On June 26, 2007 New Brunswick’s Bill 32, the Franchises Act (the Act), received royal assent. Nearly two years passed without word from New Brunswick’s Justice and Consumer Affairs Department about either when the Act would be proclaimed into force or the content of the associated regulations. In April 2009, the government released the Consultation Paper on Regulations under the Franchises Act (Consultation Paper) and invited public comment on it until June 12, 2009. The Consultation Paper proposes two regulations – the Disclosure Regulation and the Mediation Regulation.
The proposed Disclosure Regulation sets out the content requirements for disclosure documents to be distributed to franchisees in New Brunswick. While the disclosure requirements are “very similar” to those contained in Prince Edward Island’s disclosure regulation and “similar” to those contained in Ontario’s disclosure regulation, New Brunswick also proposes unique requirements based largely on the Uniform Law Conference of Canada’s model disclosure regulation. The proposed regulation would:
- Permit a disclosure document prepared for use in another jurisdiction to be used in New Brunswick, so long as it is accompanied by a “wraparound” document which contains any additional information required by the New Brunswick disclosure regulation;
- Expressly permit delivery of the disclosure document by electronic means (though the Consultation Paper comments that such express permission is not strictly necessary as the topic is adequately addressed in the province’s e-commerce legislation);
- Provide a “mature franchisor” exception which would relieve large, sophisticated franchisors with a net worth of at least $2 million from the requirement to disclose their financial statements. Noteworthy differences from the corresponding provision in PEI and Ontario are: (1) The exception applies regardless of whether the franchisor, its associates, directors, general partners or officers have had a judgement, award or order made against them relating to a law regulating franchises (the Consultation Paper notes that even the most honourable franchisors may have such judgements against them from time to time); and, more significantly, (2) if relying on the exemption, a franchisor must include an audit certificate from an independent auditor verifying that the franchisor meets the criteria for the exemption.
- Forgo the approach taken in PEI and Alberta in which a disclosure document is considered to be properly given with respect to a franchisee’s 60-day rescission remedy if the document is “substantially complete.” The Consultation Paper notes that without further interpretation, the term “substantially complete” is ambiguous and likely to cause confusion;
- Prescribe a form of franchisor’s certificate that must be attached to any material change statement;
- Require disclosure in addition to that required in PEI and Ontario, specifically:
- additional disclosure about the franchisor’s advertising fund;
- disclosure of the material topics covered by the franchisor’s operating manual;
- provision of “negative disclosure”: If a franchisor does not disclose an estimate of operating costs, training, earnings projections, rebates and territory/proximity, it must expressly state this in the disclosure document, rather than staying silent on these topics;
- disclosure about when a franchisor can unilaterally amend any provision in the franchise agreement;
- additional disclosure about the franchisor’s trade-marks, including any infringements of (or material impediments to) the use of the franchisor’s trade-marks;
- disclosure of federal and provincial licenses, permits and authorizations, (but not municipal licenses, permits and authorizations, as the Consultation Paper notes that this would impose an unreasonable disclosure burden on the franchisor);
- disclosure of manners in which the franchisor may compete with the franchisee, including whether the franchisor offers the same goods or services as the franchisee through distance sales and if the franchisor operates businesses which are the same type as the franchise or offer the same goods or services as those offered by the franchisee;
- disclosure of franchisor or affiliate-operated units in the franchisee’s territory;
- provision of lists of terminated franchisees for the period beginning with the start of the franchisor’s last completed fiscal year and ending as at the date of the disclosure document. This requirement represents a significant difference from other Canadian franchise legislation, in which the disclosure period ends at the close of the franchisor’s last fiscal year.
New Brunswick’s franchise legislation is unique in Canada in that section 8 of the Act permits franchisors or franchisees to mediate a dispute. The proposed Mediation Regulation establishes the procedural framework for this third-party mediation process, based in large measure on the ULCC’s “General Rules re Appointment of Mediation and Mediation.” For more information, please access the link to the Consultation Paper (above).
The Consultation Paper suggests that the Act and the regulations are expected to be proclaimed into force simultaneously, rather than through staggered enforcement as was the case with the Ontario and PEI legislation. This date would be approximately three to six months following the publication of the final regulations.