In the last of our blog series regarding the implications of the Dunkin’ Donuts case1 , we examine its significance to the ongoing issue of the enforceability of releases in franchise matters.
In Dunkin’, the franchisor had obtained general releases from its franchisees in exchange for the franchisor offering funding for the renovation of the franchisees’ stores. The franchisor relied on the releases when the franchisees made claims against it for abandoning the system in Quebec. The trial judge annulled the releases, which was upheld by the Quebec Court of Appeal, on the grounds that the releases were abusive.
The Court found that the releases were cast in broad terms that absolved the franchisor from all liability from any past violation of agreements between the parties. The Court also found that the franchisor made misrepresentations to and exerted undue economic pressure on the franchisees to induce the signing of the releases. The Court also commented that there was a lack of evidence to support the franchisor’s argument that the releases were standard to the industry.
The decision provides guidance to franchisors drafting releases for application in Quebec to ensure that they will be enforceable by the court. However, the decision also provides an important lesson for franchisors conducting business in other provinces, including provinces that have statutory provisions affecting releases.
In provinces that have franchise legislation, including Ontario, the general principle with respect to releases is that, except in situations relating to a bona fide settlement of an existing dispute, a franchisee cannot provide a release of its rights under the legislation. The recent Cora decision2 in Ontario which we wrote about in a recent blog3 further clarified that a general release that includes both statutory and common law claims will be unenforceable for both the statutory and common law claims.
The Dunkin’ Donuts decision provides direction for the drafting of releases that can be applied across all Canadian provinces. Courts in all provinces can be expected to scrutinize the manner in which a franchisor has procured a release from a franchisee as well as its scope given the special relationship between the parties and any specific applicable statutory provision.