FRANCHISE RETAIL & DISTRIBUTION Archives - FREEDIN & ROWELL LLP https://www.freedinrowell.com Practicing outside of the box for over 40 years. Thu, 21 Aug 2025 20:21:09 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.10 https://www.freedinrowell.com/app/uploads/2021/05/cropped-Alicia Robertfreedin-favicon-32x32.png FRANCHISE RETAIL & DISTRIBUTION Archives - FREEDIN & ROWELL LLP https://www.freedinrowell.com 32 32 Points Taken: Legislative Updates in Rewards Programs https://www.freedinrowell.com/rewards-programs-legislative-updates/ Thu, 21 Aug 2025 14:25:32 +0000 https://www.freedinrowell.com/?p=5891 Under Schedule 5 of Bill 46, Protect Ontario by Cutting Red Tape Act, 2025 (“Bill 46”), the Ontariogovernment plans to introduce legislative amendments to the existing rules under the ConsumerProtection Act, 2002, SO 2002, c 30, Sched A (“CPA”) that govern consumer agreements underwhich rewards points are offered. If your business, directly or through a…

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Under Schedule 5 of Bill 46, Protect Ontario by Cutting Red Tape Act, 2025 (“Bill 46”), the Ontario
government plans to introduce legislative amendments to the existing rules under the Consumer
Protection Act, 2002, SO 2002, c 30, Sched A (“CPA”) that govern consumer agreements under
which rewards points are offered. If your business, directly or through a third-party supplier, offers
rewards points, you should follow this legislative development to prepare better if the proposed
legislative amendments become law.

This is a significant legislative development because, if the proposed amendments become law,
every new or existing consumer agreement under which rewards points are offered will need to
be made, amended or extended in accordance with the new legislative requirements.

If passed, the legislative amendments would come into force on a day to be named by order of
the Lieutenant Governor in Council, except for the technical and consequential amendments,
which would come into force on the day Bill-46 receives Royal Assent.

High-level overview of the proposed legislative amendments:

The CPA safeguards consumer rights in Ontario, with Section 47.1 of the CPA governing
consumer agreements under which rewards points are offered by rewards points suppliers.

Who is a rewards points supplier?

Under the CPA, a supplier is a person who is in the business of selling, leasing or trading in goods
or services or is otherwise in the business of supplying goods or services, including the supply of
rewards points, and includes an agent of the supplier and a person who holds themselves out to
be a supplier or an agent of the supplier.

What constitutes a consumer agreement?

Under the CPA, the consumer agreement is an agreement between a supplier and a consumer in
which:

a. the supplier agrees to supply goods or services for payment, or
b. the supplier agrees to provide rewards points to the consumer, on the supplier’s own behalf or
on behalf of another supplier, when the consumer purchases goods or services or otherwise acts
in a manner specified in the agreement.

The proposed legislative amendments under Bill 46 that may amend Section 47.1 of the
CPA include the following:

a. existing and new consumer agreements under which rewards points are provided shall
be made, amended or extended in accordance with prescribed requirements;
b. rewards points suppliers shall disclose prescribed information to consumers prior to
consumers entering into the consumer agreement;
c. consumer agreements under which rewards points are provided shall not allow for the
expiry, cancellation, or suspension of rewards points, except as permitted by the
regulations;
d. if a consumer is a party to an agreement under which rewards points expire or are
cancelled contrary to regulatory requirements, the consumer may request that the rewards
points supplier credit back any rewards points that were expired, cancelled, or suspended;
e. if there is a dispute, consumers shall submit a written request to the rewards points
supplier within the prescribed time and shall comply with regulatory requirements;
f. rewards points suppliers shall, within the prescribed period, acknowledge the
consumer’s request. If the request meets the prescribed requirements, the rewards points
supplier shall, within the prescribed period, credit back any rewards points to the consumer
or, after an investigation, send a written notice to the consumer explaining why the rewards
points supplier is of the opinion the consumer is not entitled to a credit of rewards points
under the CPA;
g. consumer will be entitled to commence an action against the rewards points supplier to
recover the rewards points to which the consumer is entitled;
h. rewards points supplier or other person shall not be entitled to compensation if
proposed legislative changes become law;
i. failure to act or acting contrary to the CPA or regulations under it will constitute
expropriation or injurious affection under the Expropriations Act; and
j. the Lieutenant Governor in Council will receive additional regulation-making powers to
make regulations governing matters related to consumer agreements under which rewards
points are provided, and if the regulation so provides, it may apply retroactively to existing
consumer agreements under which rewards points are provided.

