Franchise consultants who participate in the disclosure process may inadvertently expose themselves to a claim for all losses incurred by the franchisee asserting the rescission remedy if such consultants are deemed to be “franchisor’s associates” under the Act, which is defined as follows:

“franchisor’s associate” means a person,

(a) who, directly or indirectly,

(i) controls or is controlled by the franchisor,or
(ii) is controlled by another person who also controls, directly or indirectly, the franchisor, and

(b) who,

(i) is directly involved in the grant of the franchise,

(A) by being involved in reviewing or approving the grant of the franchise, or
(B) by making representations to the prospective franchisee on behalf of the franchisor for the purpose of granting the franchise, marketing the franchise or otherwise offering to grant the franchise, or

(ii) exercises significant operational control over the franchisee and to whom the franchisee has a continuing financial obligation in respect of the franchise. (emphasis added)

The activities of the franchise consultant who assists in the disclosure process can fit squarely within the definition of a “franchisor’s associate”. Franchise consultants may find themselves named as parties to claims brought by rescinding franchisees if appropriate care is not taken to ensure that disclosure documents are prepared and provided in accordance with the Act.

When it comes to the right of a franchisee to bring an action based on a misrepresentation contained in a disclosure document (rather than an action founded on the exercise of rescission rights), the Act is even more encompassing in its language as far as those against whom such an action can be brought.

The Act permits a franchisee to assert a statutory misrepresentation claim against a franchisor, every person who has signed the disclosure document (or statement of material change) and “the franchisor’s associate”, “the franchisor’s agent”, and “the franchisor’s broker” (defined in the Act as being “a person other than the franchisor, franchisor’s associate, franchisor’s agent or franchisee, who grants, markets or otherwise offers to grant a franchise, or who arranges for the grant of a franchise.”)

Franchise business consultants undoubtedly have an important role to play within the franchise industry and can offer expert advice on the problems faced by all participants in the franchise relationship. When it comes to the preparation of a disclosure document that conforms to the Act and its Regulation, franchisors and their consultants are well advised to seek the counsel of those with the requisite expertise in the highly nuanced area of disclosure.