Franchise Laws In North America

What’s out there already, what does the new Act say, and how does it all affect me?

Introduction The introduction of the Arthur Wishart Act (Franchise Disclosure), 2000 (the “Ontario Act”) will make it necessary for franchisors operating in Ontario to examine their disclosure documents with extreme care. A disclosure document or offering circular prepared pursuant to the legislation to date may not fulfil the requirements of disclosure imposed upon franchisors by the new Act. When this is considered with the Act-imposed potential personal liability of a franchisor signatory to a franchise agreement, the importance of ensuring compliance cannot be overstated.

The Pre-Act Regime The pre-Act regime concerning franchise disclosure and franchise relationships is a hodge-podge of American legislation, Canadian legislation, and various professional associations’ policy. Acronyms such as F.T.C., U.F.O.C., and C.F.A. are inserted into conversations about compliance. “The FTC’s UFOC election is pretty similar to the CFA disclosure requirement, but I’m not sure if I should advise my ON franchisors that they fall into the AB fractional franchise exemption.” Our discussion will begin with a clarifying explanation of the background from which these statements arise.

In the United States, there is both federal and state legislation governing franchise disclosure and relationships. The federal legislation was set out in 1979 by the Federal Trade Commission (the “FTC”) and is formally known as the “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures”. It is commonly known simply as “the Rule”. Compliance with the Rule is mandatory for franchisors operating in the United States. The Rule sets out various requirements of disclosure. A franchisor may elect to make their required disclosure by following the format set out in the Rule, or they may elect to make their required disclosure by using the Uniform Franchise Offering Circular (“UFOC”). It is important to note that the UFOC is not legislation, but is but is a manner, or format in which disclosure requirements set out in legislation, (the Rule) may be effected.

In addition to the federal disclosure requirement set out in the FTC, individual states may regulate franchise business and may impose registration or filing requirements. For most states, the disclosure requirements mimic the FTC and are, in fact, commonly known as “little FTC acts”. Most franchisors in the United States are electing to use the UFOC format as opposed to the FTC rule format, since many of the state laws will not register or file disclosure under the FTC format, but will do so for disclosure penned under the UFOC format.

In Canada, prior to the introduction of the Ontario Act, the only law specifically governing franchise disclosure and registration in Canada was the Alberta Franchises Act (the “Alberta Act”). This, however, is not the only article to consider. In non-Alberta jurisdictions, and in Alberta, prior to the Alberta Act being proclaimed in force, franchisors typically disclosed based on the FTC rule or produced UFOCs. Furthermore, the Canadian Franchise Association, the governing body of franchised businesses in Canada adopted a mandatory disclosure guide (the “CFA guide”) for its member firms.

Each of these sources, the FTC rule, the UFOC, the CFA guide, and the Alberta Act, require similar disclosure from franchisors. However, their requirements are not identical. Now that Ontario has its own legislation, franchisors must be especially diligent in examining their disclosure documents. They must ensure that their current documents, whether they be derived from the FTC rule, based on the UFOC, Alberta Act, or the CFA guide, comply with the Ontario Act. Failure to comply with the Ontario Act may result in personal liability, in addition to general corporate liability. This paper will examine each of these regimes, set out the main differences in disclosure requirements and franchise relationships under each of them, and will hopefully serve to assist a franchisor operating under that regime in preparing a disclosure document that will comply with the Ontario Act.

The FTC Rule The FTC Rule sets out six requirements. First and foremost, it requires disclosure. It also governs earnings claims, advertised claims, requires the inclusion of the franchise agreement itself, requires that payments be refundable, and requires that no written or oral claims may contradict the information in the disclosure document. The FTC Rule is also novel in that although it provides a cause of action against a franchisor that violates any of these requirements, that right of action may only be initiated by the FTC itself. Private parties may not commence actions for violations of the FTC Rule. The Ontario Act allows private parties to commence their own actions against franchisors. The Ontario Act further allows a franchisee who has suffered a loss to include as a party to litigation, any party who has signed the disclosure document or statement of material change.

There are no requirements in the FTC Rule regarding the manner in which franchisors and franchisees must transact. The Ontario Act imposes on the parties a duty of fair dealing. Included in the “fair dealing” provision is a requirement to act in good faith and in accordance with reasonable commercial standards. These are arguably high standards to which a party must comply.

If a franchisor is making disclosure pursuant to the FTC Rule, they must additionally know that:

o Personal liability may flow to anyone that has signed the disclosure document or statement of material change.

o The Ontario Act imposes duties of fair dealing, good faith and commercial reasonableness to various aspects of the relationships between the parties.

o The following information must be added to the FTC Rule disclosure in order for it to comply with the Ontario Act.

1. The principal occupation and employers of directors and officers must be listed for the five years immediately preceding the date of the disclosure document. (The FTC Rule requires only current occupation and employers be listed)

2. Whether or not the franchisor, its associates, officers, directors or general partners have been convicted of a criminal offence, been a party to a civil judgment or administrative proceeding relating to certain enumerated subjects within the last ten years. (The FTC Rule looks back only 7 years)

3. Financial statements must be audited (the FTC Rule allows for unaudited statements in some circumstances)

4. Advertising funds must be specifically and thoroughly detailed, giving reference to percentages contributed, the projected total amounts, and whether reports on advertising funds will be made available to the franchisee. (The FTC Rule deals with advertising in a limited scope–only when it involves a public figure used in connection with a recommendation to purchase a franchise)

5. Any rights the franchisor has to trade-marks, service marks, trade names, logos or commercial symbols associated with the franchise must also be disclosed.

