Canada

• Author: Peter Snell - Larry Weinberg - Dominic Mochrie
• Pages: 91-138

90 International Franchise Sales Laws

Canada

Introduction

This chapter discusses the franchise laws that are currently in force in the provinces of

Alberta, Manitoba, New Brunswick, Ontario, and Prince Edward Island (PEI) in Canada.

As of this writing, these are the only five provinces in Canada with franchise laws in

effect, the most recent being Manitoba, whose legislation came into force on October

1, 2012. In April 2014, the British Columbia Law Institute published a report recom-

mending that the province enact franchise legislation. The report was submitted to the

British Columbia legislature, with the likely result that British Columbia will enact

franchise legislation. None of the other provinces and territories of Canada has a

franchise law.

The reader may invariably ask why there are franchise laws in some parts of a

country but not in others. The answer is rooted in Canada’s political structure and

constitutional division of powers. To avoid confusion, this Introduction will provide a

short primer on the topic.

Canada, like the United States, has a system of federalism. All aspects of govern-

mental power are divided between the federal (national) and provincial levels of gov-

ernment. While there is but one federal government, there are ten provinces. In addition,

there are three territories, which constitute much of Canada’s sparsely populated north.

Territories enjoy a certain degree of autonomy and have their own territorial govern-

ments, but otherwise rely to a great extent on the federal government.

The constitution of Canada grants the federal government exclusive jurisdiction

over many areas, including trade and commerce, banking and bills of exchange,

bankruptcy and insolvency, trademarks, patents, and copyrights. On the other hand,

the constitution grants provincial governments exclusive jurisdiction over such areas

as property and civil rights as well as the administration of justice in the provinces.

Of relevance to Franchisors, therefore, is the fact that intellectual property law

(patents, trademarks, and copyright), as well as competition (antitrust) law, is within

the federal jurisdiction with statutes that apply nationally, while private contractual

matters fall within the purview of the provincial governments with their jurisdiction

over property and civil rights. Hence, any franchise legislation in Canada will only

ever likely arise at the provincial level, and to date, as mentioned, only the provinces

of Alberta, Manitoba, New Brunswick, Ontario, and Prince Edward Island have laws

that are fully in force. For their assistance in the preparation of this chapter on Canada,

the editors and authors would like to thank Leonard H. Polsky, contributing co-au-

thor, and Frank Zaid, previous co-author.

Canada 91

I. What Is a Franchise?

A. Scope of Law

In Alberta, franchise offers and sales are subject to the Franchises Act, Chapter F17.1

(the Alberta Act). This act, adopted in 1995, superseded a law first adopted in 1971

that required disclosure and registration in the “trading” of franchises. The Alberta

Act eliminated the registration requirement in favor of a disclosure regime supported

by civil remedies. Implementing regulations under the Alberta Act are found in Min-

isterial Regulation, A.R. 240/95 (the Alberta Regulation), adopted in 2000. For the

purpose of ensuring that the Alberta Regulation is reviewed for ongoing relevance

and necessity, with the option that it may be repassed in present or amended form

following a review, the Alberta Regulation expires on November 30, 2015.

The Alberta Act defines “franchise” as a right to engage in a business (1) in which

goods or services are sold or offered for sale or are distributed under a marketing or

business plan prescribed in substantial part by the Franchisor or its associate; (2) that

is substantially associated with a trademark, service mark, trade name, logotype, or

advertising of the Franchisor or its associate or designating the Franchisor or its asso-

ciate; and (3) that involves (A) a continuing financial obligation to the Franchisor or

its associate by the Franchisee and significant continuing operational controls by the

Franchisor or its associate on the operations of the Franchisee business, or (B) the

payment of a franchise fee.

