Published on February 14, 2014
Posted in: Blog
Asking for and obtaining releases are commonplace in all kinds of business transactions and legal relationships. A release usually involves one person agreeing with another that they will never sue the other for anything that happened in the past. Want to renew your contract? Sign a release. Want to sell your business? Sign a release. Want to amend your contract? Sign a release.
However, asking an franchisee for a release raises unique issues. This is due to section 11 of the Arthur Wishart Act, which voids any purported release of rights given by the Act. (Similar rights exist in franchise legislation in other provinces too).
So far, Ontario courts have said that franchisees are allowed to release rights under the Act if there is a live litigation dispute dealing with existing, known breaches of the Act, and if the release is given with the advice of counsel.
But if the franchisee is asked to give a general release of all claims in connection with a renewal or assignment of a franchise agreement, a court may conclude the request is void. That is what the Ontario Superior Court recently did in 2176693 Ontario Ltd. et al. v. The Cora Franchise Group Inc. The court declared the section of the franchise agreement requiring a franchisee to give a general release to be void.
Franchisors should carefully review any provisions of a franchise agreement in which they ask franchisees to provide a release. If the release request is not carefully tailored to take into account rights under the Arthur Wishart Act, there is a serious risk a court will conclude the request is void and “offensive,” as the court in Cora Franchise Group did.
Likewise, franchisees who have signed a release should consult a lawyer to determine if it was validly given or if it is void because it does not comply with the Arthur Wishart Act.