The Ontario Court of Appeal1 upheld a previous ruling of the Superior Court of Justice to once again make it clear that a term in a franchise agreement which requires a franchisee to release its claims against the franchisor under the Arthur Wishart Act(Franchise Disclosure), 2000, will not be enforced as it violates section 11 of that Act. The resulting release is void.
The decision also confirms that to the extent the release which was contemplated by the Franchise Agreement covers both statutory claims under the Act (which cannot be released) and common law claims (which can), the court will not allow the release to stand as a release of the common law claims.
It is common for franchisors to want franchisees to release every claim, known and potential, as a condition of giving consent to a transfer or upon renewal. This decision once again affirms what the court said previously in the Midas decision that this is just something that cannot be done.
However, requiring a release of common law claims as a condition of giving consent is quite permissible. Many of these claims overlap with the statutory claims so it is important that:
- the term of the Franchise Agreement intended to have this effect be well-drafted;
- franchisors understand what claims are being released and which ones including related claims will still exist based on the provisions of the Act.
Given the widespread use of these clauses in the industry, it is strongly recommended that every franchisor take another look at the one it is using and consider whether it needs changing. This provision is an important part of any Franchise Agreement. It is worth taking the time to review it and revise it if appropriate.