In a follow up to my recent blog about franchise agreements, I started doing some research into the Arthur Wishart Act (Franchise Disclosure). Recall that that Act applies to franchise agreements (which encompasses a broad range of business activities) or renewals of franchise agreements that are entered into on or after January 7, 2000 (i.e. when the Act came into effect).
So here’s a brief summary of what the Act is all about:
- The Act applies to franchise agreements in Ontario, irrespective of what those agreements say (and even if those agreements try to exclude the application of the Act). If the agreement has the following characteristics (which is one of the tests), then it’s deemed to be a franchise agreement and the Act Applies:
- one party (franchisee) pays another for the right to operate a business (franchisor);
- one party (franchisor) grants certain rights to the other party (franchisee) to use its trademark; and
- one party (franchisor) has significant control over how, when, where, etc. the other party (franchisee) will operate the franchised business.
- The Act creates a duty of fair dealing between the parties (which requires the parties to act in good faith and in accordance with reasonable commercial standards).
- The Act creates a cause of action for damages against another party who violates this duty of fair dealing.
- The Act imposes a duty on the franchisor to provide comprehensive documentary disclosure.
- The Act allows a franchisee to rescind a franchise agreement where such disclosure has not been given or has been given late.
- The Act also allows for statutory causes of action where the disclosure contains misrepresentations or fails to contain prescribed information (which can be found in the Act and General Ontario Regulation 581/00 made under the Act).
- The Act allows franchisees to associate (i.e. form an organization of franchisees to share information, knowledge, etc.), which cannot be prohibited by the franchisor through the franchise agreement.
And here’s a brief history of how the Act came to be (source: Daniel F. So, Canadian Franchise Law Handbook, (Markham, Canada: LexisNexis Canada Inc., 2005), pp.22-26):
- Arthur Wishart was a Conservative MPP for Sault Ste. Marie (and Minister of Financial and Commercial Relations during the late 1960s and early 1970s).
- Arthur Wishart launched an inquiry into the perceived evils of franchising, which resulted in the Grange Report (1971).
- The Ontario government formed the Franchise Sector Working Team in late 1994 to create a legislative framework for the franchise sector.
- Two bills were introduced in mid-December 1995: Bill 33 (not so interventionist, providing for disclosure obligations, a duty of fair dealing, and the right to associate) and Bill 35 (highly interventionist with a code of conduct and alternative dispute resolution built in).
- The Standing Committee on Regulations and Private Bills reviewed both bills, held extensive public consultations with franchisors and franchisees and ultimately recommended Bill 33.
- Bill 33 was given a second and third reading in the House of Commons on May 17, 2000 and received royal asset on June 8, 2000.
- The Act’s duty of fair dealing requirement came into force on July 1, 2000 and the Act’s disclosure requirement provisions came into force on January 31, 2000.
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning franchise agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Ontario business lawyers registered on the website who can answer your questions or help you with your franchise agreements.
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