Practical suggestions to prepare ahead of proposed legislative changes:

  1. If you are a rewards points supplier or use a third party to offer rewards points on behalf of your business, assess how many consumer agreements you have under which rewards points are offered.
  2. Ensure that consumer agreements under which rewards points are offered are readily accessible.
  3. Consult with your legal team at FREEDIN & ROWELL, LLP regarding the next steps.

If you have specific questions or need more information on how to prepare better for the proposed
legislative amendments, please contact your Franchise, Retail, and Distribution team at Keyser
Mason Ball, LLP.

Key contact:
Amy M. Delisle, Partner (Franchise, Retail & Distribution)
adelisle@freedinrowell.com
905.276.0422

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New Franchise Legislation Proposed by Saskatchewan https://www.freedinrowell.com/new-franchise-legislation-proposed-by-saskatchewan/ https://www.freedinrowell.com/new-franchise-legislation-proposed-by-saskatchewan/#respond Wed, 22 Nov 2023 15:04:35 +0000 https://FREEDIN & ROWELL.humancode.ca/?p=4293 Saskatchewan is poised to become the next province to adopt franchise legislation, a significant step towards fostering uniformity in franchise law across Canada. The recently introduced Bill 149, The Franchise Disclosure Act (“the Act”) is a result of public consultation on the need for franchise legislation within the province. The framework of the consultation was based…

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Saskatchewan is poised to become the next province to adopt franchise legislation, a significant step towards fostering uniformity in franchise law across Canada. The recently introduced Bill 149, The Franchise Disclosure Act (“the Act”) is a result of public consultation on the need for franchise legislation within the province. The framework of the consultation was based on the Uniform Law Conference of Canada’s Uniform Franchise Act (“UFA”).

Having undergone its first reading on November 9, 2023, and with a second reading on November 14, 2023, the Act is anticipated to be enacted in early 2024. This development would position Saskatchewan as the seventh province in Canada to have franchise legislation. 

The enactment of the Act in Saskatchewan aligns with the broader objectives already achieved by provincial franchise acts in Alberta, Ontario, Prince Edward Island, New Brunswick, Manitoba, and British Columbia. The legislation in these six provinces mirrors the core protections of the UFA.

The UFA comprehensively addresses six key protections:

  1. Franchisors obligation to provide disclosure to the franchisee before entering into an agreement. 
  2. The duty of fair dealing among all parties involved.
  3. The ability to rescind the agreement if the disclosure is found to be deficient. 
  4. The right to rescind and obtain damages for misrepresentation in disclosure.
  5. Franchisee’s right to associate and form associations.
  6. No waiver of rights under the legislation. 

The harmonization of provincial legislation, coupled with the addition of the Act with these six protections in Saskatchewan, contributes to the creation of a cohesive legal landscape that encourages franchisees to seek business opportunities confidently, benefitting from consistent and robust protections. This move marks a positive stride toward the establishment of consistent regulatory framework across the soon-to be seven provinces with enacted franchise legislation.

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Is a Franchiser Liable for the Acts of its Franchisees? https://www.freedinrowell.com/franchisor-liabilities-franchisees/ https://www.freedinrowell.com/franchisor-liabilities-franchisees/#respond Tue, 10 Nov 2020 19:59:00 +0000 http://FREEDIN & ROWELL.humancode.ca/?p=1102 Franchisor Liabilities & Franchisees An ever-growing concern among franchisors is whether they can be held liable for the wrongful conduct of their franchisees. Most recently, the Ontario Courts concluded that where the franchisor’s involvement in the franchisee’s operations is limited to the right to intervene in matters relating to the protection of the brand, there…

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Franchisor Liabilities & Franchisees

An ever-growing concern among franchisors is whether they can be held liable for the wrongful conduct of their franchisees. Most recently, the Ontario Courts concluded that where the franchisor’s involvement in the franchisee’s operations is limited to the right to intervene in matters relating to the protection of the brand, there is no reason to hold the franchisor accountable for the acts or omissions of the franchisee. In fact, failing exceptional circumstances, a franchisor will generally not be found to be liable for the conduct of its franchisees.

