In a decision of the Ontario Superior Court of Justice released on July 27, 2012, the Honourable Justice George Strathy set aside various opt-out notices received from current and former franchisees in a pending class action against the franchisor regarding the franchisor’s alleged failure to pass the benefits of volume rebates on to the franchisees. (See 1250264 Ontario Inc. v Pet Valu Canada Inc., 2012 ONSC 4317).
This decision is notable due to the fact that neither the franchisor nor the franchisee heading the class action were responsible for the subversion of the opt-out process. This decision sets an interesting precedent regarding the ability of franchisees to bring class actions against franchisors in Ontario.
The facts behind the decision are relatively straightforward. After the franchisees’ association held a meeting regarding the merits of the pending class action against the franchisor, a sub-set of franchisees took it upon themselves to defeat the class action. Through the use of a telephone campaign and a website which listed franchisees who had chosen to opt out of the class action, the sub-set of franchisees put great pressure on other franchisees to also opt out of the proceedings.
Justice Strathy held that the actions of the sub-set of franchisees were an unabashed attempt to end the class action and denied other franchisees their right to a fair and informed opt-out process. Justice Strathy considered it to be very likely that many franchisees had decided to opt out as a result of the misleading information and unfair pressure created by the telephone campaign and website, resulting in a corruption of the opt-out process. Accordingly, Justice Strathy declared all of the opt-out notices received after the commencement of the telephone and website campaign to be invalid.
Notably, Justice Strathy explained that the franchisees’ right to associate under s. 4(1) of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the “Act”) was not at issue in this case. The right to associate in section 4 of the Act is with regard to the relationship between franchisor and franchisees, as opposed to the right of association among franchisees.
Instead, Justice Strathy held that the exercise of the franchisees’ right to associate pursuant to the Act had interfered with the franchisees’ rights under the Class Proceedings Act, 1992, S.O. 1992, c. 6 to such an extent that the relief granted was necessary.
This decision also calls into question the appropriateness of class action proceedings in a franchise context, which depends so heavily upon harmony among franchisees and between franchisees and their franchisor.