Franchise law in Canada is regulated on a provincial level by the respective provinces. Franchising is becoming an increasingly attractive business model for many. By way of franchising, a business owner can manage and operate their business by way of licensing the use of a specific brand. This relationship is an attractive one as it allows a small business owner to become a part of a larger franchise brand and represent the identity, values, and products of the said brand all the while making a profit and getting operational support from the brand itself.

The agreement which dictates this relationship between the franchisee (the purchaser of the business) and the franchisor (the owner of the brand/seller) is referred to as the License/Franchise Agreement. Specifically, in Ontario, this relationship is governed by the Arthur Wishart Act. This act was put in place to provide consumer protection for franchisees due to the imbalance in power between a small business owner (franchisee) and a large conglomerate franchisor, such as Tim Hortons, Burger Kind, Wendy’s etc.

In Ontario, per the Arthur Wishart Act, franchisors have an obligation to provide the perspective and existing franchisee with a Disclosure Document. This Disclosure often becomes the steppingstone for a franchisee to decide whether this business/brand is the right fit for them. The Disclosure document ought to disclose all material facts, copies of all relevant agreements, financial statements, and all other material information. The Disclosure must also be shared at least 14 days in advance of the signing of License/Franchise Agreement and any monies being accepted from the franchisee to franchisor. If the Disclosure is deficient, the franchisee can effectively rescind all agreements and face no damages.

Often, large franchisors are very sophisticated and maintain tight internal processes to ensure that they are not exposed to any liability. However, in practicality, problems can arise if either party does not meet their respective obligations outlined within the Disclosure and the subsequent License/Franchisee agreement. At Cypher Law, we understand these legal implications and can help you with all aspects of your new franchised business.