As of February 1, 2011 there are four provinces in Canada which have enacted franchise legislation (Alberta, Ontario, Prince Edward Island and New Brunswick), with a fifth province likely to bring its franchise legislation into force later this year (Manitoba). With this proliferation of franchise legislation in Canada, franchisors who offer franchises throughout Canada, or at least in a majority of the provinces which have franchise legislation, are faced with a dilemma – whether to comply with individual provincial franchise legislation by preparing disclosure documents patterned for the particular province, or to prepare a national disclosure document which includes alternate sections and certificates to comply with the laws of all the regulated provinces. It is becoming increasingly clear that many franchisors, if not most, are gravitating towards the second option, and preparing a national disclosure document for use throughout the country.
While there may be certain risks associated with the use of a national disclosure document, these risks appear to be minor compared with the convenience of having a single, unified national disclosure document for use throughout the country.
The first hurdle in preparing a national disclosure document is the fact that not all provinces are uniform in allowing disclosure documents from another jurisdiction. In particular, Ontario does not expressly permit the use of a disclosure document from another jurisdiction with a wrap-around or addendum to comply with the Ontario legislation, whereas all of the other provinces expressly permit the practice. Therefore, the current and most prevalent practice for a national franchisor in Canada is to prepare a disclosure document that is compliant with Ontario legislation, and to add to its contents alternate sections to comply with the laws of the other provinces which have franchise legislation. The general ordering of such a disclosure document follows the disclosure requirements of Ontario, with insertion of additional disclosure items as required by the different provinces. In addition, a national disclosure document must include the different certificates of disclosure, prescribed risk warnings or other statements required by provincial legislation.
Franchisors using national disclosure documents must be careful of certain risks associated with this practice. Most franchise legislation requires that a disclosure document be clear and concise. While some practitioners may argue that a national disclosure document is not clear and concise because it contains information or disclosure items not relevant to every province, it is unlikely that a provincial court would declare such a disclosure document to be non-compliant with provincial legislation if the document contains clear instructions or directions with respect to the specific provincial inserts.
Another word of warning to franchisors using national disclosure documents is that they must ensure that the only certificates of disclosure which are signed are those relevant to the particular province in which disclosure is being made. It is not only unnecessary, but perhaps detrimental, for franchisors to sign all provincial disclosure certificates included in a national disclosure document when the particular franchise offering is restricted to one province.
A similar consideration that franchisors should take into account occurs when they provide a national disclosure document to a franchisee prospect in a province that has not enacted franchise legislation. In so doing, they are providing the disclosure document on a voluntary basis, and the disclosure document should be modified to reflect the fact that it is a voluntary disclosure document. Certificates of disclosure should not be signed, and perhaps should be removed, along with items specific to a particular province and items which may contain personal information not permitted to be disclosed under relevant privacy legislation.
Notwithstanding these complications, franchisors offering franchises across Canada are becoming familiar with preparing and maintaining national disclosure documents and in so doing have eliminated confusing paper work and the possibility of errors in maintaining a multitude of disclosure documents for use in the respective legislated provinces. However, the format and content of national disclosure documents is not prescribed or legislated.
Franchisors considering the use of national disclosure documents should appreciate that they are complicated documents, and should be prepared with the assistance of experienced counsel in this area.