A Look at Canadian Legislation for Protecting Franchisees: Uniform Law Conference of Canada's Uniform Franchises Act
Franchising in Canada is governed by a mosaic of different laws across the country. In over half of the country, there is no official law governing franchising at all. This is where the Uniform Law Conference of Canada (ULCC) comes in.
Split into The Criminal Section and The Civil Section, the ULCC brings together law professionals once per year to discuss ways in which provincial and territorial laws could be harmonized so they are uniform throughout the country.
The group draws up non-binding acts and regulations and encourages the various levels of government to adopt these acts or use them for models to create legislation so Canadian law can be uniform from one area to the next.
Drawn up by The Civil Section, the ULCC’s Uniform Franchises Act and Regulations outlines a model franchising law that, if adopted by all 10 provinces and three territories, would make franchise law uniform across the country.
Currently, only six Canadian provinces have franchising laws in place:
- British Columbia,
- New Brunswick, and
- Prince Edward Island.
- This leaves Newfoundland & Labrador, Nova Scotia, Quebec, Saskatchewan, Nunavut, Northwest Territories and Yukon without any franchising laws on their books.
Although most of the franchising laws that do exist in Canada are quite similar, they all have their slight differences. The ULCC would like to see them all harmonized so all you would need to do is look at one law instead of six different laws in the places that have them and rely on more general law in places that don’t have franchise-specific regulations. The ULCC looked at Ontario’s and Alberta’s franchising laws and amalgamated them into one harmonized model law.
Let’s dive into the ULCC’s Uniform Act and see what the group recommends for a nationwide, harmonized franchising law.
Right to Associate
The Uniform Franchises Act recommends that franchisees be able to form or join an organization consisting of franchisees of a given franchise without interference from the franchisor. A franchisor should not be able to restrict franchisees from associating either through contractual obligation or through threat of penalization.
The proposed law stipulates that a prospective franchisee must receive a disclosure document from the franchisor not less than 14 days before signing a franchise agreement or any other agreement pertaining to the franchise and also before handing over any type of payment related to the franchise.
The disclosure document should contain:
- financial statements as prescribed;
- copies of all proposed franchise agreements and other agreements relating to the franchise to be signed by the prospective franchisee;
- statements as prescribed for the purpose of assisting the prospective franchisee in making informed investment decisions;
- other information as prescribed; and
- copies of other documents as prescribed; and
- all material facts.
All information in the disclosure document should be accurate, clear and concise, the ULCC’s Uniform Franchise Act states.
A franchisee has the right to rescind the franchise agreement without facing any penalty or obligation no later than 60 days after receiving the disclosure document if the franchisor has failed to provide the disclosure document or statement of material change within the aforementioned 14 days and/or if either document does not contain all the required information.
If a franchisor fails to provide a disclosure document at all, a franchisee can rescind the franchising agreement without penalty or obligation for up to two years. A notice of rescission must be provided to the franchisor by the franchisee.
Once the franchisor receives a notice of rescission, within 60 days they must refund any money received from the franchisee other than money for inventory, supplies or equipment. The franchisor must also purchase back any inventory from the franchisee at the same price the franchisee bought it for and also buy back any supplies and equipment from the franchisee for the same price the franchisee bought it for. The franchisor must also compensate the franchisee for any losses that occurred from acquiring, setting up and operating the franchise.
The ULCC’s Uniform Franchises Act, although non-binding, sets out a comprehensive list of rights for franchisees and acts as a model law that jurisdictions that don’t have a franchising law yet can use to draft their own. Prince Edward Island’s franchising law was modelled on the ULCC’s Franchises Act.
FranNet is completely harmonized across the country and no matter where you live in Canada, FranNet can help you find the perfect franchising opportunity. If you believe you’re ready to take that first step toward business ownership, sign up for a free FranNet franchise search and consultation today.