The Franchises Act (the “Act”), passed by the Manitoba legislature in June 2010, came into force October 1, 2012. Franchisors in Manitoba are required to comply with the new law, which contains substantially similar disclosure requirements to Ontario’s Arthur Wishart Act (Franchise Disclosure). This article highlights some important differences between the requirements in Ontario and Manitoba.
The disclosure requirements under the new Act need not be made in a single disclosure document. They can be disclosed over time and the disclosure documents can be amended. However, the 14- day disclosure period does not begin until all of the disclosure documents have been received by the prospective franchisee. The disclosure document may be delivered to the prospective franchisee by facsimile.
Under the Act, the obligation to disclose is not triggered by payment of consideration in respect of a franchise where the payment (a) does not exceed 20% of the initial franchise fee; (b) is refundable without any deductions; (c) is given under an agreement that in no way binds the prospective franchisee to enter into a franchise agreement; and (d) does not exceed $100,000. Agreements that only address confidentiality or the designation of a location for a prospective franchise will not be considered a franchise agreement and, therefore, will not trigger the disclosure requirements.
If an earnings projection is provided by the franchisor, a statement specifying the assumptions and bases underlying the projection must be provided. The franchisor must disclose whether the projection is based on actual results of existing franchises or is based on another business operated by the franchisor. Information supporting any provided projections must be available for inspection. If an earnings projection is not provided, a statement to that effect must be included.
There are several financial disclosure provisions that are notable in the Act. The franchisor must disclose any costs associated with the franchise that are paid to either the franchisor or an associate of the franchisor. Any payments collected by the franchisor or its associate on behalf of a government or a government agency, however, are exempt from the disclosure requirement. When disclosing the costs associated with establishing a franchise, the Act requires that the franchisor also disclose any formula used to determine the amount. If a franchisee is required to contribute to an advertising or marketing fund, the amount or basis for calculating the franchisee’s contribution must be disclosed. Finally, the policies and practices regarding volume rebates, commissions, payments and other benefits must be disclosed.
There are also disclosure requirements with respect to the operation of the franchise. The Act requires disclosure regarding operations training, including the location where it will take place. If no training is offered, a statement to that effect must be included. If the franchisee will be required to operate in accordance with manuals provided by the franchisor, this fact must be disclosed and the manuals must be available for inspection. If no manuals are provided to the franchisee, a statement to that effect must be included. The extent to which the principals of the franchisee must personally participate in the operation of the franchise must be disclosed. In addition, any restrictions or requirements regarding how the franchisee may sell goods or services must be included.
The franchisor must disclose if it is granting an exclusive territory. The policies and practices regarding the continuation of the franchisee’s rights to an exclusive territory must be included. The right to an exclusive territory is broader than competing locations of the same franchise. The Act includes other businesses related to the franchisor that have similar products or services when determining exclusive territory. If no exclusive territory is granted to the franchisee, a statement to that effect must be included.
The Act requires that the franchisor make disclosures regarding the management of the franchise. The franchisor must disclose if they reserve any rights with respect to internet sales, telephone sales, catalogue sales or sales by any other means. A statement must be included indicating that the franchisee should make inquiries to determine whether any licences, registrations, authorizations or other permissions are required. Finally, where the franchise agreement provides for the use of mediation or arbitration, the procedures for such alternative dispute resolution must be specifically disclosed.
The Act provides that substantially complete disclosure documents will be acceptable. If the disclosure substantially complies with the Act, even where the disclosure includes technical irregularities or mistakes, the compliance will be considered sufficient so long as those irregularities or mistakes do not affect the substance of the disclosure.