6. A description of every license, registration, authorization or other permission that a franchisee is required to obtain to operate the franchise must also be disclosed.

7. The name, last known address and telephone number of each franchisee that has been terminated, cancelled, not renewed or reacquired within the last fiscal year must be disclosed.

(The FTC Rule requires only numbers and general reasons be disclosed, not contact information.)

8. A list, and contact information for all franchises operating in Ontario, or should there be less than twenty franchises operating in Ontario, the twenty geographically closest franchises to the proposed location. (The FTC Rule gives options with regards to location disclosure, one of which requires only the ten nearest outlets be disclosed.)

9. Any internal or external mediation or alternative dispute resolution process used by a franchisor must be disclosed.

o In addition, there are several statements as set out in the regulations that must be included to any disclosure document in Ontario which are not included in the FTC Rule.

Uniform Franchise Offering Circulars (UFOCs)

Many franchisors have adopted this standard of disclosure, as most states that require registration of disclosure will not accept the FTC Rule standard of disclosure. As a result, the UFOC has become the most common method of distributing the appropriate information. Remember that it is the FTC that grants a franchisor the choice to use either the FTC standard or the UFOC. It is important to understand that despite this choice, should a franchisor elect to use the UFOC standard, several provisions of the FTC Rule will still apply.

As the UFOC is only a format of disseminating information, there are none of the relationship requirements in UFOC disclosure that the Ontario Act requires. A detailed discussion of the personal liability, good faith, fair dealings and commercial reasonableness requirements of the Ontario Act are dealt with in detail in the above section.

In summary, if a franchisor is making disclosure pursuant to the UFOC standard, they must additionally know that:

o Personal liability may flow to anyone that has signed the disclosure document or statement of material change.

o The Ontario Act imposes duties of fair dealing, good faith and commercial reasonableness to various aspects of the relationships between the parties.

o The following information must be added to the UFOC disclosure in order for it to comply with the Ontario disclosure requirements. In general, the UFOC is more comprehensive than the FTC Rule, and in some areas, even the Ontario Act. However, there are discrepancies to be aware of:

1. Bankruptcy and insolvency proceedings in the Ontario Act must only be mentioned if they were instituted during the six years immediately preceding the disclosure document. (The UFOC requires proceedings of this type be mentioned if they were instituted during the ten years immediately preceding the disclosure document.

2. The financial statement requirements under the UFOC are more extensive than those under the Ontario Act. The Ontario Act requires audited statements of the franchisor for the past fiscal years. The UFOC requires financial statements for the past two years of the franchisor, and also requires financial statements of affiliated companies.

3. Advertising funds must be disclosed in greater detail than that required of in the UFOC. The UFOC requires only the type of fee, amount, due date and general remarks. The Ontario Act requires a fairly detailed disclosure of advertising fees, percentages, reports, projections, etc.

4. The franchisor must disclose the names, telephone numbers, and last known home addresses of franchisees that have had their franchise agreements terminated, cancelled, not renewed or who has otherwise left the franchise system for the past three years. (UFOC requires that this disclosure be made only of the last fiscal year.)

5. Any internal or external mediation or alternative dispute resolution process used by a franchisor must be disclosed.

o In addition, there are several statements as set out in the Ontario Regulations that must be included to any disclosure document in Ontario which are not listed in the UFOC requirements.

Canadian Franchise Association Disclosure Guide (CFA Guide)

Disclosure under the Guide is mandatory for member firms of the CFA. As the CFA Guide deals only with disclosure, there are none of the relationship requirements in the CFA Guide that the Ontario Act requires. A detailed discussion of the personal liability, good faith, fair dealings and commercial reasonableness requirements of the Ontario Act are dealt with in detail in the above sections.

In general, the CFA guide covers many of the areas required by the Ontario Act. However, much greater detail is required of a disclosure document in order for it to comply with the Ontario Act.

If a franchisor is making disclosure pursuant to the CFA guide, they must additionally know that:

o Personal liability may flow to anyone that has signed the disclosure document or statement of material change.

o The Ontario Act imposes duties of fair dealing, good faith and commercial reasonableness to various aspects of the relationships between the parties.

o The following information must be added to the CFA disclosure guide in order for it to comply with the Ontario disclosure requirements.

1. Principal business address of the franchisor and its affiliates in Ontario, or the name and address of a person authorized to accept service in Ontario on the franchisor’s behalf. (The CFA guide requires only the corporate name of the franchisor and its affiliates be disclosed.)

2. Business backgrounds of the directors, officers and general partners of the franchisor must be disclosed, including their prior business experience, principal occupation and employers for the last five years. (The CFA guide requires only that business experience of the franchisor be disclosed.)

3. Whether or not the franchisor, its associates, officers or directors has been convicted of a criminal offence, been a party to a civil judgment or administrative proceeding relating to certain enumerated subjects within the last ten years. (The CFA guide requires only disclosure of ongoing and material litigation.)

4. Audited financial statements for the past fiscal year of the franchisor must be disclosed, according to the Ontario Act. (The CFA guide has no such disclosure requirement.)

5. Any internal or external mediation or alternative dispute resolution process used by a franchisor must be disclosed.

6. A description of training or other assistance provided by the franchisor, whether it be mandatory or voluntary, must be disclosed, along with a statement specifying who bears the cost of that training.

