Franchise Legislation

AuthorFrank Zaid
ProfessionSenior Partner Osler, Hoskin & Harcourt LLP
1) Introduction
Franchise legisl ation is a matter delegated to the Canadian provinces,
rather than to the federal government, under Canada’s constitution.2
Accordingly, apart from those areas of Canadian federal legislation that
have direct impact on franchising like intellectual property and com-
petition legislation, franchise regist ration, disclosure, or relationship
legislation is wit hin the exclusive ma ndate of the provinces of Ca nada.
Historically, a number of provinces in C anada have either expressed
an interest in enacting franchise legi slation or in fact have done so, but
such attempts have been politically dr iven, sporadic, and inconsistent.
Some provinces have enacted st and-alone franchise or dealer legislation,
or have include d franchisin g as part of overal l securitie s legislation. Fur-
ther, certain legislation orig inally enacted wa s subsequently repealed,
and generally most private members’ bills introduced in t he provincial
legislatures have not proceeded beyond initial consideration.
1 Adapted from Fran k Zaid, Franchise Disclosure Issues in Canada in Peter Snell
and Larr y Weinberg, eds., Fundamentals of Franchising® — Canada (Ch ica go:
American B ar Association, 200 4) at 159.
2Constitution Act,1867 (U.K.), 30 and 31 Vict., c. 3, reprinted in R.S.C. 1985, App.
II, No. 5, s. 91.
Franchise Legislation 25
2) Alberta
Alberta was the f‌irst province in C anada to enact legi slation deal-
ing directly wit h franchising. The Fran chise s Act 3 was modelled after
counterpart legislat ion in California, United St ates. The Act was a dis-
closure-registration statute rather than a regul atory-relationship stat-
ute. It was administered by t he Alberta Securities Commi ssion and was
designed to provide protection to the public by requiring full, plain,
and true disclosure of all material fact s relating to the franchise being
offered. No person, unless exempt, could trade i n a franchise in Alberta
until an application for registr ation of a franchise and cer tain ancillary
documents had been f‌iled with the Alberta Securities Commi ssion and
a receipt for a prospectus had been obtained f rom the Registra r.
In 1987, the Minister of Consumer and Corporate Af fairs submit-
ted a Discussion Paper on the organ ization and structure of the Alberta
Securities Commission. Part VII of the Paper dealt with the regulation
of franchises i n Alberta. The Disc ussion Paper recognized t hat, since
Alberta was the only Canadia n jurisdict ion with specif‌ic fr anchise
legislation, a necessa ry question that had to be considered was whether
such legislat ion was necessary, desirable, or just if‌iable in view of the
expense of administration and compliance. The Paper also recognized
that the cost and inconvenience of complying w ith the legislation may
be signif‌icant enough to keep potential f ranchisors out of Albert a.
In 1990, the Alberta Securities Commission released a number of
draft policies to document t he practices of the Commis sion in admin-
istering the provisions of the Albert a Franchi ses Ac t. While these poli-
cies were mainly procedur al in nature, one of the policies dealt with
restrictive covena nts “to ensure that t he franchisee i s informed of the
franchisor’s powers under the agreement to restrict the fr anchisee and
to set the minimum sta ndards for termination, transfer and non-renew-
al of franchise arrangements,” the Commission effectively extended the
legislation from a regist ration and disclosure st atute to a relationship
statute without legislat ive authority.
Later, the Commission authorized the issuance of “policy clarif‌ic a-
tion notices,” which were not intended to change the intent of a policy but
to clarify items and to identify cert ain practices t hat evolve over time.
In July 1991, the Alberta Sec urities Commis sion sent a letter to
franchisors, f ranchisee s, and industry con sultants request ing com-
ments on ten areas of the Fran chises Act, which it proposed to amend.
Subsequently, in November 1991 the Commission relea sed a “Summary
3 S.A. 1971, c. 38.
fra nchise law26
of Responses to Franchi se Letter” that also included “Secretariat Com-
ments,” both of which outlined the Commission’s interpretation of the
responses. The summa ry indicated th at there would be amendments
to the Act or additional policies is sued in the future. Topics dealt with
included dis closure documents, adm inistrative rev iew of disclosure
documents, merit review, sales people and brokers, relation ship laws,
civil remedies, earnings clai ms, and scope of the legislation.
On 26 June 1992, the Minister of Consumer and Corporate Affai rs
for Alberta introduced Bill 45,4 which represented a complete overhaul
of the Franchises Act and included provisions that were at that time the
most far-reaching, insofar a s franchisors were concerned, of almost any
legislat ion in North America. This legi slation, i f enacted, would have
exposed franchisors to new risk s, new standards of conduct, new rela-
tionship requirements, and ultim ately signif‌icantly increased costs of
compliance in order to offer franchises in the provi nce of Alberta.
Finally, on 14 February 1995, the Albert a Securities Commission
issued a letter together with a proposed new Franchises Act, requesting
comments from the franchi se industry at large. The proposal address ed
three main concern s:
a) eliminating t he cost and time delays created by t he requirement of
registration and Commi ssion review;
b) ensuring that prospective f ranchisees have the information neces -
sary to make i nformed decisions; and
c) promoting industry self-management.
The disclosure requirements would be set out in the regulations to
the legislation, which were being developed by a working group. The
purpose was to set out general requirements rat her than specif‌ic form
items, thereby simplify ing the process of preparing disclosure docu-
ments and reducing the costs of prepa ration. Written submissions on
the proposal were requested by 1 March 1995.
Ultimately, the Alberta legislature passed Bill 33, its new Fran chises
Act,5 on 16 May 1995. The bill was the product of a co-operative ef fort
between representatives of t he Alberta government and a committee
comprised of representatives of t he Canadian Franchise Associ ation,
the former Alberta Fra nchisors Institute, and the Franchisee Associa-
tion of Alberta. Bill 33 completely overhauled the regulatory mechan-
ism of the prior Franc hises Act by eliminating registration requirements
4 Bill 45, Franchises Act, 4th Sess., 22nd Leg., Alb erta, 1992–93.
5 S.A. 1995, c. F-17.1 [Alberta Act].

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