In our ongoing series exploring the various franchising laws in Canada, we’ve thus far looked at the franchising legislation of Alberta, British Columbia, Manitoba, Ontario and New Brunswick. These are five of the six provinces within Canada that have legislation specific to franchises. This month, we’ll check out an overview of Prince Edward Island’s franchising law.
The other four provinces; Newfoundland & Labrador, Nova Scotia, Quebec and Saskatchewan; do not have any legislation specific to franchising and neither do the three territories.
The Island’s franchising legislation started coming into effect in the summer of 2006 and fully took effect on Jan. 1, 2007, making it the third province behind Alberta and Ontario to have laws specific to franchising.
The provincial government created the legislation following complaints from some Prince Edward Islanders who bought franchises from off-Island companies and who felt they were being treated unfairly by those companies.
The act imposes a duty of fair dealing on both franchisors and franchisees operating within PEI in the performance and enforcement of the franchise agreement, as well as a right of action for damages against another party to a franchise agreement who breaches the duty of fair dealing.
Under the law, franchisees have the right to associate with other franchisees and to form or join an organization of franchisees. The legislation also ensures that all legal matters pertaining to franchisees are dealt with on the island by saying any attempt to limit the application of the laws of PEI or to require that claims be resolved outside PEI are void where such claims would otherwise be enforceable under PEI’s Franchises Act. It also states that any attempt by a franchisee to waive any rights prescribed by PEI’s Franchises Act is void.
Franchisors are required to provide prospective franchisees, who will operate partly or wholly in PEI, with a disclosure document no less than 14 days before the signing of a franchise agreement or the payment of money by the prospective franchisee to the franchisor.
The disclosure document has to disclose all material facts, including:
- risk warnings,
- the business background of the franchisor,
- the business background of directors, general partners and officers,
- previous convictions and pending charges of any of the directors, partners or officers,
- administrative orders and proceedings,
- civil actions and liabilities and any bankruptcies the franchisor has been involved with,
- costs and fees of establishing the franchise,
- the franchisor’s financial statements (unless the franchisor qualifies for an exemption),
- an estimate of the operating costs and earnings projection,
- information on financing, training and advertising,
- purchase and sale restrictions,
- information about rebates, commissions, payments or other benefits,
- information pertaining to territory and proximity to other franchisees or businesses associated with the franchisor
- information about trademarks and other proprietary rights,
- what personal participation is expected from the franchisee in the franchise,
- information about termination, renewal and transfer of the franchise,
- information about dispute resolution within the franchise system and
- a list of all current and former franchisees.
PEI’s Franchises Act allows franchisors to use a disclosure document that complies with the requirements of a jurisdiction other than PEI if the franchisor also includes a “wraparound” document that contains supplementary information that is required to be compliant with the island’s franchising law.
If the franchisor does not provide the necessary disclosure to a prospective franchisee, the legislation entitles the franchisee to rescind the franchise agreement up to 60 days after receiving a disclosure document if the franchisee received an incomplete document or two years after entering into the franchise agreement if the franchisor failed to provide a disclosure document at all.
If a franchise agreement is rescinded, the franchisor must refund to the franchisee any money that it received from the franchisee, purchase back any any supplies and inventory from the franchisee that the franchisee purchased as required by the franchise agreement and compensate the franchisee for any losses incurred in acquiring, setting up and operating the franchise.
In addition, PEI’s Franchises Act provides a franchisee with a right of action for damages against a franchisor if the franchisee suffered a loss because of misrepresentations contained in the disclosure document, or as a result of the franchisor’s failure to disclose.
If you’re looking for a franchise in Prince Edward Island or anywhere else in Canada, FranNet can help you find the perfect fit to get you started on your path to entrepreneurship. We work with franchises all across Canada. Sign up for a free FranNet franchise search and consultation today and let us help you on your way to business ownership.