In coming to this conclusion, the Court considered the following factors:

  1. The language of the Franchise Agreement and in particular whether the relationship is categorized as an independent contractor or agent-principal relationship;
  2. Whether the franchisee had the authority to enter into agreements on behalf of the franchisor;
  3. The level of operational control exerted by the franchisor over the daily activities of the franchisee and whether the franchisee, in fact, ran an independent business for its own profit; and,
  4. Whether the franchisor and franchisee shared a workforce.

Neither of the aforementioned considerations is determinative in and of themselves. The Court will look at the actual role of the franchisor to decide whether it ought to bear responsibility.

Ultimately, the Court has not sealed the door on the issue and remarked that there may be circumstances where a franchisor ought to be held vicariously liable for the acts or omissions of its franchisees; however, the circumstances on which this will be the case are exceptional and rare. Where the franchisor is uncertain as to whether they fall into the rare and exceptional category, it would be advisable to seek the advice of legal counsel.

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The Canadian Trademarks Act – Long-Awaited Changes Become Reality https://www.freedinrowell.com/trademarks-act-canada/ https://www.freedinrowell.com/trademarks-act-canada/#respond Thu, 11 Jul 2019 21:25:30 +0000 http://FREEDIN & ROWELL.humancode.ca/?p=1292 Trademarks Act in Canada It’s a new day!  However, has anything really changed for the small business owner now that Canada’s new Trademarks Act has finally come into force as of June 17, 2019 (a gargantuan undertaking that was nearly 5 years in its realization)?  Let’s highlight some facts. Definitions There is a greatly expanded definition of…

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Trademarks Act in Canada

It’s a new day!  However, has anything really changed for the small business owner now that Canada’s new Trademarks Act has finally come into force as of June 17, 2019 (a gargantuan undertaking that was nearly 5 years in its realization)?  Let’s highlight some facts.

Definitions

There is a greatly expanded definition of what constitutes a “trademark”.  Trademarks are now a sign or combination of signs which includes words, images, holograms, three-dimensional shapes, moving images, modes of packaging goods, sounds, smells, tastes, textures and positioning of a sign.

Basis

Identifying grounds has been eliminated as a filing requirement and use in commerce is no longer a prerequisite to getting a trademark registered.  In terms of impact on trademark owners, monitoring of the marketplace, policing trademarks and paying attention to the state of the trademark register for pirating activities will be more important than ever before.  Adversarial matters may become more complicated.  Determination of seniority of rights will involve enhanced searches and investigation.

Classifications

In terms of identifying goods and/or services associated with a trademark, no more combining everything into one lengthy narration.  Now goods and services have to be categorized into one or more of 45 international classes, known as the Nice Classification System.  Applications will not proceed to examination unless classification has been undertaken.  Prior to advertisement, existing applications on the register will need to undergo the classification process.

Fees

No more “one size fits all” charge.  Filing fees have increased based on the numbers of classes covered by an application.  The government fee is $330 for the first class in new applications (each additional class at $100).  Likewise, renewal fees see an increase based on the classification system.  The renewal of a trademark covering one class rises to $400 (additional classes at $125 each).  A piece of good news, since there is no longer a requirement to identify a basis for filing a new application, Declarations of Use have been eliminated as well as payment of the $200 registration fee.

Terms

The duration of a Canadian trademark registration decreases from 15 years to 10 years effective for all trademarks that register going forward or were due for renewal on or after June 17, 2019.

Impact on existing registrations

If not completed at some point in the past, existing trademarks will require that goods and services be classified.  Generally speaking, this will have to occur at renewal, although if notices are issued by the Registrar, earlier action will be required.  The timing of renewals has been narrowed to a window commencing 6 months prior to the actual renewal deadline ending in the grace period of 6 months following the deadline.