7. A detailed statement describing the allocation, percentages, and projections associated with an advertising fund, if any, must be disclosed.

8. Restrictions with regards to transfer, renewal, assignment, or termination must be disclosed.

9. Restrictions with regards to suppliers, purchasers, and consumers must be disclosed.

10. Disclosure must be made regarding the rights of the franchisor to trademarks, service marks, or other commercial symbols associated with the franchise.

11. A description of every license, registration, authorization or other permission the franchisee is required to obtain in order to operate the franchise must be disclosed.

12. Statements regarding exclusive territories, and allocation of future territories must be provided.

13. The telephone number, last known address and names of franchisees that have had their franchises terminated, cancelled, reacquired or not renewed within the last fiscal year must be disclosed. This must be accompanied with details and the reason for the closure. (The CFA guide requires only numbers of these cancellations be supplied.)

o In addition, there are several statements as set out in the Ontario Regulations that must be included to any disclosure document in Ontario which are not required in the CFA guide.

The Alberta Act Many franchisors operating in Canada have adopted the Alberta standards of disclosure and franchise relationships for their Canadian systems. This section, as the ones above, will outline the major differences between the requirements under the respective Acts. These are fairly limited, as the Acts are very similar in construction. In addition, attached as Appendices “A” and “B” are tables of concordance detailing all of the differences, major and minor, between the Ontario and Alberta Acts and Regulations.

The major differences between the Alberta and Ontario Acts are that:

o A breach of the fair dealing, which in Ontario is defined as including “acting in good faith and in accordance with reasonable commercial standards”, is actionable. The Ontario Act goes further than the Alberta Act did, and further than the current interpretation of common law in Ontario.

o In the Ontario and Alberta Acts, both the franchisor and the every person who signed the disclosure documents may be held liable for damages for misrepresentation in that regard. However, in Ontario, the “franchisor’s agent”, “franchisor’s broker”, and “franchisor’s associate” may also be party to such lawsuits.

o Detailed statements regarding advertising funds are required pursuant to the Ontario Regulations. The Alberta legislation has no such requirement.

o The Ontario Act requires that information about the rights to trademarks and other commercial symbols be disclosed.

o The Ontario Act requires that information about licenses, and other permissions which must be obtained to operate the franchise be disclosed.

o The Ontario Regulations apply equally to co-operative associations, to which the Alberta Regulations are inapplicable.

o The statements required to be included pursuant to the Ontario Act are slightly different than those required of the Alberta Act. Reference should be made to the Appendices which deals with these in detail.

Conclusion Of the many regimes affecting franchise relationships and disclosure in place, many have similar requirements to that required by the Ontario Act. However, in many aspects, other legislation or disclosure formats fall short of the Ontario requirements. It is important to realize that neither the FTC Rule disclosure, UFOC, CFA disclosure or Alberta Act disclosure will adequately fulfil all of the disclosure and relationship requirements imposed by the Ontario Act. This paper is an overview of the various areas in which deficiencies between the various pieces of legislation may be noted. It is by no means an exhaustive comparison of each and every piece of law or policy directed towards the franchise relationship. Marked diligence is necessary and required for a franchisor to ensure that their existing disclosure documents are amended and prepared in a way that will limit corporate and personal liability. Strict adherence to the Ontario Act cannot be overstated in that regard.

Appendix “A”

Table of Concordance for the Ontario and Alberta Acts Ontario Act Alberta Act Differences Interpretation 1(1) “disclosure document” 1(1)(a) -Alberta uses the article “a” when referring to disclosure documents and Ontario uses “the”.

-Alberta states in the definition that the documents are to include a description of any material changes n/a 1(1)(b) “former Act” refers to the Franchises Act RSA 1980 c.F – 17 n/a 1(1)(c) “fractional franchise”

1(1) “franchise” 1(1)(d) -Ontario adds specific provisions for display rack-type product distribution schemes; -Ontario does not have a “wholesale pricing” exemption -Ontario does not reference masterfranchises -Ontario down plays “marketing and business plan” requirement 1(1) “franchise agreement” 1(1)(e)

-virtually identical except that Alberta, when defining “franchisee”, includes “prospective franchisee”

n/a 1(1)(f) -”franchise fee” is not defined in Ontario 1(1) “franchisee” 1(1)(i) -identical wording 1(1) “franchise system” 1(1)(g) -identical introductory wording 1(1) “franchise system”

para. (a) 1(1)(g)(i) -Ontario includes the words “marketing plan” in its list para. (b) 1(1)(g)(ii) -Ontario says “logo or advertising or other commercial symbol”. Alberta says “logotype or advertising”.

para. (c) 1(1)(g)(iii) -Alberta refers to the “franchised business” and Ontario refers to “the business operated by the franchisee under the franchise agreement”.

para. (d) 1(1)(g)(iv) -identical wording 1(1) “franchisor” 1(1)(j) -Ontario includes the words “or offer to grant” when speaking about who is a franchisor 1(1) “franchisor’s associate” 1(2) -the definition is identical except that, in Ontario, control may be either direct or indirect 1(1) “grant” n/a -the Alberta Act instead uses the defined term “sell”

1(1) “master franchise” 1(1)(m)

-Alberta says a subfranchisor has been granted the “right”

to “sell or offer” franchises for his/her own account. Ontario says a subfranchisor has been granted “a franchise which is a right” to “grant or offer to grant” franchises for his/her own account.

