Members of the three main Ontario political parties have joined forces to try and bring about extensive and somewhat radical changes to Ontario’s franchise disclosure law, the Arthur Wishart Act (Franchise Disclosure), 2000. Liberal MPP, Helena Jaczek, New Democrat MPP, Cheri DiNova and Conservative MPP, Norm Miller have tabled a private member’s bill which had its first reading on September 15th. The proposed amendments will be debated on September 23, 2010 and voted on before the Bill will be allowed to proceed to second reading, where it will be the subject of further debate. A copy of Bill 102 can be found here.
Bill 102 takes a most unusual approach to franchise disclosure legislation by proposing that a franchisor be required to provide a prospective franchisee with an “educational document”. This document is essentially a checklist of items that a prospective franchisee ought to consider before purchasing a franchise. Franchisors must also obtain the written acknowledgement of prospective franchisees that they have reviewed the educational document.
It is unclear from the wording of the Bill whether a franchisor must provide information in addition to the information required to be disclosed currently under the Act. However, the proposed educational document appears to require franchisors to: (a) provide information upon which prospective franchisees can evaluate their personal and financial qualifications for the proposed investment; (b) make recommendations for what the “best franchise” would be for the franchisee based on a number of considerations; (c) list matters that the prospective franchisee should consider in respect of the franchisor and its franchised businesses; (d) discuss issues regarding the goods or services to be offered; and (e) discuss issues that the prospective franchisee may wish to raise with other franchisees and issues with respect to the particular provisions of the franchise agreement. These requirements would appear to impose upon a franchisor a duty to act as a legal, financial and trusted advisor as well as business and franchise consultant to a prospective franchisee in Ontario.
The Canadian Franchise Association and the Franchise Law Section of the Ontario Bar Association are currently reviewing the Bill. From a franchisor’s point of view, the Bill adds obligations to existing disclosure obligations. The proposed new obligations are ill-defined and may increase the risk of litigation in regards to information that may be elevated to the level of a representation or statement of material fact. The benefits of the Bill for prospective franchisees however, are not readily apparent.