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Franchise law is due for an upgrade. When advising
franchise clients, franchise lawyers frequently lament the relative
infancy of the industry's legislation in Ontario. Enacted
only in 2000, the Arthur Wishart Act (AWA) has not been
around long enough to have resulted in enough litigation and court
guidance to instruct us on how many of the provisions are to be
interpreted.
This ambiguity can be frustrating for businesses who seek
answers to valid questions and sometimes receive only educated
guesses.
However, much about the way we conduct business has changed
since 2000, and many provisions of the AWA are outdated, antiquated
and, generally, impractical.
For instance, one of the hallmarks of the AWA (and franchise law
in general) is the requirement that franchisors provide Ontario
franchisees with the prospectus-like disclosure documents to aid
franchisees in making informed investment decisions.
Disclosure documents can be anywhere from 50 – 300 pages,
depending on the franchise system, and franchisors need to deliver
this, regardless of where they might be based.
Sadly, the AWA is entirely silent on whether a disclosure
document can be provided electronically, and this seeming nuance is
a tremendous source of stress for franchisors and sometimes forms
the basis of litigation when it's not complied with. The
requirement that it only be delivered personally or by registered
mail generally slows down negotiations between franchisors and
franchisees who would prefer to send and receive it by e-mail.
The AWA also states that a disclosure document must be given to
a franchisee at least 14 days before that franchisee signs any
agreement relating to the franchise. Much to the chagrin of
franchisors, this rule is worded just broadly enough that it likely
includes non-disclosure or confidentiality agreements within its
scope. This means that when a franchisor provides its
disclosure document to a prospective franchisee, it must wait at
least 14 days before it can require the franchisee to keep all of
the information contained in it confidential. Given that
disclosure documents include the franchisor's financial
statements, proprietary information and estimates of operating
costs, this is no minor inconvenience.
The only (small) comfort that franchisors with franchisees in
Ontario can take is that all of their competitors are dealing with
the exact same issue.
The AWA's legislative counterparts in Alberta, PEI, New
Brunswick and Manitoba have managed to address these, and other
problematic, requirements in their respective language. The
AWA is a mere 12 years young, and is already creaky and out of
touch with business realities. The time for a refresher is
now.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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