Maybe. The disclosure regulations in all provinces provide that the provision of an earnings projection is voluntary, but if the franchisor elects to do so, it must also provide certain information, including assumptions and explanations about the projection. However, franchisors must be aware that the disclosure regulations in P.E.I., New Brunswick and Manitoba define an “earnings projection” to include any information given by or on behalf of the franchisor or franchisor’s associate, directly or indirectly, from which a specific level or range of actual or potential sales, costs, income, revenue or profits from franchises or businesses of the franchisor or the franchisor’s associates of the same type as the franchise being offered can easily be ascertained. Alberta also adopts the same approach to what can constitute an “earnings projection.”
Accordingly, franchisors must carefully consider the nature of any financial information provided to franchisees at any time before or during the disclosure process in order to avoid inadvertently providing an earnings projection. This situation can arise even if the franchisor has no intention of providing an earnings projection. While largely fact specific, examples of the provision of an accidental earnings projection could include:
- the franchisor’s review and approval of a business plan prepared by the franchisee;
- providing the franchisee with a worksheet containing embedded values, formulas or coding; or
- requiring the franchisee to complete and submit a pro forma.
If an earnings projection is provided, intentionally or not, the financial information must be included in the disclosure document and accompanied by all required assumptions and explanations. Failure to do so could lead not only to a rescission claim for a deficient disclosure document, but also for misrepresentation due to the missing information.
While the franchise legislation in Ontario does not expressly define “earnings projection,” similar concerns could arise in this province. Franchisors should be equally cautious to ensure that any information that they are providing to franchisees that may constitute an earnings projection should be included in the disclosure document with appropriate disclaimers.