Updated December 2023
While individual provinces in Canada have the option to create and administer laws related to franchising, there are some parts of the country that don’t have any franchising regulations. In fact, only six of the ten Canadian provinces have franchising legislation. These are:
- Alberta
- British Columbia
- Manitoba
- New Brunswick
- Ontario
- Prince Edward Island
That leaves Newfoundland & Labrador, Nova Scotia, Quebec, Saskatchewan, the Northwest Territories, Nunavut and Yukon Territory without any franchising legislation in place. While these areas don’t have clear regulations regarding franchising, they’re still held to any federal and provincial laws that apply to franchised businesses, such as: income tax, packaging and labelling, competition, privacy and intellectual property, consumer protection, sales taxes, class action and liquor licensing, and more.
Enacted in 1971, the Alberta Franchise Act was the first Canadian province to enact franchising legislation, which states that franchisors must provide a Franchise Disclosure Document (FDD) to prospective franchisees at least 14 days before they pay any non-refundable franchise fees or sign a franchise agreement.
Further Reading: Franchise Disclosure Document (FDD) Requirements in Canada
What Is Included in the Alberta Franchise Act?
An FDD is a legal document that provides potential franchisees with key information as they make a decision on whether or not to buy a particular franchise. While it’s not required in every Canadian province, it’s certainly recommended as best practice for franchisors to provide this document to prospective franchisees as it can help set everyone up for success.
The disclosure document must include:
- The franchisor’s financial statements
- Information about the franchisor
- Obligations of both parties
- Fees and initial investment levels
- Territorial considerations
- The franchisor’s proximity policy
- Restrictions on products and supplies
- Rebates and discounts accruing to the franchisor
- A list of franchisees currently operating in Alberta
At least two officers or directors of the franchise must sign a certificate that states the disclosure document does not contain any untrue statements in regard to material fact and also does not omit any material facts. However, the act does give franchisees a right of action for any damage or losses they suffer due to a misrepresentation in the disclosure document.
What Happens if the FDD Is Not Administered Correctly?
If a franchisee suffers losses due to a misrepresentation in the disclosure document, the franchisee has a right of action to collect damages against the franchisor and the people who signed the disclosure document.
If the franchisor fails to provide the disclosure document within the required timeframe of 14 days, the prospective franchisee may rescind the agreement by notice of cancellation given no later than 60 days after receiving the disclosure documents or no later than two years after being granted the franchise if no disclosure document is provided within that time.
Within 30 days of receiving the notice of cancellation, the franchisor must compensate the franchisee for any net losses the franchisee has incurred from acquiring, setting up, or running the franchise.
Specific Requirements Regarding Earnings Claims
As part of the franchising act, the franchisor must provide details of the earnings claims information they give to prospective buyers. Earnings claims information should allow franchisees to reasonably ascertain potential sales, costs, income, and profit from running the franchise.
The details must include whether the earnings claims are based on actual results of the franchise’s existing outlets, plus the percentage of outlets that meet or exceed the expected earnings. The information must have a reasonable basis in reality and should provide franchisees a way to substantiate the claims.
The franchisor must also state clearly whether the information being provided comes from a franchisor operated outlet and how exactly that information might differ from a franchisee operated outlet.
Looking to Buy a Franchise in Canada?
Whether you’re in Alberta or a different province, FranNet can help if you’re interested in buying a franchise in Canada. Our Canadian franchise consultants will evaluate your personal goals and skills and match you with the right franchise. From there, they will guide you through the process from start to finish answering any questions you have. You won’t have to pay us a dime! Schedule your free consultation today to get started!