New Law on Franchising

After Alberta, Ontario and Prince Edward Island, now New Brunswick gets ready to put in force a law on franchising. The Government of New Brunswick has just announced regulations on franchising to put in force the law on franchising it adopted in 2007.

The provinces with a law on franchising require that a franchisor provide a Disclosure Document to eventual franchisees. A Disclosure Document contains the history, activities, franchise closings, extracts from the Franchise Agreement, human resources, policies and financial statements of a franchisor as well as certain mandatory extracts of the franchise law and/or regulations.  

It is interesting to note that legislation on franchising in provinces that have adopted same provides that a franchisor of another province which requires the remittance of a Disclosure Document to an eventual franchisee can submit this document to an eventual franchisee in another province that requires the remittance of a Disclosure Document, provided that the Disclosure Document contains all the information required by the law on franchising in the concerned province.

It is also interesting to note that the Uniform Law Conference of Canada has drafted a law called “Uniform Franchise Law” which provides for the contents of a Disclosure Document for use by all the provinces. Provinces have the choice of adopting this law for their province, of adopting an amended version of this law or of drafting and adopting their own law on franchising. 

In other provinces (except Quebec), a legal system called Common Law exists (Court judgments) and applies to commercial matters. In Quebec, legislative provisions contained in the Civil Code of Quebec (laws written by the legislator) apply to commercial matters. The principal provisions applicable to franchising are the notion of the contract of adhesion (when the essential stipulations included in a contract are imposed by one of the parties), the implied obligations of parties to a contract and the obligation of contracting parties to act in good faith.

Like in all provinces in Canada, there are also other federal, provincial and municipal laws and regulations which apply to areas that touch franchising (intellectual property, competition, consumer protection, sale of businesses, securities, construction, registration of companies, advertising, personal information, etc).

The law and regulations on franchising in New Brunswick should come into force before the end of 2009.

What does the adoption of a law on franchising in New Brunswick imply for franchisors (and other groups) in provinces that do business in New Brunswick?

For franchisors (and other groups) which already do business in New Brunswick or are ready to export their franchise concept to this province, the answer depends on their situation:

       1) If a franchisor already does business in Alberta, Ontario and/or Prince Edward Island, it already has a Disclosure Document. In this case, it can make changes to its Disclosure Document to reflect the differences in the new law and regulations on franchising in Nouveau-Brunswick;

       2) If a franchisor does not already do business in one of the above-noted provinces, it must draft a Disclosure Document and provide it to all eventual franchisees.

What does the putting into force in another province of a law on franchising imply for provinces that don’t have a law on franchising?

It depends on the province. I think there has been a trend in Common Law provinces in recent years to adopt franchise legislation. Manitoba has just finalized such a law and certain other provinces will probably follow suit.

As for Quebec, the laws presently in place (including jurisprudence or case law) as well as associations in the province (the Conseil québéçois de la franchise (CQF) to name the most important) protect the rights of franchisees. However, franchisors don’t have any disclosure requirements.

Will it be easy to amend an existing Disclosure Document from Alberta, Ontario and/or Prince Edward Island to have it reflect the new regulations in New Brunswick?

The new regulations in New Brunswick should be fairly easy to integrate into the existing Disclosure Documents in these provinces (3-5 hours, according to the province).

In fact, the new regulations were inspired by the franchise regulations in Prince Edward Island and contain certain parts of the Arthur Wishart Act (Ontario). Therefore, the amendments to the Disclosure Document of a franchisor in Prince Edward Island should take the least time, one from Ontario a little more time and one from Alberta more time.

It is interesting to note that New Brunswick has introduced the concept of mediation to franchising and that the regulations contain additional disclosure requirements pertaining to manuals, competition from a franchisor, the disclosure of information, unilateral changes and trade marks.

Claude J. Pellan, Attorney
Franchise and Business Law
www.claudepellan.com