International trademark filings (Madrid Protocol)

For those businesses hoping to expand their brand internationally, one of the most exciting developments is the ability to file for international trademark protection of Canadian applications or registrations in up to 120 countries through a centralized office, the World Intellectual Property Organization (WIPO).

Anything else?

The above is a sampling of some of the legislative changes that are now in effect.    Others not discussed include divisional applications, examination for distinctiveness, and notification of third party rights during examination. Common law (unregistered) trademarks that acquire distinctiveness through use in association with goods and services to develop goodwill and reputation over time will continue to enjoy limited territorial rights.

If you have any questions relating to this article or wish to discuss your particular concerns, you may reach the author atistratton@freedinrowell.com or (905) 276-9111

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Understanding The Simplified Procedure https://www.freedinrowell.com/simplified-procedure-phases/ https://www.freedinrowell.com/simplified-procedure-phases/#respond Sat, 10 Nov 2018 20:13:00 +0000 http://FREEDIN & ROWELL.humancode.ca/?p=1110 Simplified Procedure Process In Ontario, if you have a dispute with an individual or corporation where the claim is for money or property valued between $25,000.00 and $100,000.00 an action can be commenced in the Superior Court of Justice using the Simplified Procedure process.1 It is important to note, that the Simplified Procedure does not apply…

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Simplified Procedure Process

In Ontario, if you have a dispute with an individual or corporation where the claim is for money or property valued between $25,000.00 and $100,000.00 an action can be commenced in the Superior Court of Justice using the Simplified Procedure process.1 It is important to note, that the Simplified Procedure does not apply to class proceedings, construction lien actions (with the exception of breach of trust claims), family law proceedings, Small Claims matters or Applications.

In Toronto, Windsor, and Ottawa, cases proceeding by way of Simplified Procedure are automatically subject to mandatory mediation to take place within 180 days after the Defence has been filed.2 Mediation is a process whereby a mediator attempts to resolve or settle the dispute between the parties prior to proceeding to trial. Even when Mediation is not required, the parties are still required to discuss settlement of the issues within 60 days of the Defence being filed in an effort to determine whether all relevant documents have been disclosed and if settlement of the issues is possible.

After the time for serving and filing pleadings has ended, the Discovery phase begins. Within 10 days of the close of Pleadings, parties are required to exchange all documents that are relevant to the matter in the form of an Affidavit of Documents. Thereafter, unlike the Ordinary Procedure, where Examinations for Discovery are required, parties in a Simplified Procedure action can choose whether to participate in Examinations for Discovery. Should the parties opt to conduct these Examinations, each party is entitled to two hours of oral discovery (as opposed to seven hours in the Ordinary Procedure).

Following the Discovery stage, the parties will begin to prepare for trial and will participate in a pre-trial conference. A pre-trial conference is a hearing before a judge or a master to determine the current outstanding issues and the positions of the parties. Further discussion does take place before a judge to determine whether the case can be resolved and if not, the parties can choose to conduct an ordinary or summary trial. Should the parties be unable to agree on the type of trial, the pre-trial conference judge or master will make that determination.

A summary trial is a shorter trial where evidence is presented in the form of a written Affidavit and can give oral evidence for up to 10 minutes by the party’s own lawyer, and be cross-examined by their testimony and Affidavit for up to 50 minutes by opposing counsel. Further, each party has 45 minutes to present oral arguments.

The Simplified Procedure is a more expeditious and cost-effective method for resolving issues and is an important consideration when determining your legal strategy. As it is a significantly more concise process than the Ordinary Procedure, understanding how to properly navigate and prepare for actions proceeding in this manner is critical to your eventual success.

1 Notably, if your claim is for property or a monetary value exceeding $100,000.00 you may be able to bring the action under the Simplified Procedure; however, if there is an objection by the Defendant(s) it will possibly proceed by way of the Ordinary Procedure.

