Franchise Legislation
Author | Frank Zaid |
Profession | Senior Partner Osler, Hoskin & Harcourt LLP |
Pages | 24-74 |
CHAPTER 2
FRANCHISE
LEGISLATION1
A.HISTORY OF FRANCHISE LEGISLATION IN
CANADA
1) Introduction
Franchise legislation 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 registration, disclosure, or relationship
legislation is within the exclusive mandate of the provinces of Canada.
Historically, a number of provinces in C anada have either expressed
an interest in enacting franchise legislation or in fact have done so, but
such attempts have been politically driven, 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ther, certain legislation originally enacted was subsequently repealed,
and generally most private members’ bills introduced in the provincial
legislatures have not proceeded beyond initial consideration.
1Adapted 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.
24
Franchise Legislation25
2) Alberta
Alberta was the first province in Canada to enact legislation deal-
ing directly with franchising. The Franchises Act3 was modelled after
counterpart legislation in California, United States. The Act was a dis-
closure-registration statute rather than a regulatory-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 facts relating to the franchise being
offered. No person, unless exempt, could trade i n a franchise in Alberta
until an application for registration of a franchise and certain ancillary
documents had been filed with the Alberta Securities Commission and
a receipt for a prospectus had been obtained from the Registrar.
In 1987, the Minister of Consumer and Corporate Affairs 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 in Alberta. The Discussion Paper recognized that, since
Alberta was the only Canadian jurisdiction with specific franchise
legislation, a necessa ry question that had to be considered was whether
such legislation was necessary, desirable, or justifiable in view of the
expense of administration and compliance. The Paper also recognized
that the cost and inconvenience of complying with the legislation may
be significant enough to keep potential franchisors out of Alberta.
In 1990, the Alberta Securities Commission released a number of
draft policies to document the practices of the Commission in admin-
istering the provisions of the Alberta Franchises Act. While these poli-
cies were mainly procedural in nature, one of the policies dealt with
restrictive covenants “to ensure that the franchisee is informed of the
franchisor’s powers under the agreement to restrict the franchisee 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 registration and disclosure statute to a relationship
statute without legislative authority.
Later, the Commission authorized the issuance of “policy clarifica-
tion notices,” which were not intended to change the intent of a policy but
to clarify items and to identify certain practices that evolve over time.
In July 1991, the Alberta Securities Commission sent a letter to
franchisors, franchisees, and industry consultants requesting com-
ments on ten areas of the Franchises Act, which it proposed to amend.
Subsequently, in November 1991 the Commission relea sed a “Summary
3S.A. 1971, c. 38.
fra nchise law26
of Responses to Franchise Letter” that also included “Secretariat Com-
ments,” both of which outlined the Commission’s interpretation of the
responses. The summary indicated that there would be amendments
to the Act or additional policies issued in the future. Topics dealt with
included disclosure documents, administrative review of disclosure
documents, merit review, sales people and brokers, relationship laws,
civil remedies, earnings claims, and scope of the legislation.
On 26 June 1992, the Minister of Consumer and Corporate Affairs
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
legislation in North America. This legislation, if enacted, would have
exposed franchisors to new risks, new standards of conduct, new rela-
tionship requirements, and ultimately significantly increased costs of
compliance in order to offer franchises in the province of Alberta.
Finally, on 14 February 1995, the Alberta 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 concerns:
a)eliminating the cost and time delays created by the requirement of
registration and Commission review;
b)ensuring that prospective franchisees have the information neces-
sary to make informed 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 rather than specific form
items, thereby simplifying the process of preparing disclosure docu-
ments and reducing the costs of preparation. 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 effort
between representatives of the Alberta government and a committee
comprised of representatives of the Canadian Franchise Association,
the former Alberta Franchisors 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
4Bill 45, Franchises Act, 4th Sess., 22nd Leg., Alb erta, 1992–93.
5S.A. 1995, c. F-17.1 [Alberta Act].
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