For the first time in British Columbia franchises are now subject to legislation with the enactment of the new Franchises Act (the “Act”) which took effect as of February 1, 2017.
With the enactment of the Act, British Columbia is the sixth Canadian province with franchise legislation, joining Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island.
The B.C. Government recognizes that franchise purchasers are making a significant investment, however they can sometimes be at a disadvantage when solely relying on the information provided by the company offering the franchise, due to a lack of knowledge, experience, and access to expert advice. The Act helps to rectify this imbalance and support the expansion of franchises by standardizing regulatory requirements, while at the same time encouraging investment in B.C. Franchisors selling franchises in B.C. must now deliver a compliant disclosure document to prospective franchisees at least 14 days before the execution of a franchise agreement or the payment of any consideration in relation to the franchise. This disclosure includes (but in not limited to) a description of the business opportunity itself, a list of all fees and costs a franchisee must pay to acquire and operate the franchised business, details of any litigation involving the franchisor or its affiliates, a description of any territory granted, and a list of existing and former franchisees for prospects to contact for more information. Audited or reviewed financial statements must also be a part of the disclosure package, together with copies of all contracts the prospective franchisee is required to execute.
In addition, the Act imposes retroactive application for certain claims, including damage claims relating to breaches of the duty of fair dealing and the right to associate. This means, as of February 1, 2017, franchisees and franchisors are able to make claims for breaches of the duty of good faith and fair dealing in the performance and enforcement of franchise agreements entered into prior to February 1, 2017.
Below is a brief summary of the main provisions of the Act.
Application – the Act applies to any franchise agreement entered into and to any renewal or extension of a franchise agreement that was entered into before, on or after the Act comes into force.
Fair Dealing – a duty of fair dealing, which includes acting in good faith and with reasonable commercial standards, is imposed on both the franchisor and the franchisee in the performance and enactment of a franchise agreement.
Right to Associate – a franchisee may associate with other franchisees and may form or join an organization of franchisees.
A franchisor and a franchisor’s associate must not, directly or indirectly, penalize, attempt to penalize or threaten to penalize a franchisee for associating with other franchisees, or for forming or joining an organization of franchisees.
Disclosure – a franchisor must provide a prospective franchisee with a disclosure document including financial and other relevant information about the franchise at least 14 days before the signing of the franchise agreement and the payment of any consideration.
Right of Rescission – conditions are set for the franchisee to rescind a franchise agreement upon a franchisor’s failure to provide satisfactory disclosure.
Damages – if the franchisee suffers a loss because of a misrepresentation in a disclosure document or in a statement of a material change, or as a result of a franchisor’s failure to comply with the provisions of the Act dealing with disclosure requirements in respect of material change, then the franchisee has a right of action against the franchisor, the franchisor’s broker, the franchisor’s associate and everyone who signed the disclosure document.
Attempt to Affect Jurisdiction Void – provides that a provision in the franchise agreement to restrict the application of the law of the province is void with respect to claims arising under a franchise document to which this Act will apply, including in respect of arbitration.
In conclusion, the Act is intended to benefit franchisors by continuing to establish uniform regulatory regimes across Canada and standardize franchise practices already followed by more sophisticated franchisors. Likewise, the Act will provide appropriate and needed legal protection to B.C. franchisees who are typically small business operators.
View the full text of the British Columbia Franch1ises Act.
Natalia M. Velletta is an Articled Student at Velletta & Company. Before pursuing her passion for law, Natalia attended the University of Victoria where she obtained her undergraduate degree in Education. Natalia also worked for the Government of British Columbia under the Superintendent of Motor Vehicles.