1(1) “material change” 1(1)(n) -in addition to listing general categories of change that will be considered material, Ontario includes “or a prescribed change” to include changes specified by regulation -Alberta uses the pronoun “its” and Ontario is more specific using “franchisor’s” when referring to a franchisor’s associate.

-Alberta uses the word “sold” and Ontario uses “granted”.

-Alberta uses the word “purchase” and Ontario uses “acquire”

-Ontario says “on the decision to acquire” and Alberta simply says “the decision to purchase”

-Ontario says “to implement such a change” and Alberta says “to implement the change”

1(1) “material fact” 1(1)(o) -Alberta’s definition commences with “material fact” means..., whereas Ontario’s commences with “includes...”and is therefore non-exclusive -Alberta uses the pronoun “its” when referring to a franchisor’s associate, Ontario uses “franchisor’s associate”

-Alberta uses “sold”, Ontario “grant”

-Alberta uses “purchase”, Ontario “acquire”.

1(1) “minister” 1(1)(p) -Alberta refers to the section of the Government Organization Act which determines who the Minister is of this particular Act.

-Ontario simply says the minister is the person who is responsible for the administration of the Act.

1(1) “misrepresentation” 1(1)(q)

para. (a) 1(1)(q)(i) -identical wording -Ontario uses “or” after this sentence because it only has two choices. Alberta has three, therefore the “or” comes after paragraph (b).

para. (b) 1(1)(q)(ii),(iii) -Ontario only uses two paragraphs and the content of Alberta’s para. (ii) is verbatim within Ontario’s para (b).

-The content of Alberta’s (iii) is slightly different in Ontario. Alberta says an omission of a material fact that “needs to be stated in order for the statement not to be misleading”, is a misrepresentation. Whereas Ontario says that if an omission occurs of a material fact that was “necessary to make a statement not misleading in the light of the circumstances in which it was made”, it will be a misrepresentation.

1(1) “prescribed” n/a

1(1) “prospective franchisee” n/a

1(1) “subfranchise” 1(1)(u)

1(2) “master franchise”, “subfranchise” 1(1)(d)(iii)(B) -same wording, different location 1(3) deemed control 1(3) -Ontario is a deeming section using the language “shall be deemed to be”

-Ontario identifies the corporation as being a franchisee, franchisor or franchisor’s associate, Alberta simply states “a corporation”

1(3)(a) 1(3)(a) -the content of the paragraph is essentially the same but has been worded differently -Ontario speaks of the voting securities of the franchisor or franchisee or franchisor’s associate, Alberta simply says the corporation -Ontario states that the votes are “for the election of directors” and Alberta says “that may be cast to elect directors”

-when setting out its exception for shares held by way of security, Ontario uses the phrase “otherwise than by way of security only” and Alberta says “other than for the purpose of collateral for a debt”

-Ontario adds the plural “persons”

1(3)(b)

1(3)(b) -the content is essentially the same but the wording is slightly different -Ontario refers to votes carried by “such” securities, Alberta specifically refers to the “securities referred to in clause (a)”

-Ontario says that votes are “entitled” to elect a majority and Alberta says are “sufficient”

-Ontario speaks of electing a majority of the board of directors of the “franchisee or franchisor or franchisor’s associate” and Alberta refers to the board of directors of “the corporation”.

n/a 2 -Ontario does not include a “Purpose Statement” as part of the act, although an explanatory note setting out a background to the act was included with the Bill Application 2(1) 3(1) -Alberta says the Act applies to the “sale” of a franchise made on or after the coming into force of this “Act”, Ontario says the Act applies “with respect to a franchise agreement entered into” on or after the coming into force of this “section”

2(1)

3(1)(a) -Ontario carries on to include renewals and extensions of franchise agreements and the businesses affected, if the business is to be operated partly or wholly in Ontario -the idea of the business being operated either partly or wholly within the province is mirrored in 3(1)(a) of the Alberta Act 2(2) 3(2) -this section identifies other sections to which the Act will apply retroactively -Ontario refers to the “franchise agreement entered into” and “a business operated under such agreement” and Alberta refers to the “sale of a franchise”

-both say “before the coming into force of this Act”

-the sections they refer to match up as follows:

Ontario Alberta 3 7 4 8 5(6)(d) 5(1)(f)

8 15 10 18 11 19 2(2) 3(2)(a) -the last part of this Ontario sub-section states that the various enumerated sections will apply if the business “is operated or to be operated partly or wholly in Ontario”. The Alberta equivalent (para. 3(2)(a)) says “operating or is to be operated either partly or wholly in Alberta”

2(3)1. n/a

2(3)2. n/a

2(3)3. n/a

2(3)4. n/a

2(3)5. n/a

2(3)6. 5(1)(g)

2(3)7. n/a

2(3)8. n/a

Fair Dealing 3(1) 7 Identical wording.

3(2) n/a Alberta does not expressly provide a right of action to either party for a breach of the duty of fair dealing.

3(3) n/a Alberta does not include an interpretive provision that expands fair dealing to include a duty to act in good faith obligation and in accordance with reasonable commercial standards.

Right to Associate 4(1) n/a

4(2) 8(1) -this section articulates a franchisees right to associate -Ontario is more specific and says that “shall not interfere with, prohibit or restrict, by contract or otherwise”. Alberta says “prohibit or restrict”.

