The new B.C. Franchise Act comes into force Feb. 1, 2017 and puts Canada's most westerly province in line with five others with similar legislation. While the act was passed in Nov. 2015, the B.C. government has been drafting regulations which were passed last month.
“We have five provinces out of 10 that have put in acts before us and that has allowed us to shine,” says John L. Rogers, chair of Clarke Wilson LLP franchising group. B.C. has had the advantage of drawing from other statutes and a 16-year-old body of case law ranging back to Ontario's Arthur Wishart Act (Franchise Disclosure 2000) to crafts its progressive legislation.
Franchise legislation is a response to the burgeoning commercial growth of franchises in Canada, says Rogers.
"Franchises in Canada represent 45 per cent of all retail and that figure is going to hit 50 per cent in the next few years," he says, adding that while the food industry is best known, franchising now permeates nearly every service sector ranging from printing and signage production to graffiti removal companies.
The B.C. Franchise Act and regulations sets out disclosure information the franchisor must provide to purchaser in a Franchise Disclosure Document to enable a buyer to make an informed decision. Such information includes a financial statement, the franchise agreement to be signed, contact information of existing and past franchise holders, pending legal suits, or outstanding debts, pending union certification, and federal and provincial licensing requirements that the franchisee must meet. There is a 14-day cooling off period that benefits the potential buyer after receiving the FDD. The new legislation also provides for redress for the buyer should the franchisor misrepresent information.
Rogers said one distinction seen is that the act does not allow grandfathering and all new franchise agreements and those renewing must comply.
As a member of the Canadian Franchise Association's legal and legislative affairs committee, Rogers said that the legislation still permits larger franchise companies to use their existing disclosure documents. The new act features a "wrap-around" FDD provision which allows them to modify their document to meet B.C. requirements rather than issue a new document. "A lot of companies are American and for them that is a big deal. They don't want to reinvent the wheel," he says.
Other new features include: a definition of earning projections for franchisors wanting to include such information in a FDD and documents can be delivered to a potential buyer via email as well as personally or couriered.
Broughton Law Corporation franchise lawyer Tony Wilson, who was a member of the B.C. advisory committee to the provincial government on the new legislation, says the new act and regulations "levels the playing field" amongst the six provinces and has also enhanced franchise legislation. "We provided the government with advice; there was a lot of to-ing and fro-ing in the meetings, but it resulted in what I think is the best strategy in Canada," he says.
One of the features that will benefit franchisees is the act's requirement any legal dispute (court cases or arbitration) should be settled in B.C. For franchisees with a parent franchise company headquartered in the U.S. or Eastern Canada, that can mean a substantial cost saving in travel time and costs, such as hiring a local lawyer. "Especially in the U.S., where cases can be long and protracted," Wilson said. (A provision of the act also does not allow a franchisee to waive rights inferred by the legislation).
Wilson also said B.C.'s act, in s. 9, sets out substantial compliance in disclosure requirements rather than strict compliance as is found in Ontario's statute. Substantial compliance provides greater balance between the franchisor and franchisee, he said, as it provides for a defect in form or technical error that does not affect the substance of the FDD or the statement of material facts.
Strict compliance can lead to a franchisee searching a contract agreement for a technicality simply to because that person made a poor business choice. "It is too handy to get out of a deal," he says.
Wilson sees the legislation as providing a balance, neither favouring franchisees nor franchisors. "I think the provincial government in its deliberations looked across Canada and made some real improvements," he says.
