New rules increase transparency and protections for franchisees

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FranchiseVictoria: The new Franchises Act and regulation taking effect today ensure prospective business owners in British Columbia will have more information available to help them decide whether to open a franchised business.

The act increases transparency for new franchisees by requiring franchisors to disclose important information about the company’s legal, financial and bankruptcy history. The act also provides new legal protections for B.C.-based franchisees including:

  • requiring that contracts include pre-sale information disclosure requirements;
  • providing legal rights and protections to help parties to resolve disputes;
  • requiring disputes be heard in B.C.;
  • providing franchisees with the ability to sue for damages in court in cases where the franchise agreement is not honoured or the franchisee does not receive the required disclosure information; and
  • allowing franchisees to cancel the franchise agreement and request their money back if the disclosure document was not provided to them as required.

The act outlines remedies in the event a potential franchisee is misled about potential profits through the disclosure documents by providing a time frame which a franchisee may rescind a franchise agreement, without penalty or obligation.

The legislation provides certainty for businesses which will help new franchises open in B.C., generating investment and employment opportunities and providing direct and indirect economic benefits to communities.

The Province has created resource materials to help franchisees understand the new legislation and made the following materials available in Chinese (simplified and traditional), Punjabi and Korean:

  • a checklist with a high-level overview of steps required to enter into a franchise agreement;
  • a ‘questions to ask’ sheet prompting franchisees to seek specific information during discussions with franchisors; and
  • an easy-to-read summary of the key points of the new Franchises Act.

The Franchises Act and regulation were developed with input from key stakeholders throughout the province to ensure it meets the specific needs of franchisees and franchisors in British Columbia, while harmonizing B.C.’s laws with the five other provinces with franchise regulations (Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island) to reduce red tape and costs associated with disclosure documents and bring consistency for franchisors across Canada.

Coralee Oakes, Minister of Small Business and Red Tape Reduction said: “The Franchise Act and regulation include important requirements for information disclosure and protections for entrepreneurs interested in starting a franchise in B.C. With this change, we’re formalizing processes already in use by many franchisors as well as encouraging economic growth in communities throughout the province.”

Kathleen Cunningham, executive director, BC Law Institute said: “The Franchises Act overcomes much of the inherent power imbalance in the franchise relationship and creates a more even playing field. It benefits franchisors and franchisees alike in creating much-needed certainty around the standard of pre-contract disclosure. The Institute is very pleased that B.C. has become the sixth province to enact legislation reflecting best practices in franchising along the lines of the national model developed by the Uniform Law Conference of Canada.”

Robin Burnette, CEO, Stickys Candy Holdings said: “It’s wonderful B.C. has created the Franchise Act to save franchisors time and money by aligning with other provincial franchise laws. The act also makes it easier for franchisors to find the best possible people to represent their business by clarifying the information requirements at the outset.”

Quick Facts:

  • The Franchises Act was first introduced in the legislature in October 2015 to increase transparency in B.C.’s franchise industry.
  • A franchise is a business in which one party (the franchisor) grants to the other party (the franchisee), the right to market goods or services under the franchisor’s business system or trade name, in return for fees and royalties.
  • Commonly franchised businesses include restaurants, oil change businesses, coffee shops, hotels and cleaning services.
  • This legislation aims to make investing in B.C. even easier and protect British Columbians who are buying into a franchised business.
  • There are nearly 78,000 franchised outlets in Canada with $100 billion in annual sales, and Canadian franchises employ about 1.5 million people – one of every 22 people in Canada.