4(3)

8(2) -this section speaks to franchisors’ actions which are prohibited -the language Ontario uses more encompassing: “shall not directly or indirectly penalize, attempt to penalize or threaten to penalize” , Alberta says “must not directly or indirectly penalize”.

4(4) n/a

4(5) 11

Franchisor’s Obligation to Disclose 5(1) 4(1) & (2) -this section addresses a franchisor’s obligation to disclose -Ontario says “shall provide” “a disclosure document” and Alberta says “must give” “a copy of the franchisor’s disclosure document” to prospective franchisees -Ontario says “not less than 14 days before the earlier of” and lists two events. Alberta uses the phrase “whichever is earlier” after it lists the two events. The intention seems to be the same -however, Ontario’s use of the conjunctive “and” between the two paragraphs is confusing. Alberta uses “or” which makes more sense [implications?].

5(1)(a)

4(2)(a) -Ontario is more specific and says “franchise agreement or any other agreement relating to the franchise”. Alberta simply states “any agreement relating to the franchise”

5(1)(b) 4(2)(b) -Ontario states that payment can be made by or “on the behalf of” the prospective franchisee “to the franchisor or franchisor’s associate” relating to the franchise. Alberta states payment “by the prospective franchisee relating to the franchise”.

5(2) n/a

5(3) n/a

5(4) 4(3) -this section lists the contents of the disclosure document.

-Ontario says “shall contain” and Alberta says “must”

5(4)(a) 4(3)(a) -Ontario requires disclosure of “all material facts, including material facts as prescribed”; Alberta requires compliance with the regulations 5(4)(b)

4(3)(c)

-Ontario simply states “financial statements as prescribed”. Alberta is slightly more descriptive and states “financial statements, reports, and other documents in accordance with the regulations”

5(4)(c) 4(3)(b) -Ontario is more specific and adds “other agreements relating to the franchise to be signed by the prospective franchisee” to the Alberta requirement of “copies of all proposed franchise agreements”

5(4)(d) n/a

5(4)(e) 4(3)(a) -Ontario requires “other information and... documents as prescribed”; Alberta requires compliance with the regulations 5(5) 4(4),(5) -Alberta takes two subsections to say what Ontario says in one -the wording rearranged but the meaning is the same -Ontario uses “shall provide” and Alberta uses “must provide”

-Ontario says “a written statement” and Alberta says “in writing”

-Alberta’s (5) is included in the Ontario’s (4) opening. Ontario says that “such statement” must be received as a practicable and Alberta says “the description of change” must be received as a practicable.

-Ontario says “before the earlier of” and lists the qualifiers. Alberta places “before” before the qualifiers and “whichever is earlier” after them.

5(5)(a) 4(5)(a) -Ontario says “franchise agreement or other agreement relating to the franchise” and Alberta simply says the “any agreement relating to the franchise”

-Ontario uses the connector “and” between the subclauses and Alberta uses “or”

5(5)(b) 4(5)(b) -Ontario adds “or on the behalf of” when speaking about payment of consideration from the franchisee -Ontario identifies the receiver of the payment, “to the franchisor or franchisor’s associate”. Alberta does not.

5(6) n/a

5(7) 5(1) - difference in layout -Ontario includes the exemption clause within the disclosure section and says that “the section” does not apply to it. Alberta uses a new sec. # and says “the following are exempt from sec. 4”

5(7)(a)

5(1)(a) -Ontario uses the word “grant” and Alberta uses “sale”

5(7)(a)(i) 5(1)(a)(i) -Ontario says “franchisor’s associate” and Alberta only uses the pronoun “its” associate 5(7)(a)(ii) 5(1)(a)(ii) “sale” vs. “grant”

5(7)(a)(iii) 5(1)(a)(iii) “sold” vs. “granted”

5(7)(a)(iv) 5(1)(a)(iv) “sale” vs. “grant”

5(7)(b) 5(1)(b) “sale” vs. “grant”



5(7)(c) 5(1)(c) “sale” vs. “grant”

5(7)(d) 5(1)(f) “sale” vs. “grant”

5(7)(e) N/A

5(7)(f) 5(1)(d) -Ontario expands on Alberta and qualifies the renewal and extension by stating that there cannot have been an interruption in the operation of the business and no material changes since the agreement or latest extension of the agreement was entered into.

5(7)(g) N/A

5(7)(g)(i) N/A

5(7)(g)(ii) N/A

5(7)(g)(iii) N/A

5(7)(h) N/A

5(8)

5(2) -Ontario uses “grant” and Alberta uses “sale”

-the subsection referred to in Ontario is 5(7)(iv), its counterpart in Alberta 5(1)(a)(iv)

5(8)(a) 5(2)(a) -essentially the same just worded differently Recission for Late Disclosure 6(1) 13, 13(a) -section 5 in Ontario has a counterpart in sec. 4 of Alberta -Ontario states that a recission can occur “without penalty or obligation” if with the specified time frame. Alberta does not mention those things -Alberta refers to a “notice of cancellation” and Ontario does not refer to any notices until 6(3)

6(2) 13(b) -this section is for when disclosure still has not been made after 2 yrs of entering into the agreement -the wording is different but the effect should be the same 6(3) N/A

6(4) N/A

6(5) N/A

6(6) 14(2) -Ontario gives 60 days and Alberta only 30

-Ontario’s recission section is more in-depth 6(6)(a) N/A

6(6)(b) N/A

6(6)(c) N/A

6(6)(d) 14(2) -Alberta refers to “net losses” and Ontario only to “losses”

