British Columbia’s legislature has completed the third reading of Bill 38-2015, the BC Franchises Act.
Its quick movement – the bill was introduced to the legislature on October 5 - is the culmination of work that began in March 2013 with a Consultation Paper issued by the British Columbia Law Institute (BCLI), and was followed by a report the next year which included a draft act and regulation. The bill now awaits Royal Assent.
Once that has been achieved, the BC government will develop the regulations that will set out the particulars of compliance with and enforcement of this new franchise legislation. It is likely that the swiftness of the process so far may mean that the regulations also will be developed quickly.
With the enactment of the BC Act, British Columbia will become the sixth Canadian province with franchise legislation, joining Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island. The BC Act draws many of its provisions from the Ontario Arthur Wishart Act (Franchise Disclosure), 2000, although there are some provisions that reflect the influence of the Alberta Franchises Act.
The following is a brief summary of the main provisions of the BC Act and some provisions in the BC Act which are different from the Ontario Act, as well as a note about the BCLI draft regulation.
The BC Act Provisions
In common with franchise legislation in the other provinces in Canada, the BC Act:
- provides for disclosure in one document to prospective franchisees of financial and other relevant information about the franchisor and the franchise system at least 14 days before the signing of any agreement relating to the franchise and payment of any consideration
- imposes on each party a duty of fair dealing in the performance and enforcement of the franchise agreement
- prohibits a franchisor and a franchisor’s associate from interfering, penalizing or threatening franchisees from associating with each other and provides remedies in the event of infringement of that right
- provides conditions for rescission of a franchise agreement and
- 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.
Inclusion of some Alberta-like provisions and some new ones
1. Confidentiality agreements
The BC Act allows the franchisor and the prospective franchisee to enter into a confidentiality agreement, provided that agreement:
- only contains terms requiring confidentiality or prohibiting the use of any information or material provided to a prospective franchisee, or designating a location, site or territory for a prospective franchisee, and
- does not prohibit the disclosure of information to other franchisees, their organization or the franchisee’s professional advisors.
2. Substantial compliance
A disclosure document or statement of material change complies with the requirements of the BC Act despite the presence of a defect in form, a technical irregularity or an error, if these deficiencies do not affect the substance of the disclosure document or the statement of material change, and the disclosure document or statement of material change is substantially in compliance with the BC Act. This concept of substantial compliance is included in the Alberta Act, but not in the Ontario Act.
3. Payment of consideration
For purposes of the requirement to deliver a disclosure document or a written statement of material change to a prospective franchisee, payment of consideration relating to a franchise does not include the payment of a deposit that:
- does not exceed an amount prescribed by regulation
- is refundable without any deductions, if a prospective franchisee does not enter into a franchise agreement, and
- is given under an agreement with a franchisor concerning the deposit that does not obligate the prospective franchisee to enter into any franchise agreement.
4. Fair dealing
In an effort to provide some clarity that is not in the Ontario Act, the BC Act’s provision in respect of fair dealing includes “in the exercise of a right under a franchise agreement.” It is expected that this inclusion will require franchisors to act in good faith and in accordance with reasonable commercial standards in exercising rights under the franchise agreement that provide the franchisor with discretion.
Further provisions in respect of fair dealing are more reflective of the Alberta Act. These include a right of action for damages by a party to a franchise agreement against another party to the franchise agreement for breaching the duty of fair dealing. The duty of fair dealing is deemed to include the duty to act in good faith and in accordance with reasonable commercial standards.
The BC Act also provides some clarification regarding damages available to a franchisee. 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 BC 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.
If a disclosure document or statement of material change contains a misrepresentation or if a franchisor failed to comply with the disclosure provisions of the BC Act with respect to a statement of material change, then subject to certain exceptions and defences specified in the BC Act, a franchisee isconclusively deemed to have relied on the misrepresentation or on the information set out in the disclosure document. The exceptions include if the person can prove that the franchisee acquired the franchise with actual knowledge of the misrepresentation or material change.
Notably, the BC Act provides that a disclosure document may be delivered by email. In addition, the BC Act, in its provisions dealing with rights that cannot be waived, extends these rights to prospective franchisees. Furthermore, a franchisee is not required to elect between rescission and the statutory rights of action for damages.
As with most franchise regulations, the draft BCLI Franchise Act (Disclosure) Regulation deals with the information that is required to be set out in the franchise disclosure document. The draft regulation follows the order and format of the Ontario regulation, but also includes some provisions from the Alberta regulation. One of these is the use in the disclosure document of a document that complies with the requirements of another jurisdiction (i.e., a “wrap-around” disclosure document), provided that the franchisor includes or adds the additional information that will be necessary to comply with the BC requirements.
A number of provisions that could be of interest, should they be enacted in the regulation, include:
- the requirement that the disclosure document include a description of the franchisor’s policies and practices, if any, regarding guarantees and security interests required of franchisees
- specific statements regarding what is to be set out in respect of an earnings projection, and a definition of that term
- in the description of the franchisor’s policies and practices on territory, if any, a requirement that the franchisor state if no exclusive territory is granted to the franchisee and disclose whether there are conditions to the continuation of a franchisee’s rights to exclusivity and
- more extensive provisions addressing the trademarks and other proprietary rights of the franchisor or franchisor’s associates.