2 In other jurisdictions, mediation is optional

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The Canadian Trademarks Act – Long-Awaited Changes Become Reality https://www.freedinrowell.com/cipo-trademark-law-updates/ https://www.freedinrowell.com/cipo-trademark-law-updates/#respond Thu, 11 Oct 2018 21:28:07 +0000 http://FREEDIN & ROWELL.humancode.ca/?p=1296 CIPO & Updates to Trademark Laws Fans are woefully aware that the Blue Jays have flown the coop for this year’s post-season, but trademark fever is just beginning to heat up. The year 2019 is shaping up to be a momentous one for Canadian trademark practice and procedure in the Canadian Intellectual Property Office (“CIPO”).…

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CIPO & Updates to Trademark Laws

Fans are woefully aware that the Blue Jays have flown the coop for this year’s post-season, but trademark fever is just beginning to heat up.

The year 2019 is shaping up to be a momentous one for Canadian trademark practice and procedure in the Canadian Intellectual Property Office (“CIPO”).

A little history to start things off:  Back in the Stephen Harper era when the Economic Action Plan Bill C-31 received Royal Assent on June 19, 2014, one of its many aims was to modernize trademarks.  The new Trademarks Act (the “Act”) had been set to come into force once the Trademark Regulations were finalized (now expected to occur in the first quarter on 2019).  The exciting thing about all this is that Canada is stepping onto the world stage, by becoming party to the Singapore Treaty, the Nice Agreement (Classification System) and the Madrid Protocol (International Trademark filing system).  More information on the background to all these developments may be found by consulting CIPO’s online resources at ic.gc.ca.

There will be a number of significant changes to digest for both new and existing trademark owners, a sampling of which is described below:

World-wide protection

One of the most noteworthy developments concerns Canada’s adoption of the Madrid Protocol (for international applications).  In the past, a Canadian-based applicant had to resort to obtaining trademark protection outside of Canada by filing its application with separate national or regional offices.  That will soon change.  For one fee a trademark owner may file one application with the Canadian Intellectual Property Office based on its Canadian application or registration to obtain protection internationally in the countries selected (currently 102 members covering 117 countries).  Naturally this is not a one size fits all option as there are benefits and disadvantages with this type of filing.  For those entities interested in trademark protection in Canada or the U.S. alone, national filings are still a logical choice.

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There will no doubt be some growing pains once all of the changes have been put into practice. For a more in-depth discussion on any trademark concerns you may have, including a portfolio review, please contact our Branding & Franchising Group. Why not become an “early bird” by stepping up to the plate and making it one of your New Year’s Resolutions to discover how trademark protection adds value to your overall game plan.

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Some Disclosure About Non-Disclosure https://www.freedinrowell.com/nda-goals-obligations/ https://www.freedinrowell.com/nda-goals-obligations/#respond Mon, 11 Jun 2018 21:54:10 +0000 http://FREEDIN & ROWELL.humancode.ca/?p=1328 NDA Goals & Obligations Let’s say that you have a great idea that you want to take to the market and you want to work with an investor. Maybe you operate a business and a competitor approaches you about a potential deal. Before saying “yay”, think: NDA. Signing a non-disclosure agreement (“NDA“) is the first…

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NDA Goals & Obligations

Let’s say that you have a great idea that you want to take to the market and you want to work with an investor. Maybe you operate a business and a competitor approaches you about a potential deal. Before saying “yay”, think: NDA. Signing a non-disclosure agreement (“NDA“) is the first step to proceeding with the above types of transactions. Before letting someone “look under the hood”, agree in writing to terms that deal with how the parties will treat what they find.

An NDA is also commonly referred to as a confidentiality agreement because principally, an NDA sets out the parties’ agreed on procedure for the sharing and use of confidential information. Obligations can be one-way (meaning what duties are owed by the receiving party to the party disclosing confidential information) or mutual (meaning the reciprocal duties that the parties owe to each other with respect to each others’ confidential information).

Some argue that an NDA is little more than paperwork getting in the way of progressing with a business transaction. However, an NDA can set the tone and parameters of how the parties will treat each other throughout the life of their business relationship and establishes the processes for the transmission of confidential information, the terms of its use and its return and/or destruction. NDAs (or even confidentiality clauses) are used in a variety of contexts: purchase and sale transactions, licensing agreements for intellectual property, employment and hiring of contractors and dispute resolution.