-Ontario allows for certain deductions from the losses (subsections (a)-(c)

-Ontario simply says the “franchise” and Alberta says the “franchised business” when talking about compensating losses Damages for Misrepresentation, Failure to Disclose 7(1) 9(1) -Ontario broadens the scope of where a misrepresentation can be contained past simply the disclosure document. It includes “a statement of a material change” and “or as a result of the franchisor’s failure to comply in any way with section 5”

-Alberta states that the franchisee has a right of action against “all or any of the following” and Ontario just states “against” and then has a list (1)(a) 9(1)(a) same (1)(b) n/a

(1)(c) n/a

(1)(d) n/a

(1)(e)

9(1)(b)

-Ontario includes any person who has signed a “statement of material change”

(2) 9(2) -Ontario adds “statement of material change” in addition to “disclosure documents”

-Ontario uses “acquired” and Alberta uses “purchases” when referring to the franchise to which the documents relate -Ontario says “shall be deemed” and Alberta says “is deemed”

(3) N/A

(4) 10(1) -Ontario uses “acquired” and Alberta “purchased”

-Ontario states that acquiring with knowledge of a “material change” is also a defence (5) 10(2) -layout difference -Alberta refers back to the section # and in Ontario it’s within the same section so there is no need to name a section #.

(5)(a) 10(2)(a) -Ontario says “under this section” and Alberta refers back to the sec. 9 (the misrepresentation section)

-Ontario includes statement of material change -Ontario states that documents were to be “given to the franchisee”. Alberta doesn’t word the section in such a way as to name a receiver of the documents. However, Alberta Regulation 7(1) says that a notice must be given to the franchisee and the franchisor -Ontario prescribes that the notice to be given must be a “written notice”. Alberta says that the notice must be as “prescribed by the regulations” and the Regulations do not impose a written requirement.

-Ontario states “given without that person’s knowledge or consent” and Alberta says “without that person’s knowledge and consent”.

(5)(b) 10(2)(b) -essentially the same -Ontario uses “acquired” and Alberta uses “purchased”

-Ontario puts statement of material change in addition to disclosure documents -Ontario says written notice and Alberta says as prescribed by the regulations 7(5)(c) 10(2)(c) -the same except Ontario includes “statement of material change”

7(5)(c)(i) 10(2)(c)(i) -a tense difference 7(5)(c)(ii) 10(2)(c)(ii) -Ontario adds “statement of material change”

7(5)(c)(iii) 10(2)(c)(iii) -Ontario adds “statement of material change”

Joint and Several Liability 8(1) 12 - this subsection of the Act relates specifically to a breach of the duty of fair dealing - those jointly and severally liable include parties to the franchise agreement and those who accept liability 8(2) 12 - this subsection of the Act relates specifically to a breach of the right of association - those jointly and severally liable include the franchisor, the franchisors associates and those who accept liability 8(3) 12 - this subsection of the Act relates specifically to liability for misrepresentation - those jointly and severally liable include those enumerated in subsection 7 (1) and those who accept liability No Derogation of Other Rights 9 15 Ontario says the Act does not derogate from any “right or remedy” available at law and Alberta only says “right”

-Alberta says the “rights of action” and Ontario simply says “the rights”.

Attempt to Avoid Jurisdiction Void 10 17 -Ontario speaks of “a forum” and Alberta says “any forum” when addressing the jurisdiction or venue issue -Ontario says any provision “purporting to restrict” and Alberta says any provision “restricting”



Rights Cannot be Waived 11 18 -in Ontario, “waiver or release” is qualified or extended to include a “purported waiver or release”

-Ontario uses the phrase “under this act”; Alberta uses the phrase “by this act”

-Ontario speaks of “an obligation or requirement”; Alberta speaks only of a “requirement”

-Ontario describes the obligation or requirement as being “imposed” on the franchisor; Alberta does not -Ontario mentions that the obligation or requirement is imposed on “a franchisor or franchisors associate”; Alberta does not do so Burden of Proof 12 19(a)(b) -Ontario uses one paragraph and Alberta breaks it down into subsections.

-Ontario says an exclusion from a “requirement provision” and Alberta says an exclusion from a “definition”.

Exemption 13 6 - section 6 of the Alberta Act provides the minister with the ability to exempt from application of the Alberta Act any person, any sale, or any franchise from any or all provisions of the act or regulations Regulations 14(1) 20 same (a) N/A

(b) N/A

(c) N/A

(d) 20(b) -Ontario only refers to the financial statement and Alberta broadly refers to the “form and contents of financial statements, reports, and other documents”.

-Ontario uses the word “prescribing” and Alberta uses “respecting”.

