Published on October 6, 2016
Posted in: Blog, Jennifer Kulyk
The Franchises Regulation to British Columbia’s Franchises Act was released this week. The franchise legislation will come into force on February 1, 2017, meaning that franchisors operating in BC have approximately four months to ensure full compliance with the new disclosure laws. BC joins five other Canadian provinces which have enacted franchise legislation. The Franchises Act received royal assent last November and is modeled closely on Ontario’s Arthur Wishart Act (Franchise Disclosure) 2000. For more information on BC’s Franchises Act, see our earlier blog post here.
While the Franchises Act provides a general framework for franchising in BC, the regulations contain fundamental details on what franchisors must disclose to prospective franchisees in disclosure documents which must be delivered before fanchise agreements can be signed or money taken toward the franchise. There are many similarities between the BC and Ontario disclosure regulations. However, BC’s Franchises Regulation fills in a number of the gaps that currently exist in Ontario’s disclosure framework. Notable provisions of difference in the BC regulations include:
Earnings Projections Details
While Ontario has requirements regarding earnings projections, the term is left undefined creating a climate of uncertainty. BC has addressed this issue and defines “Earnings Projection” as including information “given by or on behalf of the franchisor, directly or indirectly, from which a specific level or range of actual or potential sales, costs, income, revenue or profits from franchises or businesses of the franchisor or of the franchisor’s affiliate of the same type as the franchise being offered can be easily ascertained.” The definition is broad and inclusive, capturing a range of potential sources of information from which projections can be “easily ascertained”.
In addition, BC further requires that if an earnings projection is provided, a disclosure document must include a statement which not only specifies the assumptions and bases underlying the projection and where the information is available for inspection (as is also required in Ontario), but also whether the earnings projection is based on actual results of the franchises or corporate stores and, if so, the location, areas, territories or markets of such franchises and businesses. In addition, if the earnings projection is based on a business operated by the franchisor or franchisor’s affiliate, the disclosure document must state that the information may differ in respect of a franchise operated by a franchisee.
Dispute Resolution Details
In BC, further details are specified on what information a franchisor must provide regarding dispute resolution processes, including restrictions imposed and requirements relating to the venue or location of the process. This is in addition to Section 12(1) of the Franchises Act which states that restrictions on the application of BC law and restrictions on jurisdiction or venue to a forum outside BC are void.
Both BC and Ontario have similar rules on information required to be disclosed related to the franchisee’s costs associated with the establishment of the franchise. However, the BC regulation contains a catch-all basket clause for other fees. Franchisors must include the nature and amount of any recurring or isolated fees or payments that a franchisee must pay directly or indirectly to a franchisor or that a franchisor collects on behalf of a third party.
Guarantees and Security Interests
Absent from the Ontario regulation, BC requires franchisors to provide a description of its policies and practices regarding guarantees and security interests.
In addition to information on how a franchisee’s territorial rights will be determined and the franchisor’s policy on territorial rights, BC disclosure documents must include a description of any reservation of rights by the franchisor to market goods or services of the same kind sold or distributed by franchisees, whether under the same or a different trademark. Franchisors must also specify whether they reserve any rights to distribute any goods or services by internet sales, telephone sales, catalogue sales or sales by other means.
Municipal By-Laws Excluded
Both BC and Ontario disclosure documents must include information about required federal and provincial licences, registrations, authorizations, etc. (BC’s regulation requires the information to be in the form of a list, while Ontario’s regulation requires a description). However, unlike Ontario, BC leaves out the requirement to provide information on obligations under applicable municipal by-laws. Instead, disclosure documents must include a statement that in addition to listed information, the franchisee may be required under other federal or provincial laws or under municipal by-laws to obtain licences, registrations, etc. to operate the franchise and that the franchisee should make inquiries to determine what is required.
Negative Disclosure Statements
The BC regulation sets out a number of negative disclosure statements that must be provided in the disclosure document, if applicable, including:
- If no manuals are provided to the franchisee, there must be a statement to that effect;
- If training is not offered to the franchisee, there must be a statement to that effect;
- If an estimate of operating costs is not provided, there must be a statement to that effect;
- If an earnings projection is not provided, there must be a statement to that effect; and
- If no territorial rights are granted, there must be a statement to that effect.
This blog post is a summary of some of the new franchise disclosure obligations in BC and is intended for informational purposes only. Franchisors should carefully review the Franchises Act and Franchises Regulation with your Sotos legal advisor to ensure that they are in full compliance with the new disclosure requirements before the laws come into force in February 2017. We assist our clients to ensure that all relevant franchise disclosure requirements across the country are met.