreement or before you pay any money.

Consequences of Improper Disclosure

(A) If the Franchisor discloses you LESS than the 14 day timeframe:

- You have the right to cancel the Franchise Agreement up to 60 days after receiving the paperwork.

(B) If the Franchisor never discloses you at all:

- You have the right to terminate the Franchise Agreement up to 2 years after its execution.

(C) If the Disclosure Document does not contain the required information (except in Alberta):

- You have the right to cancel the Franchise Agreement up to 60 days after receiving the paperwork.

Course of Action Upon Cancellation or Termination

In all cases (A), (B), and (C) above - except in Alberta - the Franchisor must:

  • Refund you any money that was received other than money for supplies, inventory, or equipment

  • Purchase from you the supplies, inventory, or equipment at the same price you paid for them.

  • Compensate you for any losses that you incurred in acquiring, setting up, and operating the franchise, less the amounts in i) and ii) above upon you taking action for damages again the Franchisor and its brokers and associates.

Note: The Alberta Act only states that the Franchisor must compensate you for any “net losses” you incurred in acquiring, setting up, and operating the franchise.