(e) n/a

(f) 20(a) -Ontario uses “prescribing” and Alberta uses “respecting”

-basically they both are referring to content of the disclosure documents (g) N/A

(h) 20(i) same (i) N/A

(j) N/A

(k) n/a

(l) 20(j) -essentially the same except Ontario specifies that the Lieutenant Governor in Council is the person who makes the decision 14(2) N/A

Commencement 15 24 -proclamation sections Short Title 16 N/A

There are no Ontario equivalents for the following Alberta sections:

1(1)(b), (c), (f), (f)(i)-(iii), (h), (k), (l)(i)-(vii), (r), (s), (t), (v), (w)

1(2)(a)-(c)

2(a)-(c)

3(1)(b), (2)(b)

4(3)(a), (6)-(8)

5(1)(h)

6(1)(2)

10(2)(d)(i),(ii), (3)(a),(b)

14(1)

16 20(c), (d), (e), (f), (g), (h)

21(1)-(6)

22(1)-(4)

23 Appendix “B”

Table of Concordance for the Ontario and Alberta Regulations Ontario Regulation Alberta Regulation Differences CO-OPERATIVE ASSOCIATIONS

1 n/a Alberta Act does not speak to co-operative associations (a) n/a

(i) n/a

(ii) n/a

(b) n/a

(c) n/a

(d) n/a

DISCLOSURE DOCUMENTS

2 Schedule 1 1 Ontario states that every disclosure document shall include the following information and Alberta states that franchisor information should be provided in a summary form 1 n/a Ontario refers to the business background of the franchisor (i) Schedule 1 1(a) same (ii) Schedule 1 1(b) Ontario uses the word “engages” in business and Alberta uses “does” business (iii) Schedule 1 1(c) Alberta refers to the attorney for service and Ontario states that if the franchisor’s principal address is outside Ontario then the name and address of a person authorized to accept service in Ontario must be provided (iv) Schedule 1 1(d) Ontario is more detailed and wants the information to include a franchisor’s incorporation information or partnership information (v) n/a subsidiary (vi) Schedule 1 1(e) Ontario uses engaged in a line of business and Alberta uses conducted business of the type to be operated by the franchisee (vii) Schedule 1 1(f) Alberta uses type of business and Ontario refers to the line of business (viii) Schedule 1 1(g)(i) Ontario starts of with saying “if” and demands a description of every franchise in each line of business. Alberta asks for a description of each other line of business A Schedule 1 1(g)(iii) Ontario is more specific and says to “prospective franchisees B Schedule 1 1(g)(ii) Ontario is more specific and uses the wording “immediately preceding the date of the disclosure document whereas Alberta simply says previous 5 years 2 n/a Ontario starts this section off with “the business background of the directors...” etc.

(i) Schedule 1 1(h) Alberta uses the phrase “who will have management responsibilities relating to the franchise”

(ii) n/a prior business experience (iii) n/a length of time engage in line of business (iv) Schedule 1 1(h) Alberta does not use the word “immediately”

3 Schedule 1 2(a)(b) and (a)(b) Ontario uses the phrase “immediately preceding the date of the disclosure document”. Alberta states 10 years and does not reference disclosure document. Alberta uses the phrase “who have management responsibilities relating to the franchise”. Ontario refers to charges pending and seems to capture what it took Alberta another clause to state. Alberta refers to embezzlement and sets out that pleading no contest should be disclosed as well.

4 Schedule 1 4 Both ask for details of current and pending Administrative orders or penalties. Alberta uses the phrase “who have management responsibilities relating to the franchise”

5 Schedule 1 3 Both ask for details of any current or pending civil action. Ontario goes further to add a failure to provide proper disclosure to a franchisee as one of the violations 6 Schedule 1 5 Ontario states “in the previous 6 years immediately preceding the date of the disclosure document”. Alberta does not refer to the date of the disclosure document.

(i) Schedule 1 5(a) Ontario uses franchisor’s and Alberta uses its (ii) Schedule 1 5(b) Ontario states “includes or included” a current director and Alberta states “who are currently” directors...Worded differently but same meaning. Alberta uses “who have management responsibilities relating to the franchise”

(iii) Schedule 1 5(c) Ontario uses “includes or included a current..” and Alberta uses “currently”

(iv) n/a personal capacity 3(1) n/a Ontario states “every disclosure document shall include”

(a) 3(4) Ontario says an “audited” statement and refers to the franchisor’s operations (b) 3(1),(2) Ontario states that its for the most recently completed year. Alberta states use the GAP for the jurisdiction in which the franchisor is based and uses the phrase “minimum scope of review”

(c) Schedule 1 21 Allowing for exemptions under the regulations (2) 3(5) Ontario states “Despite subsection (1)” and “the disclosure document shall...” Also, it puts the requirement that 1(a) and (b) above still apply (3) 3(6)(a)and (b) Different wording but same meaning 4 n/a Statements 1 n/a Commercial credit report 2 n/a independent advice 3 n/a contact other franchisees 4 n/a cost of goods 5(1) n/a mediation (2) n/a mediation statement 6(1) documents presented together 1 Schedule 1 16(a),(b) and (c) Alberta states “a specific level or range of actual or potential sales, costs, income or profit...”

(i) Schedule 1 7 Alberta’s section deals with initial fees and other fees and has the same intent as the Ontario clause which less wordy (ii) Schedule 1 10 Alberta’s section deals with working capital and may have the same intent as this section (iii) Schedule 1 7 Alberta’s section speaks to payments as well 2 Schedule 1 16(a),(b) and (c) Alberta states “a specific level or range of actual or potential sales, costs, income or profit...” and it speaks to the preparation and presentation, whether it is based on existing outlets and the percentage of outlets that meet or exceed each range of results. Ontario is not so detailed 3 Schedule 1 16(a),(b) and (c) Ontario requires the same information. Ontario uses the phrase “earnings projection” and Alberta states “a specific level or range of actual or potential sales, costs, income or profit...” Alberta also draws a distinction between franchisee outlets and franchisor’s outlets. Ontario is not as detailed 4 Schedule 1 9 Ontario also includes the franchisor’s associate 5 n/a training offered to franchisees 6 n/a advertising fund (i) n/a

