5 Steps US Franchisors and US Franchise Counsel Can Take With Respect to Operations in Canada

Have you ever wondered how to avoid litigation with franchisees in Canada? If you've experienced the expense and devoted the time and energy it takes to engage in a lawsuit, you likely have. If you have been fortunate and have not had to engage in litigation, let's hope your luck does not run out. Whether you are a courthouse veteran or a litigation novice here are 5 things you can do to help avoid litigation so that you can spend your time and money on increasing profitability and building business relationships in Canada.

1. Have Up to Date, Well Drafted Contracts

You should review your current contracts to ensure that they are still reflective of your actual business relationships. You should also aim to stay current with relevant legal developments in Canada and the provinces concerned.

Unfortunately, many US franchisors use outdated agreements, or US precedent agreements, that may be unenforceable in Canada and/or irrelevant to the business relationship in Canada that the agreement is intended to govern. Keep your contracts current with the present state of the law and ensure that they reflect accurately the laws of Canada and relevant provinces.

2. Keep your Eyes Open

The best franchisors recognize legal problems at an early stage of development. They also contact local counsel as soon as a potential dispute arises. If a problem is not identified quickly it increases the probability that the matter will evolve into litigation. Problems that initially may appear small and harmless can develop into expensive and complicated lawsuits if you fail to identify the problem before it escalates.

3. Be Proactive

Identifying problems before they develop into a lawsuit in Canada is not of much use unless some attempt is made to resolve the dispute before it blossoms. Relatively small but valid complaints can turn into large problems if they are not taken seriously and dealt with promptly and decisively. Do not ignore complaints. Treat all complainants with respect and courtesy. Often if the problem is rectified early, whether it is through a resolution that involves payment of money or not, the financial, temporal and business reputation costs will be miniscule in comparison to the costs of defending a lawsuit.

4. Keep on Top of Staff

Effectively supervise your employees and contractors. All employees have both areas of strength and weakness. If a dispute in Canada has become potentially litigious, having the wrong contact person for the potential plaintiff can prove to be fatal to your interests. Each situation is unique. Some disputes call for a strong and tough position, while others demand a softer touch along with listening and mediation skills. Having the correct employee skill-set matched with the dispute as well as the identity and characteristics of the potential plaintiff is important. Often it is not the person most familiar with the issues and matters in the dispute that is the one best suited to act as the point person for contact with a potential plaintiff in Canada.

5. Call Your Canadian Lawyer

Contact Canadian counsel and speak to them as soon as possible if there is a potentially litigious matter occurring in Canada. The quicker you call the sooner you can benefit from your lawyer's advice. Ask your lawyer about legal costs and fees if those concern you. The problem will likely not go away on its own. Often a quick telephone call can result in advice that may help avoid litigation.


American franchisors sometimes believe franchise disputes and potential litigation of them must be relatively the same in Canada and the US. Such thinking may lead to unintended and costly results, as there are some significant legal differences between the two countries. Following the recommendations above should prove helpful when a franchise dispute arises in Canada.