The grant of franchises in the Province of New Brunswick is now subject to regulation as of February 1, 2011, joining the Provinces of Ontario, Alberta and Prince Edward Island with pre-sale disclosure legislation in Canada.
Like the Alberta and Prince Edward Island franchise laws, the New Brunswick Act allows for the use of a disclosure document prepared for use in another jurisdiction provided that additional information is included, through what is generally called a wrap-around document, in order to comply with the requirements of the New Brunswick Act.
Two separate regulations were approved: the Disclosure Document Regulation and the Mediation Regulation. The latter prescribes the method of delivery of a notice of dispute and a notice to mediate which, under the New Brunswick Act either party to a franchise agreement is entitled to initiate. The Mediation Regulation also prescribes the method for appointing a mediator, the timing and conduct of mediation and forms to be used for notices, statements of facts and issues and the certificate of completed mediation. The Disclosure Document Regulation prescribes the items of information required to be disclosed by a franchisor in its disclosure document.
While the disclosure Regulations under New Brunswick’s Franchises Act mirror, in many respects, the regulations to the franchise legislation in Ontario, Alberta and Prince Edward Island, there are some note-worthy differences that will require changes to a “Canada-wide” disclosure document. This article will address those provisions of the Disclosure Regulation which are unique or which differ significantly from the regulations under Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 (the “Ontario Regulations”) which do not expressly allow for the use of a wrap-around document.
- In addition to specific information required to be disclosed pursuant to the Disclosure Document Regulation, it also requires in a number of instances for a form of “negative disclosure”. For example, if the franchisor does not provide earnings projections, the disclosure document must provide a statement to that effect. Similarly, if training or other assistance is not offered to the franchisee, a statement to this effect must be included in the disclosure document. The Certificate of Franchisor, which must be in the form of Form 1 of the Disclosure Document Regulation must also include a prescribed statement if the franchisor is relying upon an exemption under the Disclosure Document Regulation from providing financial statements.
- Disclosure of information relating to criminal convictions, administrative orders and proceedings, civil proceedings and bankruptcy are limited to the 5 year period prior to the date of the disclosure document while under the Ontario Regulations, such disclosure must be provided for 10 years in the case of criminal convictions, 6 years for bankruptcy and with no period limitation for civil actions and administrative proceedings.
- Disclosure of background information of the franchisor must include a description of and the number of franchises granted by the franchisor of a different type of franchise system during the 5-year period prior to the date of the disclosure document and how long they have been offering such franchises (like the disclosure required under the Franchises Act (PEI)).
- As part of the disclosure pertaining to the franchise, the franchisor is required to disclose its policies and practices regarding guarantees and security interests required of franchisees (similar to the requirement under PEI’s disclosure requirements). Although it has become common practice to disclose such information in Ontario under the catch-all disclosure requirement of “all material facts”, there is no express provision requiring such disclosure in the Ontario Regulations.
- The Disclosure Document Regulation provides a definition of “earnings projection” which is the same as the definition provided in the Regulations to the Franchises Act (Prince Edward Island). It is defined as follows:
“earnings projection” includes 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, franchisor’s associates or affiliates of the franchisor of the same type as the franchise being offered can easily be ascertained.
As with the Regulations to the Franchises Act (PEI), the Disclosure Document Regulation refers to the provision by the franchisor of an earnings projection, “directly or indirectly”. Although not yet clear, this could mean that an earnings projection could be provided to a prospective franchisee outside of the disclosure document and by someone other than the franchisor such as a third party franchise consultant or broker.
- If the franchisee is required to operate in accordance with the franchisor’s manuals, either the table of contents of the manuals must be included in the disclosure document or a statement specifying where in New Brunswick the manuals are available for inspection. It is not yet clear whether this will be interpreted as giving the prospective franchisee the right to inspect the manuals or just their table of contents.
- As part of the franchisor’s disclosure regarding exclusive territory and proximity of units, the franchisor must disclose its policies and practices relating to internet sales or other “distance sales” (which term is not defined in the Act or the Disclosure Document Regulation).
- The requirement to disclose permits, licences and other authorizations required by a franchisee to operate its business is restricted under the Disclosure Document Regulation to those under federal or provincial law and does not extend to municipal laws as does the equivalent requirement under the Ontario Regulations. However, the Disclosure Document Regulation also requires a statement in the disclosure document that the franchisee should make inquiries to determine whether any other federal, provincial or municipal laws or by-laws require permits, licences or other authorizations in order to operate the franchise.
- If the franchisor has the right to unilaterally amend any terms or conditions of the franchise agreement, this must be stated while it is only optional to provide the specific terms that may be unilaterally amended.
- If the number of franchisees in New Brunswick is less than 20, the list must include information on franchisees that operate franchises of the same type in Ontario, Quebec, Prince Edward Island, Nova Scotia or the State of Maine. If there are still less than 20 franchisees listed, then the list must include information on franchisees operating franchises elsewhere in Canada.
- The list of former franchisees must be gathered from both the Province of New Brunswick and from those jurisdictions from which the list of current franchisees have been drawn.
- In addition to information on current franchisees, the franchisor is also required to provide information on other businesses operated in New Brunswick by the franchisor, franchisor’s associates or affiliates that are of the same type as the franchise being offered. A franchise is deemed to be the same type as another business if it is operated under the same trademark, trade name, logo or advertising or other commercial symbol.
- Delivery of a disclosure document by courier or by electronic means is expressly permitted under the Disclosure Document Regulation
- A Statement of Material Change must be in prescribed form and must be signed and dated in the same manner as the signing of the Certificate of Franchisor.
Although substantially similar to the disclosure regulations of the other provinces in Canada with franchise legislation, there are enough differences prescribed under the Disclosure Document Regulation that franchisors must take care to ensure that their current disclosure documents are modified as necessary if they plan to franchise in the Province of New Brunswick.