A Franchises Act and regulations for B.C. have recently been finalized by the provincial government and will come into force on February 1, 2017.
In the meantime, franchisors who operate or intend to operate franchises in B.C. will have time to amend or prepare franchise agreements and franchise disclosure documents (FDDs) that comply with the new requirements.
An FDD must be delivered to every prospective or renewing B.C. franchisee from and after February 1, 2017.
What’s not new about B.C.’s legislation
The B.C. legislation has many features of the franchise legislation already enacted in the provinces of Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island. These similar features include:
· All franchises (to be) located in B.C. will be bound by its franchise legislation.
· Every prospective or renewing franchisee must receive an FDD at least 14 days before signing an initial or renewal franchise agreement (assuming the renewal franchise agreement has any material change to the original document, which is usually the case).
· If an FDD is not delivered, the franchisee has two years to rescind (terminate) the franchise agreement and receive a return of monies paid under it and potential damages. If an FDD is delivered but has defects, the franchisee has 60 days to rescind. For serious defects, some courts may extend the rescission period to the full two years.
· In the performance and enforcement of a franchise agreement, the franchisor and franchisee are bound by duties of fair dealing and good faith to each other, in accordance with reasonable commercial standards.
· Any claim regarding a franchise located in B.C. must be heard by a B.C. court (for example, for a serious misrepresentation made in an FDD or breach of the statutory duty of fair dealing or good faith).
· A franchisee may not waive any right given to it by the legislation or performance of any obligation of the franchisor under the legislation.
What is new about B.C.’s legislation
The B.C. legislation does have a number of important features that differ from legislation in all or some of the other provinces. These differences include:
· The legislation will bind franchises existing in B.C. from February 1, 2017 (no “grandfathering” out of existing franchises, as in other provinces).
· A wraparound FDD covering all or some of the other provinces bound by franchise legislation may be used, provided it is amended to cover the requirements of the B.C. legislation, including deletion of anything contrary to such legislation.
· FDDs may be delivered in a broad number of ways: personally, by email or by prepaid courier.
· A franchisor may require of a prospective franchisee a refundable deposit of up to 20% of the initial franchise fee, a confidentiality agreement and/or an agreement selecting a location and/or a protected territory before delivery of an FDD. Some of the other provinces have similar provisions.
· An arbitration of a dispute relating to a franchise located in B.C. must be heard in B.C. court, according to B.C. rules. Any provision(s) to the contrary in a franchise agreement will be void.
· “Substantial compliance”: a technical defect in an FDD or statement of material change (SMC) that is not substantive will not bring the FDD or SMC into non-compliance provided the FDD or SMC substantially complies with the act. Some of the other provinces have similar provisions.
· A unique definition of “earnings projection” is included in the regulations for the guidance of franchisors whose FDDs will make such a projection.
· In addition to requiring a franchisor to attach to its FDDs copies of any guarantee and/or security agreement it will require the franchisee to sign, the regulations call upon the franchisor to disclose its “policies and practices” regarding such requirement(s). This is a requirement unique to B.C.
· While an FDD must disclose all federal and provincial licensing and registration requirements for the franchised business to be met by the franchisee, with respect to municipal requirements, it only needs to state that the franchisee should make its own inquiries.
· As an exception to the general “non-waiver” rule above, a franchisee may give an enforceable release in connection with settlement of a dispute with the franchisor.
B.C. case law still to be developed
B.C. will need to develop its own body of franchise case law as and when litigation arises under the new legislation. For an initial period after implementation, the B.C. courts are likely to be strongly influenced by the large body of franchise case law of the province of Ontario, as it has developed over the past 16 years since the Arthur Wishart Act (Franchise Disclosure, 2000) became law there. In many ways, Ontario case law favours franchisees; the Ontario Court of Appeal has stated that “the [Ontario] Act is designed to protect franchisees and is to be given a broad interpretation in that regard.” Ontario courts and courts of the other regulated provinces have deemed franchise legislation to be akin to “consumer protection legislation” with the franchisee seen as the consumer.
However, when it comes to arbitration of a franchise dispute, only the B.C. legislation requires the arbitration to be heard in B.C., applying the B.C. law of arbitration, despite any franchise agreement provision to the contrary.
The B.C. advantage
Six of the 10 provinces of Canada now have franchise legislation. B.C. has taken advantage of being the sixth in considering adoption of, changes to and additions to legislation already existing in the other regulated provinces before enacting the B.C. Franchises Act and regulations, which may now be the most progressive legislation in the field of franchising in Canada.
John L. Rogers is a franchise lawyer with Clark Wilson LLP in Vancouver. He practised franchise law for eight years in Toronto, where he became familiar with franchise legislation in Ontario and four other regulated provinces. He has prepared numerous franchise disclosure documents for various provinces. Contact him at 604-891-7758 or [email protected].
Join B.C.'s New Franchise Legislation -- Time to Comply panel discussion on November 30, 2016 to learn how to navigate the new rules taking effect. Are you prepared? For more information, visit www.biv.com/timetocomply .