​As with any type of contract, a ‘one size fits all’ approach is rarely appropriate. An NDA should be crafted so that it deals the specific context of the transaction(s) being contemplated and accordingly, the specific goals and obligations that the parties reasonably owe each other. However here are some considerations (among others) that should be captured in an NDA:

  • Scope and Purpose: Who should be a party to the NDA? What type of information does the NDA cover and for what purpose? While the context in which the NDA is born relates to a transaction (such as a potential investment) the confidentiality obligations of the parties may be wider in scope than simply the transaction contemplated.
  • Who? Who can see the information? Employees? Advisors? Lenders? The NDA should address this issue, as well as the terms of third party disclosure of confidential information.
  • Term: How long will the NDA be effective for and how may that period be extended or terminated, and on what terms?
  • Exclusions: What information should be excluded from the terms of the NDA? Often, information that was public knowledge (but not because a party breached the NDA) or developed independently.
  • Indemnity: What remedies follow should a breach of the NDA occur and at what expense? While the entering of an NDA (much like the larger transaction) will have practical limits on the ability to enforce the provisions and terms on a breaching party (for example, if the breaching party is located outside of the province or country, or if they have limited financial means) often an NDA has very strong language in favour of the disclosing party to allow them to make the breaching party liable for the full cost and consequences associated with a breach of the NDA itself.

The material provided above is for the purposes of assisting parties to discuss the nature of the obligations entrenched in an NDA and what impact they will have on those parties working together going forward.

We in the Corporate/Commercial Practice Group at FREEDIN & ROWELL, LLP draft NDAs as part of the normal course of our practice. Should you have any questions regarding this or any aspect of your business, please do not hesitate to get in touch – we’re here to help.

You may reach the author at kfernandes@freedinrowell.com or (905) 276-0431.

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Cleaning Up Your Business For Sale https://www.freedinrowell.com/selling-business-value-items/ https://www.freedinrowell.com/selling-business-value-items/#respond Mon, 14 May 2018 00:03:27 +0000 http://FREEDIN & ROWELL.humancode.ca/?p=1413 Selling Your Business & Value Items For some business owners, the end game is to sell their entire business to an interested buyer, make a profit, and retire.  For others, a sale may not be on their radar until there is an offer on the table that is too good to turn down.  Whether your…

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Selling Your Business & Value Items

For some business owners, the end game is to sell their entire business to an interested buyer, make a profit, and retire.  For others, a sale may not be on their radar until there is an offer on the table that is too good to turn down.  Whether your goal is to sell or not, there are a variety of items that should be tidied up to maximize the value, increase the purchase offer and enhance the terms so that you will be in a better position when that offer comes.  Then you can focus on running the business during the sale process and ensuring an efficient transition.  There will inevitably be some unforeseen matter that has to be dealt with, but if you can do a little spring cleaning of these items now, then you know these will not be the ones holding up closing:

Secured Creditor Registrations – When you lease equipment or obtain credit from various institutions or private parties, security is granted to the lender and registered pursuant to the Personal Property Security Act (“PPSA”).  When the lease is paid out or if collateral is substituted or cancelled, the PPSA registration should be discharged and/or amended.  Having the PPSA registration in place does not, in and of itself, create security in the business’s collateral, but if there are extraneous registrations in place, then someone (me) has to spend time, and your money, sorting out which ones are valid and which are not.   It is a good idea to keep regular tabs on what PPSA registrations are in place and which ones should be removed or amended.

Employees on Long Term Disability – After a point, if an employee on long term disability is not able to return to work, they should be terminated.  If you leave them on your records as an employee without formally terminating them, then they are a potential liability for the buyer and for you.

Expired Contracts – Part of what a buyer is buying is the contracts with your customers (and your suppliers to some extent) and the goodwill that goes along with those contracts.  It is always a good idea to create some certainty in your business with contracts with your customers.  If your practice is to have written contracts with your customers for the supply of goods and services, the contracts should be formally renewed on a regular basis.  You can do this by having an evergreen clause in the contract, or by renegotiating the agreement prior to the expiration of the term.  If the contract has expired, even if you are continuing to do work for that client, the buyer may not attribute as much value to that relationship as they would if there was a written contract in place.  

