In our ongoing series exploring the various franchising laws in Canada, we’ve thus far looked at the franchising legislation of Alberta, British Columbia and Manitoba. These are three of the six provinces within Canada that have legislation specific to franchises. This month, we’ll check out an overview of Ontario’s franchising law.
The other two provinces that have franchising legislation in Canada are New Brunswick and Prince Edward Island.
Similar to other franchising laws in Canada, the Arthur Wishart Act (Franchise Disclosure), 2000 is designed to create a level playing field between franchisor and franchisee and promote cooperation and transparency between both parties. Much of the act focuses on disclosing information to potential franchisees, but it also offers other protections to franchisees.
Franchise Disclosure Document
In Ontario, the disclosure document must contain:
- Copies of all proposed franchise agreements and other agreements relating to the franchise.
- Financial statements as prescribed in the regulation made under the Act.
- All material facts, including facts as prescribed in the regulation.
- Necessary statements to assist a prospective franchisee to make an informed investment decision.
- Other information and copies of documents as prescribed.
- Signature(s) of a director or officer.
The Wishart Act describes a “material fact” as any information about the business’ operations, capital or control of the franchisor of the franchise system that can be reasonably expected to have a significant effect on the value of the prices of the franchise or the decision to purchase the franchise.
This document must be delivered to a prospective franchisee at least 14 days prior to the potential franchisee signing the franchise agreement or any other agreements related to the franchise. No payments — even refundable ones — can be made in that 14-day window.
If the disclosure document fails to comply with the Arthur Wishart Act, the prospective franchisee can terminate the franchise agreement without risk of penalty or any obligation for up to 60 days from the day the disclosure document was received. If the franchisee never received a disclosure document, they can cancel the agreement up to two years without risk of penalty.
If a franchisee does rescind the franchise agreement because the disclosure document was not complete or was not given at all, the franchisor must do the following within 60 days of the agreement being rescinded:
- Refund the franchise fee and any other money it received from the franchisee or on behalf of the franchisee except money for inventory, supplies or equipment.
- Purchase any inventory, supplies and equipment from the franchisee at a price equal to the purchase price the franchisee paid.
- Compensate the franchisee for any losses they may have incurred while acquiring and operating the franchise.
As is common with Canadian franchising laws, the Arthur Wishart Act imposes the duty of fair dealing upon both parties. This means both parties must act in good faith and in accordance with reasonable commercial standards. If this duty of fair dealing is not upheld, either party can sue the other for damages.
The term “good faith” isn’t actually defined within the Wishart Act itself, but some obvious tenants of good faith include:
- Parties must not lie to each other.
- Parties must not withhold important information from each other.
- Parties must not act in a way that compromises the purpose of the franchise agreement.
What constitutes good, and conversely, bad faith is decided on a case-by-case basis in the court system. If both franchisors and franchisees are transparent and fair with each other, there should be no problems.
Another protection the Wishart Act provides for franchisees in Ontario is the right to associate with each other. This means franchisees within a system can freely form or join any organization of franchisees without risking penalization from the franchisor. This is meant to promote free discussion among franchisees within a system or among franchisees in other systems.
Before entering into any type of agreement with each other, both parties should make themselves aware of the full text of the Arthur Wishart Act if they plan to open a franchise business in Ontario. For help finding a franchise in the province of Ontario or in any other province, sign up for a free FranNet franchise search and consultation today and let us help you find your perfect franchising match.