Kayani Law Firm’s civil litigation team deals with a variety of civil disputes that arise from breaches of contract.
One such case pertained to a disagreement between a franchisor and franchisee. In this case, the franchisor unlawfully terminated a franchise agreement and physically locked out the franchisee from the business, alleging that the franchisee was in default of the franchise agreement. This left the franchisee suddenly without a business to earn a living for himself and his family.
Our team assisted the franchisee in enforcing its rights to the franchise business. Whenever our litigation team is tasked with resolving a dispute, our counsel approaches each matter thoroughly and methodically. Our legal team understands that people work very hard to start a business to support themselves and their families. They first noted the termination notice was improper and immediately notified the franchisor of the same. When further information was provided, upon our team’s review of the agreement documents and franchise disclosure documents, we discovered that the franchisor failed to disclose pertinent and statutorily required information to the franchisee prior to the parties entering into an agreement. This failure to disclose important information by the franchisor to the franchisee prior to entering into a franchise agreement, amounted to misrepresentation and the franchisee is entitled to legal remedies.
In the province of Ontario, franchisees and franchisors are governed by the Arthur Wishart Act (Franchise Disclosure), 2000, SO 2000, c 3, and its Regulations. Under this Act, both the franchisor and franchisee are imposed with a duty of fair dealing, which includes a duty to act in good faith and in accordance with reasonable commercial standards. Further, under this Act, the franchisor is obligated to provide disclosure, that is, detailed information about the franchise business to the franchisee at least 14 days prior to the signing of any franchise agreement. The required disclosure that the franchisor must provide is detailed in the Regulations of the Arthur Wishart Act and includes the business background of each director of the franchisor company, whether any of the directors have been convicted of unfair or deceptive business practices or if there are charges pending, among other items, such as an audited financial statement, unless the franchisor is exempted from doing so. The list of required documents is exhaustive; it is important for the franchisee to make sure that they have all the information they need to make an informed decision about whether they should enter into a franchise agreement with a particular franchisor. If the franchisor does not comply with the disclosure requirements, they are in breach of the Act. If a franchisee signs an agreement without having the full disclosure, they have legal remedies, such as “rescission” rights, that is, the right to cancel the agreement with no penalty or obligation. There are time limitations to bring a notice of rescission, depending on the situation. The Act allows for rescission for late disclosure within 60 days of receiving the disclosure document. Additionally, a franchisee may rescind the franchise agreement, without penalty or obligation, within 2 years after entering into a franchise agreement if the franchisor did not provide the disclosure document. We always would recommend franchisees and franchisors to retain legal counsel to ensure proper procedure is being followed.
In our case, our franchisee client was forced to commence litigation against a larger corporation to protect its interest in the business that was unconscionably taken away. A major concern for the franchisee was that it had paid a significant amount of time and money to set-up the franchise business. At a period when the franchisee was beginning to turn a profit to cover the start up expenses, the business was taken away by the franchisor without proper notice. The franchisee was further concerned that the franchisor, would immediately sell the business which would place the business further out of the franchisee’s reach. Our team of lawyers brought an urgent motion to prevent the sale of the franchise business until a further court order or a resolution of the matter and obtained the desired relief. This was an important step to protect our client’s rights and to protect the business asset. Once the business was secure, our team was able to successfully negotiate a fair and reasonable settlement between the franchisee and franchisor which saved our client a significant amount of legal costs and further monetary losses. What new franchisees need to know is that a franchisee is not a slave to the franchisor, rather, the franchisee has rights that are protected by statute and common law. Our team can help both franchisees and franchisors to ensure both parties’ rights are protected and the required obligations are being followed to establish a fair business relationship.