Another thing to mention here is that the buyer (and their lawyers) will request a large amount of information to populate the due diligence data room and complete the schedules to the purchase agreement. Most of the information should be fairly easy to acquire since it would be used each year by your accountants for preparing the financial statements. However if the selling business owner is not prepared, or even aware that the requests are coming, it can mean spending a lot of time collecting information to satisfy the buyer’s queries instead of running the business. ​

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Allstar Decision Restores Clarity For Franchisors in Ontario https://www.freedinrowell.com/disclosing-franchisors-clarity/ https://www.freedinrowell.com/disclosing-franchisors-clarity/#respond Sat, 10 Feb 2018 15:57:00 +0000 http://FREEDIN & ROWELL.humancode.ca/?p=1062 Disclosing Franchisors with Clarity In late 2016, the “AllStar Decision” created great uncertainty for franchisors and franchise practitioners alike. This uncertainty surrounded the process for providing disclosure as required under the Arthur Wishart Act, (Franchise Disclosure), 2000 (the “AWA”) to prospective franchisees in situations where no location for the franchise had yet been selected. Thankfully, on January…

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Disclosing Franchisors with Clarity

In late 2016, the “AllStar Decision” created great uncertainty for franchisors and franchise practitioners alike. This uncertainty surrounded the process for providing disclosure as required under the Arthur Wishart Act(Franchise Disclosure), 2000 (the “AWA”) to prospective franchisees in situations where no location for the franchise had yet been selected. Thankfully, on January 25, 2018, the Court of Appeal released its decision in Raibex Canada Ltd. v. ASWR Franchising Corp. and brought order and clarity back to the franchise industry by allowing the franchisor’s appeal and dismissing the franchisee’s claim for rescission.

Background

The franchisor, ASWR Franchising Corp., granted Raibex Canada Ltd. the right to acquire and operate an AllStar Wings and Ribs franchise in Toronto.  Often franchisees will sign franchise agreements and be free to find a location on their own or work in collaboration with the franchisor to select a location, either signing a head lease directly with a landlord or a sublease with the franchisor.   In this case, the franchisor was to sign the head lease with the landlord and sublease the premises to the franchisee.  

The franchisee in this case intended to find an existing restaurant and convert it to an AllStar Wings and Ribs franchise. The disclosure document provided cost estimates for constructing a new location from a shell but not for converting an existing restaurant to an AllStar Wings and Ribs franchise.  

The franchisee was granted rescission of the franchise agreement based on section 6(2) of the AWA, which provides that a franchisee may within two years of signing a franchise agreement, walk away from the franchise and receive full reimbursement of its costs if disclosure was never received.  Over time, case law has developed to provide that in certain cases, even where a franchisee has received disclosure, the two-year rescission remedy is still available if the disclosure is considered so deficient that it is as if no disclosure had been provided at all.  

The franchisee in this case claimed that the disclosure provided fell into this fatally deficient category as it did not disclose a copy of the head lease for the premises (which did not yet exist) and did not provide conversion estimates for the location.  When a location was subsequently selected, the lease required a $120,000 deposit.   Additionally, the conversion cost exceeded $1 million.  The franchisee sought rescission of the franchise agreement on these grounds and was successful.  

The lower court held that it was premature for the franchisor to have disclosed to the franchisee without a head lease, as this amounted to an omission of a material fact.  It did not matter that this material fact did not yet exist, and was therefore not yet known to the franchisor – and so began the uncertainty. 
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As a result, franchisors have faced practical issues such as having to convince landlords to offer them locations without a formal lease until the franchisee could be found, or failing this, having to sign leases without a franchisee in line for that particular location.  

Franchise practitioners have had to grapple with creative ways to balance their clients’ needs to sell franchises by providing disclosure to prospects, with this impossibly onerous new disclosure requirement of waiting to disclose until you know everything.

