In a province often considered the Wild West when it comes to franchise law, the British Columbia Law Institute is putting forward a report proposing a model for legislation that would help protect all parties.
“Given the prevalence of franchised businesses in B.C. and their importance to the provincial economy, it is surprising that B.C. has no franchising legislation,” said Jim Emmerton, executive director of BCLI in a statement Monday. “The enactment of franchise legislation in B.C. along the lines set out in this report would give appropriate and needed protection to B.C. franchise owners. It would also benefit franchisors by contributing to the establishment of consistent standards across the country.”
B.C. is one of a handful of remaining provinces without specific legislation protecting franchisees from franchisors, who currently don’t have to disclose financial data, litigation history, and other information to prospective franchisees.
Alberta, Ontario, Manitoba, P.E.I., and New Brunswick already have legislation in place that imposes pre-sale disclosure requirements to guard against investors being misled when purchasing a franchise. The legislation in those provinces contains certain other important protections also aimed at levelling the playing field between franchisors and franchisees. The Uniform Franchises Act developed under the Uniform Law Conference of Canada Commercial Law Strategy was the model for the franchise enactments of several of those provinces.
The B.C. franchise legislation proposed in the report would also be based primarily on the Uniform Franchises Act. It contains some updates, such as allowing franchisors to deliver pre-sale disclosure documents electronically.
“The idea wasn’t to reinvent the wheel, the idea was we have the uniform act that P.E.I. and New Brunswick based their law on so why don’t we just adopt the uniform act and look at what changes we might make,” says Tony Wilson, associate counsel and franchise specialist with Boughton Law Corp. in Vancouver.
Wilson worked with the BCLI along with others who provided input on what didn’t work especially well in the other provinces, such as Ontario.
He says the way the act is in Ontario has “led to a hornet’s nest of rescission actions.” He says often, franchisees in Ontario will be content for two years less a day then decide they don’t like their franchise anymore and launch a rescission action against the franchisor for failure to disclose in order to get a better deal.
The BCLI report recommends: “that British Columbia franchise legislation should provide, as does that of Alberta, Manitoba, and P.E.I, that disclosure documents should be valid if they are in substantial compliance with the legislation and regulations. Minor defects that do not influence the prospective franchisee’s investment decision should not lead to the drastic consequence of non-compliance, namely possible rescission of the franchise agreement at the option of the franchisee, triggering repurchase and compensation obligations.”
Wilson says the most important thing the BCLI did was to test with “substantial completion.”
“If you have ‘substantially complied’ with the obligations under the act you have complied,” he says. “In Ontario it’s not substantial compliance, it’s full compliance.”
This potential move is a welcome and long overdue one, says Rocco Di Pucchio, partner with Lax O’Sullivan Scott Lisus LLP in Toronto.
“The enactment of franchise legislation would bring B.C. into line with other Canadian provinces that have recognized the “unique and special considerations that apply to the franchisor-franchisee relationship.
“Courts have repeatedly recognized that specialized franchise legislation often serves to level the playing field in the context of a contractual arrangement in which one party, the franchisee, is extremely vulnerable to the actions of the other in a way that doesn’t typically affect other commercial relationships,” Di Pucchio adds.
Wilson says as proposed, the BCLI model would be legislation to protect small business and especially new Canadians. Right now, it’s easy in B.C. to get a franchise agreement without having to comply with disclosure obligations that cost a lot of money in other provinces. Disclosure documents and financial statements in Ontario could cost up to $25,000.
“I think legislation would also tend to weed out the fly-by-nighters,” says Wilson.
The report will be submitted to the B.C. legislature for consideration.