Tensions between franchise owners and parent companies are not uncommon in business. Such tensions are behind serious franchise law concerns being raised by Tim Hortons franchisees in Ontario and throughout Canada. According to the Great White North Franchisee Association, a franchisee has been denied renewal of his agreement for one of his two Toronto restaurants.
Becoming a franchisee is a big decision that should not be taken lightly. One of the best ways to avoid future franchise law issues is by taking the right first steps when identifying, researching and choosing a franchise opportunity. These steps are important for all franchisees in Ontario, whether they are new to the business or they are familiar with the franchise system.
The decision to purchase a business is a complicated one. Ontario business people who are considering buying an existing franchise should be aware of franchise law before making this decision. They should also ask four key questions before deciding whether the sale is right for them.
In a recent case, Hepburn v AlarmForce, 2017 ONSC 6012 ("Hepburn"), the Ontario Superior Court of Justice considered the circumstances in which a "material change" may trigger the disclosure obligation in a renewal of, or extension to, an existing franchise agreement. The decision also addressed the evidentiary considerations engaged in the context of a motion for summary judgment.
When the parent company of a franchise changes hands, it can cause a ripple effect through independently owned locations. While some changes and behaviour may be permitted under an agreement, franchise law gives owners certain protections and rights in Ontario. Several Tim Hortons franchisees have brought an $850 million class action lawsuit against their parent company, Restaurant Brands International Inc, alleging bullying and intimidation.
The coffee chain Tim Hortons is often advertised as a symbol of Canadian culture but has faced backlash from franchisees since its sale to Restaurant Brands International Inc. RBI, an American company with a Brazil-based majority owner, took over Tim Hortons in 2014. Franchisees claim that RBI implemented dramatic changes which negatively affected their operations, and many are pointing to franchise law and class-action suits to settle these grievances.
Purchasing a franchise is a major business decision. The Arthur Wishart Act (Franchise Disclosure) ("the AWA") recognizes this fact and seeks to assist prospective franchisees by imposing strict financial and other disclosure requirements on franchisors. The legislation is aimed at ensuring that franchisees have sufficient information to decide whether or not they wish to enter into a franchise purchase transaction. If a franchisor fails to abide by the disclosure requirements contained in the AWA, then the franchisee may elect to "rescind" the franchise agreement altogether. Depending on the circumstances, the franchisee may also be entitled to damages.
Building a business from nothing can be a time-consuming process without guaranteed results. Many Ontario entrepreneurs start with a franchise of an already successful enterprise, hoping to skip the initial difficult years. However, purchasing a franchise comes at a price. In return for the franchisor's expertise, the franchisee (the person buying the franchise) typically pays a substantial price.
Buying a franchise means making a large investment. Buyers should be aware that they have the legal right to comprehensive information about the franchise before the deal is finalized.