The Court of Appeal

On the rescission issue, the Court of Appeal reiterated that when seeking the two-year rescission remedy, it must be clear that the franchisee was deprived of the ability to make a fully informed decision considering both the language of the disclosure document and the franchise agreement.

In this particular case, the franchisee was not deprived of that ability. With respect to the lease, the franchisee knew that no location had been selected.  Additionally, the franchise agreement provided that (a) the franchisee and franchisor would work collaboratively to find a location with the franchisee to be actively involved in site selection, and (b) if a location had not been selected within 120 days of signing, the franchisee could terminate the franchise agreement and receive a refund of its initial fee, less the franchisor’s reasonable expenses.   Therefore, once the franchisee learned of the $120,000 deposit, it had the ability to reject the location or terminate the franchise agreement.  Instead, the franchisee urged the franchisor to sign the lease.  The Court of Appeal called these safeguards a “complete answer” to the claim that the failure to disclose the head lease amounted to fatal disclosure giving rise to the two-year rescission right.

With respect to the conversion estimate, the Court of Appeal held that the franchisee was effectively put on notice of the potential costs and risks associated with a conversion location and was therefore not deprived of its ability to make a fully informed decision.  The disclosure document provided:

1. Cost estimates for developing an All Stars franchise from a shell;
2. A warning that cost estimates could vary greatly from site to site; and
3. A warning and recommendation that the franchisee maintain a significant contingency reserve.

Result

Franchisors can now safely return to the practice of disclosing to prospective franchisees without first having secured a location for that franchisee and disclosing a head lease.  Locations may be selected after the franchisee signs the franchise agreement, either by the franchisee alone with the franchisor’s approval (or not), or in collaboration with the franchisor. Given the Court of Appeal’s reasoning based on the existence of site selection safeguards and risk warnings in the disclosure document, franchisors are wise to provide franchisees with an opt out in the case that a location is not found within a reasonable time and to advise prospective franchisees of the uncertainties associated with build out and/or renovation costs.​

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What You Should Know About Franchise Disclosure Requirements https://www.freedinrowell.com/awa-disclosure-franchise-prospects/ https://www.freedinrowell.com/awa-disclosure-franchise-prospects/#respond Sun, 10 Sep 2017 16:12:12 +0000 http://FREEDIN & ROWELL.humancode.ca/?p=1070 AWA Disclosure Franchise Prospects When deciding whether to purchase a franchise there is certain material information that must be considered in order to make an informed decision. Such material information is possessed solely by the franchisor so various provinces have enacted legislation that among other things, helps balance the inequality of information between the franchisor and franchisee. In…

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AWA Disclosure Franchise Prospects

When deciding whether to purchase a franchise there is certain material information that must be considered in order to make an informed decision. Such material information is possessed solely by the franchisor so various provinces have enacted legislation that among other things, helps balance the inequality of information between the franchisor and franchisee. In Ontario, the relationship between franchisee and franchisor is governed by the Arthur Wishart Act
(Franchise Disclosure), (the “Act”).

In Ontario, franchise systems are required to provide a Disclosure Document to prospective franchisees. A Disclosure Document is a summary of information on the franchisor, its executive team and its franchise agreements and must contain material information prescribed by the Act that will assist a franchisee in making an informed decision regarding the purchase of the franchise. This includes but is not limited to background information on the franchisor and its directors, financial statements and copies of all agreements relating to the franchise.

Keep in mind that the Disclosure Document is only a summary of important information. Prospective franchisees should also closely review the franchise agreement. The franchise agreement sets out the duties and obligations of the franchisor to the franchisee and vice versa, so it is important to make sure to read and understand these documents. It is also important to have the Disclosure Document and the franchise agreement reviewed by professionals who are familiar with the obligations and rights set out by the Act.

In addition to legal advice, potential franchisees should seek advice from an accountant, a financial advisor and their bank to ensure that they can financially afford the investment. The bank may also request a copy of the Disclosure Document so that they can make an informed lending decision.

FREEDIN & ROWELL, LLP does not provide financial or accounting advice. A prospective franchisee should seek financial and accounting advice in relation to franchising and the franchise agreement prior to entering into the franchise agreement.

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