Under the Alberta Act, a “franchise fee” is any direct or indirect payment to pur-

chase a franchise or to operate a franchised business, but does not include (1) a pur-

chase of, or an agreement to purchase, a reasonable amount of goods at a reasonable,

bona fide wholesale price; (2) a purchase of, or an agreement to purchase, a reason-

able amount of services at a reasonable, bona fide price; or (3) a payment of a reason-

able service charge to the issuer of a credit or debit card by an establishment accepting

the credit or debit card, as the case may be.

A person is considered an associate of a Franchisor if the person is directly involved

in the granting of the franchise or if there are continuing financial obligations by the

Franchisee to that person and significant operational controls by that person on the

Franchisee, and the person either controls the Franchisor or is controlled by the

Franchisor, or that person and the Franchisor are under common control of another

person.

In Ontario, the Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c. 3

(the Ontario Act) applies to the offer and sale of franchises in Ontario. The pre-sale

disclosure obligations, which are a significant feature of the legislation, became effec-

tive January 31, 2001. The province of Ontario has promulgated a regulation, namely

Ontario Regulation 581/00, amended to O. Reg. 199/05 (the Ontario Regulation), that

implements and elaborates upon the Ontario Act’s disclosure requirements. The Ontario

Act definition of “franchise” is similar to that found in the U.S. Federal Trade Com-

mission Franchise Rule (Disclosure Requirements and Prohibitions Concerning Fran-

92 International Franchise Sales Laws

chising and Business Opportunity Ventures, 16 C.F.R. Part 436). A “franchise” is

defined in Section 1(1) of the Ontario Act as:

a right to engage in a business where the Franchisee is required by con-

tract or otherwise to make a payment or continuing payments, whether direct

or indirect, or a commitment to make such payment or payments, to the

Franchisor or the Franchisor’s associate, in the course of operating the busi-

ness or as a condition of acquiring the franchise or commencing operations

and:

(a) in which

(i) the Franchisor grants the Franchisee the right to sell, offer for sale, or

distribute goods or services that are substantially associated with the Franchisor

or the Franchisor’s associate’s trademark, service mark, trade name, logo,

advertising, or other commercial symbol; and

(ii) the Franchisor or the Franchisor’s associate exercises significant con-

trol over, or offers significant assistance in, the Franchisee’s method of opera-

tion, including building design and furnishings, locations, business

organization, marketing techniques, or training; or:

(b) in which

(i) the Franchisor or the Franchisor’s associate grants the Franchisee the

representational or distribution rights, whether or not a trademark, service

mark, trade name, logo, advertising, or other commercial symbol is involved,

to sell, offer for sale, or distribute goods or services supplied by the Franchisor

or a supplier designated by the Franchisor; and

(ii) the Franchisor or the Franchisor’s associate, or a third person desig-

nated by the Franchisor, provides location assistance, including securing re-

tail outlets or accounts for the goods or services to be sold, offered for sale, or

distributed, or securing locations or sites for vending machines, display racks,

or other product sales displays used by the Franchisee.

Note that in Ontario there is no requirement that a franchise fee be paid, and,

unlike in Alberta, there is no exclusion for purchases of products or services at bona

fide wholesale prices. Accordingly, for this reason alone, it is certainly possible that

an arrangement may be a franchise in Ontario while not a franchise in Alberta.

In Prince Edward Island (PEI), franchise offers and sales are subject to the Fran-

chises Act R.S.P.E.I. 1988, Cap. F14.1 (the PEI Act). Certain substantive provisions of

the PEI Act (i.e., good faith, freedom of Franchisees to associate, etc.) came into effect

on July 1, 2006. Other procedural provisions (i.e., the disclosure obligations) came

into effect on January 1, 2007. The development of franchise law in PEI occurred

after Ontario. Perhaps out of recognition that the population of PEI is very small in

comparison to Ontario, the PEI Act is substantially the same as the Ontario Act in

many ways. For instance, the definition of a franchise is almost identical.

The Franchises Act, S.N.B. 2007, c. F-23.5 (the New Brunswick Act) governs the

offer and sale of franchises in the province of New Brunswick. The New Brunswick