Archive for October, 2013

The Case For Mediation and Arbitration of Franchise Disputes

October 30th, 2013

by Frank Zaid - link to his profile

Franchising has become big business in Canada. According to the Canadian Franchise Association website, franchise businesses account for 40% of all retail sales in Canada and there are over 78,000 franchise units across Canada. Franchising directly employs over 1,000,000 people, amounts to 10% of Canada’s gross domestic product, and accounts for 1 out of every 5 consumer dollars spent in Canada on goods and services.

Commensurate with the growth of franchising in the marketplace, franchise legislation has now been enacted in five provinces in Canada (in order of enactment, Alberta, Ontario, Prince Edward Island, New Brunswick and Manitoba). In addition, franchising is generally regulated in Quebec under that province’s Civil Code, in which franchise agreements are considered to be contracts of adhesion. The Manitoba Law Reform Commission, in its Franchise Law Consultation Paper of May 2007, stated that, “every year, thousands of Canadians are improving their lives by becoming franchisees”.

The franchise relationship is governed principally by a franchise agreement between a franchisor, the entity that owns the franchise system rights, and the franchisee, the person who obtains the right to operate a business in accordance with the franchisor’s business standards and the franchisor’s trade-marks. Franchise agreements are complex documents, reflecting the rights granted to the franchisee, the obligations of the franchisee to operate a business in accordance with the franchise system, and the rights and obligations of the parties to each other in respect of the franchisor’s administration of the franchise system and the franchisee’s standards of operation of the franchised business. Over the years a considerable number of franchise disputes have been heard by the courts, usually on an individual franchisee/franchisor basis. As the number of franchisees within a given franchise system grows, so do the number of disputes revolving around a common issue to all or virtually all of the franchisees within that system, both past and present. In more recent times some large group actions have been brought for damages allegedly caused to the franchisees by the franchisor in respect of contractual breaches or misrepresentations. With the introduction into Ontario of class action legislation in 1992 under the Class Proceedings Act, franchise disputes common to a distinguishable group of all or substantially all the franchisees within a specific franchise system have become the subject matter of very large and significant class actions. Companies with such prominent names as Petro Canada, Bulk Barn, A&P, Midas, Quiznos, Tim Hortons, Sears, Suncor, Pet Valu and Shoppers Drug Mart, and even the Ontario Government, have been or are currently involved in franchise class actions.
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