British Columbia will soon become the sixth Canadian province with franchise legislation.
On Monday, October 5, 2015, the provincial government of British Columbia introduced its long awaited franchise legislation bill, titled Bill 38, a Franchises Act, for a first reading in the provincial legislature. As we have previously reported, BC’s proposed legislation has been the subject of many months of consultation and input from various stakeholder groups including the British Columbia Law Institute (BCLI), the Canadian Franchise Association (CFA) and the Ontario Bar Association (OBA).
As expected, the Bill closely mirrors the duty of good faith and fair dealing, right of association and disclosure provisions found in Ontario’s Arthur Wishart Act and similar franchise statutes in PEI, New Brunswick, Manitoba and Alberta, with some slight but important differences. Many of the recommendations put forward in last year’s BCLI Consultation Paper (which we reported on here) are reflected in the new Bill.
The Bill provides that the substantive requirements of a disclosure document for British Columbia will be prescribed by regulation. At present, there are no draft regulations for review, and as such, no direction on how British Columbia disclosure obligations will differ from the other provincial requirements.
Notable highlights of Bill 38 are as follows:
- Unlike in Ontario, delivery of disclosure documents by email is expressly permitted.
- A “substantial compliance” provision is included, expressly providing that a mere defect in form, technical irregularity or error not affecting the substance of a disclosure document will not give rise to rescission if the disclosure document is otherwise substantially in compliance with the Act.
- Like in Ontario, but unlike in other provinces, there is a disclosure exemption for “large franchisees” where the prospective franchisee’s investment exceeds a prescribed amount. As no regulations yet exist, the prescribed amount is today unknown.
- There is no disclosure exemption for “small franchisees” where the required investment is less than a prescribed amount (unlike in Ontario).
- Like in Ontario, a disclosure exemption is provided where the franchise agreement has a term of less than one year and no initial franchise fee is payable. However, unlike Ontario, this exemption does not apply if the agreement provides for any renewal or extension beyond one year or if any renewal or extension fees are payable.
- For the purpose of the disclosure regime, certain types of confidentiality/non-disclosure agreements and agreements solely pertaining to the designation of a location, site or territory are not considered “franchise agreements” or “other agreements relating to the franchise” and, as such, do not trigger disclosure obligations and can therefore be signed in advance of disclosure.
- Similarly, certain types of refundable deposits, below a prescribed amount and refundable if the prospective franchisee does not enter into a franchise agreement, are not considered “payment of consideration relating to the franchise” and do not trigger disclosure obligations. These too can be made in advance of disclosure.
- Franchisees are not required to elect between the rescission remedy and the statutory right of action for damages. However, double recovery in the event of a successful claim for rescission is expressly prohibited (unlike in Ontario).
- Any provision in a franchise agreement will be rendered void if it purports to restrict the application of British Columbia law or restrict jurisdiction or venue to a forum outside of British Columbia with respect to a claim arising under a franchise agreement to which the Act applies. This expressly applies to arbitration clauses.
- Any purported waiver or release by a franchisee or prospective franchisee of a right conferred under the Act or an obligation imposed on a franchisor under the Act will be rendered void. However, unlike Ontario where the law remains less than clear, this provision does make it clear that the prohibition on waivers or releases does not apply to a waiver or release made in accordance with the settlement of an action, claim or dispute.
The BC government unfortunately did not adopt recommendations made by the CFA and OBA proposing to limit disclosure requirements to a finite list of “material facts” or to further restrict the definition of a “franchise agreement” to the agreement granting the franchise. As such, the same indefinite scope of what may need to be disclosed in any one case, present in the other provinces, will likely be a feature of British Columbia’s legislation.
But the good news is that, because Bill 38 is substantially similar to other provincial laws, there will be a degree of uniformity and predictability for franchisors across provincial boundaries and existing case law, while perhaps not binding, will be persuasive to British Columbia courts in shaping the law under the new Act.
As the governing British Columbia Liberals currently have a majority, it is widely expected that Bill 38 will become law and the earlier proposed franchise bill from the opposition British Columbia New Democrats will not. Bill 38 still faces a number of hurdles, including possible amendments at the committee stage.
In the meantime, franchisors currently operating in British Columbia or planning to expand there should consult with their legal advisors to ensure they are aware of important developments and timelines with respect to legislative developments so that they are equipped to issue compliant disclosure once the Bill is ultimately proclaimed into law.