Published on November 8, 2011
Posted in: Blog
Update (April 9, 2012): Download the final version of the regulation here.
The Manitoba legislature recently released a draft regulation (the Regulation) to the Franchises Act, S.M. 2010, c. 13 (the Act). The Regulation fulfils the key role of defining what exactly franchisors must include in their disclosure documents to Manitoba franchisees.
Out of the provinces that have franchise laws in place, the wording, structure and substance of the Manitoba Regulation is most similar to that of New Brunswick. This is perhaps to be expected, since New Brunswick only introduced its franchise regulation last year (read about it here).
However, the Manitoba regulation has some unique features. The biggest innovation of the Act is that it allows, in certain circumstances, for disclosure documents to be delivered in parts. This can be contrasted with other provinces which require disclosure documents to be delivered all at once. The Regulation defines the specifics of this “piece-meal” disclosure. In order to deliver a disclosure document in parts:
- the required “risk warnings” must be provided to the franchisee first;
- certain subsets of information must be provided in groups (information about the franchisor, information about the franchise, and lists of franchisees);
- the franchisor must include a specifically-worded statement at the beginning of every document which is intended to form part of the disclosure document; and
- the signed certificate of the franchisor must be included with the last part of the disclosure.
The 14-day cooling off period will only begin once the last document has been delivered to the franchisee. However, prior to the end of the 14 day cooling off period, franchisors may nevertheless accept a fully refundable deposit of up to 20% of the initial franchise fee, to a maximum of $100,000.
Franchisors may use disclosure documents which were prepared for other jurisdictions, but they must supplement them to bring them into accordance with the Manitoba Act and Regulation. Similarly, franchisors may use financial statements that were prepared for other jurisdictions using generally accepted accounting principles other than those set out in The Canadian Institute of Chartered Accountants Handbook – Accounting. However, they must include a statement in the disclosure document indicating this.
Those familiar with Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 regulation should be aware of the following miscellaneous differences between the two regulations:
- the specific form and wording of the certificate, risk warnings, and statement of material change have been altered, though they are substantially the same;
- the disclosure document may be delivered by electronic means. Electronic delivery is acceptable so long as the documents do not include any hyperlinks, i.e. the final disclosure document must be self-contained and printable;
- the exemption from providing financial statements is slightly relaxed in the Manitoba Regulation. Franchisors who have operated 25 or more franchisees in the preceding 5 years in a jurisdiction other than Canada may be eligible for the exemption. However, the Manitoba Regulation requires franchisors to include a statement in the disclosure document if they intend to rely on any such exemption;
- franchisors are only required to disclose information about administrative orders and proceedings and civil proceedings against them from the preceding 10 years;
- the disclosure document must include information about operations manuals, “other fees”, and any guarantees or security interests franchisees will be required to provide;
- the disclosure requirements for earnings projections are considerably more specific and slightly more onerous in the Manitoba Regulation;
- franchisors must disclose their territory policy with regards to internet sales, telephone sales, catalogue sales or sales by other means;
- franchisees must be warned that they may have to obtain additional licenses in their jurisdiction and should thoroughly research the applicable laws; and
- if earnings statements, training, manuals, or exclusive territory are not to be provided to franchisees, the franchisor must include a statement indicating that they do not provide them.
The Regulation is currently in the public consultation phase, during which time the government of Manitoba is accepting comments from stakeholders. If you have any questions or wish to make comments to the government on the proposed Regulation, please contact John Sotos (firstname.lastname@example.org), Peter Viitre (email@example.com) or John Yiokaris (firstname.lastname@example.org).