Buying a Franchise in Canada. Tony Wilson

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СКАЧАТЬ or are the subject of a certification drive by a union, or have already been certified. It may be that a certification drive in another part of the province could eventually affect the franchised business being acquired by you. This knowledge in advance will at least allow you to assess whether unionization of your franchised business would have any substantial or negative impact upon its economics or viability.

      It is common knowledge that trade unions are moving into sectors such as retail and food services, and you should be aware of the potential for certification. Certainly in British Columbia (and perhaps other provinces), any actions or statements by you to dissuade a union certification may backfire by being deemed as an unfair labour practice. Caution, restraint, and legal advice are urged in these circumstances, together with aspirin.

      8. Good Faith, Fairness, and Reasonableness

      The Ontario, PEI, and Alberta franchise laws impose a statutory duty of fair dealing in the performance and enforcement of the franchise agreement. The other provinces do not have such legislation but case law (that is, judge-made law) would indicate that there is a “common law” duty of good faith and fair dealing in some provinces, but the law is somewhat divided on this point.

      It’s important to note that it’s not just the franchisor who must deal fairly with the franchisee. The franchisee must deal fairly with the franchisor as well. In my experience, there are ample cases of franchisees acting unfairly to the franchisor, underreporting or withholding royalties, deliberately not following the system, and carrying on the business in more or less permanent state of “cold war” with the franchisor. In other words, there are bad apples and bad actors among franchisees. Fairness and good faith, then, work in both ways. Franchisees who act unfairly and in bad faith will (and should) face the same legal sanctions as franchisors who do.

      Regardless of whether you have an issue with the franchisor over some element of the franchise system you don’t like, such as new requirements by the franchisor, interpretation of the operations manual, or for any other reason, withholding royalties, underreporting gross sales, undermining the franchised system, or misrepresenting information may well breach this duty of fair dealing as well as breach the franchise agreement. If it comes to litigation, such tactics won’t look good in court and may well exacerbate your legal situation. Both you and the franchisor must act fairly under the agreement towards each other. You must take the high road.

      While acting for franchisees “discussing” the franchise agreement before it is signed, I have, in some cases, been able to persuade franchisors to add a provision to their agreement to the effect that “the parties will deal with each other fairly and in good faith.” “If it’s the law anyway,” I argue, with only a touch of embellishment, “why not state it in the agreement?”

      If they aren’t prepared to do this, my polite and measured response is: “Sorry, did I hear you correctly? You’ve made all sorts of representations and provided all sorts of comfort to my client about how fabulous this franchise is, how great the location is, how good the other franchisees in the system are, how successful the system is, and how you see the franchisees as your ‘partners’ and your ‘family,’ but you won’t covenant in the agreement to treat the franchisee fairly and in good faith? Did I hear that correctly? Does that mean you want the right to treat them unfairly and in bad faith?”

      I’m happy that most franchisors who I’ve “discussed” this with will agree to such a request. It needn’t be done in the body of the agreement. It can be done in an addendum to the agreement (an addendum being a modification to the franchise agreement that forms a part of the agreement and is usually attached at the end of the document). It can also be in the form of a “letter agreement” as long as it’s signed by both parties and acknowledged to be a modification of the agreement.

      Although what might be called the standard Canadian form of franchise agreement usually provides for the franchisor acting reasonably in most circumstances in which it can exercise discretion (e.g., “the franchisor, acting reasonably shall … ” or “subject to the reasonable approval of the franchisor”) there may be issues in which you may want to add “reasonableness” language (e.g., “the franchisor, acting reasonably shall … ” or “the parties, each acting reasonably and in good faith, shall … ”). Remember, pick carefully and don’t nitpick!

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      “Buying” into the Franchise

      By the time a prospective franchisee appears in his or her lawyer’s office for advice concerning the acquisition of a franchise, one or more of the following things have likely occurred:

      • The prospective franchisee has been to a trade show and has become interested in acquiring a particular franchise.

      • The prospective franchisee has been surfing the Internet and has become interested in acquiring a particular franchise.

      • The prospective franchisee has approached or been approached by a franchisor (or its sales agents) and has become interested in acquiring a franchise.

      • The prospective franchisee has executed a deposit agreement and has paid between $2,000 and $10,000 towards the initial franchise fee (and has been given a copy of the formal franchise agreement to review).

      • The prospective franchisee has signed the deposit agreement, paid a deposit, and executed the franchise agreement.

      • The prospective franchisee has made or is about to make an offer to lease premises for the franchised business, including having paid or being about to pay a deposit to the landlord (or its leasing agents).

      • The prospective franchisee has made or is about to make an arrangement to buy an existing franchise from another franchisee.

      • The prospective franchisee has been given a copy of the franchisor’s disclosure document.

      • In very bad situations, the franchisee has already signed the franchise agreement.

      If you are considering buying into a franchise, you should talk to a franchise lawyer before you sign any documents or pay any deposits or fees. My recommendation is that it should be a lawyer with experience with franchise law. This chapter will help you understand why it is important to consult a franchise lawyer as early as you can in the franchising process.

      1. Who Are You Dealing With?

      You can tell a little about a franchisor by knowing who the “sales force” is and how it “sells” its franchises. Is the seller a director, officer, or key employee of the franchisor? Is the seller employed directly by the franchisor or has the seller otherwise worked exclusively for this franchisor for a reasonable time period? Is the salesperson on “commission,” meaning he or she gets paid when he or she “closes a deal”? Is the salesperson part of a brokerage network such that if you are not keen on acquiring a coffee franchise with headquarters in Seattle, the seller can sell you an extremely successful chicken concept hailing from Toronto, a low-carb wrap franchise catching on in Boston, or a pizza franchise with headquarters in Edmonton?

      It may be that once the sales process has been concluded, and you have “bought in,” the friendly and charming people who “sold” the franchise to you have somehow stopped returning phone calls and emails, and have moved on to the next customer or the next up and coming concept. To your surprise and trepidation, you must now deal with perhaps a less-than-friendly president of a less-than-friendly СКАЧАТЬ