A n/a % spent in last 2 years B n/a % retained by franchisor (ii) n/a

A n/a projected contribution B n/a % projection C n/a % projected to be retained (iii) n/a reports on advertising activities 7 Schedule 1 11 Ontario asks for a description of any restrictions or requirements (i) Schedule 1 11 Alberta includes franchisor’s associate and the phrase “under the franchisor’s or associate’s specifications (ii) Schedule 1 11(a) Ontario uses “and” and Alberta uses “or” and between the clauses Alberta uses “or”

(iii) Schedule 1 11(b) Alberta uses the phrase “that limit the customers”

8 Schedule 1 12 Ontario wants a description of the franchisor’s policy, if any and Alberta wants the franchisor to state whether or not its receiving the benefits. Ontario also references commissions and payments and speaks about “volume” rebates 9 n/a Trademarks 10 n/a Licences needed to be obtain 11 Schedule 1 13 Ontario states “personally and directly” and adds a requirement about if the franchisee is a corporation 12 Schedule 1 18 same 13 Schedule 1 18 (last paragraph) Ontario refers to a level of sales and Alberta refers to the volume of sales; Ontario uses the word conditions and Alberta uses contingency; Alberta uses the phrase “the franchisee’s territory made be altered” and Ontario states “these rights may be altered”

14 Schedule 1 18 Alberta refers to an existing franchisee outlet and Ontario refers to an existing franchise (i) Schedule 1 18(a) Alberta refers to the franchisor establishing another franchise and Ontario does not refer to anyone doing the establishing (ii) Schedule 1 18(c) Alberta speaks of other methods of distribution and Ontario speaks of any other distributor (iii) Schedule 1 18(e) Ontario refers to a franchise owned or operated by the franchisor and Alberta refers to a franchisor outlet (iv) Schedule 1 18(d) Ontario refers to a franchise granted by the franchisor and Alberta refers to a franchisor establishing other franchises 15 Schedule 1 15 Ontario states “immediately preceeding the date of the disclosure document”

16 Schedule 1 15 Alberta states that it’s for the total operating territory with the previous 3 fiscal years and Ontario states for the “3 years immediately preceeding the date of the disclosure document; Ontario asks for the reasons and Alberta wants one to provide information (i) Schedule 1 15(a) different wording same meaning (Ontario includes franchisor’s associate)

(ii) Schedule 1 15(b) different wording same meaning (Ontario includes franchisor’s associate)

(iii) n/a *[Schedule 1 15 (d) -otherwise part] Ontario speaks to an occasion when the franchisee refuses to renew the system and both state otherwise left the system 17 Schedule 1 14 Alberta also asks for this information about franchisor outlets; when speaking to the less than 20 situation, Alberta only asks for franchisee outlets 18 Schedule 1 17 Ontario asks for a description of all restrictions or conditions and Alberta wants disclosure of the provisions and where they can be found in the agreement (i) Schedule 1 17

(ii) Schedule 1 17

7(1) Schedule 2 - Certificate Ontario demands that every disclosure document shall include a certificate certifying.... In Alberta Schedule 2 is the certificate (a) Schedule 2 - Certificate (a) Ontario adds representations or statements and Alberta uses “material fact”

(b) Schedule 2 (b)(c) Ontario uses broad language to basically capture what Alberta states (2) 2(3) The certificate must be signed and dated in both (a) 2(3)(c)

(b) 2(3)(b)

(c) 2(3)(a) Alberta requires that there be more than 2 directors or officers and Ontario requires there be more than 1 EXEMPTIONS

8 4 Ontario’s definition under the section referred to in the Act is like Alberta’s definition of a fractional franchise 9 6(1) Ontario’s section in the Act is similar to Alberta’s and the dollar amount is the same 10 n/a investing over a proscribed period of time 11 n/a exemptions to including financial information 1 n/a net worth over 5 million 2 n/a in the past 5 years (i) n/a 25 or more franchisees in Canada (ii) n/a 25 or more franchisees 3 n/a been in business for more than 5 years 4 n/a in the last 10 years directors etc. have not...

(i) n/a had a judgment etc. Canada (ii) n/a had a judgment etc. elsewhere 12 10 Alberta is Nov.1, 1995 and Ontario is January 31, 2001

The following Alberta sections are not included in the Ontario Regulations:

1(1)(a)(b), (2)

2(2),(4),(5)

5 6(2)

7(1)-(4)

8 9 Schedule 1 18(b)

19 - 21 Schedule 2 (c)

More information. For more information on franchising in Canada, the United States and internationally, please contact Peter Macrae Dillon, head of Siskinds Franchise Law Group. Peter is the author of the annotated Ontario Franchise Disclosure Act and the annotated Alberta Franchises Act and over 30 other publications on the subjects of franchising, licensing and distribution. He is licensed in Ontario and New York. Peter can be contacted at 800-816-9596 ext. 7818 or by email at peter.dillon@siskinds.com. Please visit our website at www.franchiselaw.ca The information contained in this note is for general reference only, and should not be relied upon as constituting legal advice.

peter macrae dillon Siskinds franchise franchisor franchising lawyer attorney Toronto Ontario Canada

Franchise Laws In North America - To learn more about this author, visit Peter Macrae Dillon's Website.

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