In early October the government of British Columbia (“BC”) introduced a bill that would enact a statute governing franchises in that province. The possibility of franchise legislation in BC comes as no surprise as the government has been investigating the issue in the past couple of years. It recently received a report from a provincial legal institute that recommended the adoption of an act similar to those found in five other provinces in Canada: Alberta, Ontario, New Brunswick, Prince Edward Island and Manitoba. The language of the proposed statute (the “Act”) closely follows that of the other provinces’ and is based on the format put forward by the Uniform Law Conference of Canada.
Following its introduction into the BC Legislature on October 5th the bill moved speedily through the legislative process passing its second reading on October 7th and then passing Committee and third reading on October 20th. This means that the legislation is in its final form, and it will come into force on a date designated by the Lieutenant Governor in Council. That date will not be until sometime in 2016, with the possibility of a further delay before the regulations addressing disclosure requirements come into effect.
The Government has opened a public consultation process with respect to the proposed regulations, and has requested that comments be received by January 15, 2016.
As noted above, the Act follows the legislation that exists in several other jurisdictions in Canada. Here is a synopsis of some of the key provisions:
- The Act will: (i) impose a duty of fair dealing among the parties to a franchise agreement and remedies for breach of that duty; (ii) confirm franchisees’ right of association and provide remedies for infringement; (iii) require disclosure by franchisors to prospective franchisees of financial and other information about the franchise prior to entering into a franchise agreement; (iv) provide conditions for rescission of a franchise agreement; (v) provide circumstances in which there may be liability for damages; and (vi) prevent the waiver of application of the Act in the event of a claim or dispute under a franchise agreement that is subject to the Act.
- The Act also includes some noteworthy concepts that are not found in all (or in some cases, any) of the other provinces’ legislation:
- The Act provides for the explicit ability to deliver disclosure documents by email.
- The Act has a much-needed “substantial compliance” provision, which states that the existence of a defect in form, a technical irregularity or an error in a disclosure document (or statement of material change) will not affect its validity provided that such blemishes do not affect its substance and, further, that the disclosure document (or statement of material) is “substantially in compliance” with the Act. Currently, Ontario is the only regulated province that does not include such a provision.
- Some forms of confidentiality agreements and site selection agreements will not be considered “franchise agreements” and may be signed in advance of disclosure.
- Similarly, monetary deposits paid by a prospective franchisee that are refundable without obligation will not trigger a disclosure obligation.
- A franchisee need not elect between a rescission remedy and a statutory right of action for damages but that franchisee may not receive double recovery if successful in both instances.
- The Act expressly provides that a release obtained with respect to the settlement of a specific action, claim or dispute will not be rendered void by the general provision that disallows waiver or release of the application of the Act.
Dominic Mochrie, IDI franchising country expert for Canada