Guide to Laws and Regulations for Franchised Business

The Franchises Act and Franchises Regulation

Introduction

Effective October 1, 2012, the Franchises Act and the Franchises Regulation will come into force requiring franchisors to provide prospective franchisees with a disclosure document enabling franchisees to make informed decisions about entering into a franchise agreement. Rescission of a franchise agreement can be the serious outcome of failure to provide a disclosure document. The legislation also increases franchisee protection from unfair terminations, penalties for associating with other franchisees or other unfair treatment.

While the disclosure document requirement will apply to all new franchise agreements after the legislation comes into force, in some circumstances, franchisor disclosure document delivery will be required on existing franchise agreement renewal.

Act provisions relating to franchisee right to associate, fair dealing and court venue location will apply to all new and all existing franchisor-franchisee business relationships.

Definition

"franchise" means a right to engage in a business in which the franchisee is required by contract or otherwise to make a payment or continuing payments (whether direct or indirect) or a commitment to make that payment or those payments to the franchisor or the franchisor's associate in the course of operating the business or as a condition of acquiring the franchise or commencing operations, and

(a) in which
- (i) the franchisor grants the franchisee the right to sell, offer for sale or distribute goods or services that are substantially associated with the franchisor's, or the franchisor's associate's, trademark, trade name, logo or advertising, and
- (ii) the franchisor or the franchisor's associate exercises significant control over, or offers significant assistance in, the franchisee's method of operation under a business plan, including building design and furnishings, locations, business organization, marketing strategies or training; or

(b) in which
- (i) the franchisor or the franchisor's associate grants the franchisee the representational or distribution rights -- whether or not a trademark, trade name, logo or advertising is involved -- to sell, offer for sale or distribute goods or services supplied by the franchisor or a supplier designated by the franchisor, and
- (ii) the franchisor, the franchisor's associate or another person designated by the franchisor provides location assistance, including
  - (A) securing retail outlets or customer accounts for the goods or services to be distributed, offered for sale or sold, or
  - (B) securing locations or sites for vending machines, display racks or other product sales displays used by the franchisee;

and includes a master franchise and a subfranchise. (« franchise »)

Highlights of the Act and Regulation

For a copy of the Act, go to http://web2.gov.mb.ca/laws/statutes/ccsm/_pdf.php?cap=F156. For a copy of the Regulation, go to http://web2.gov.mb.ca/laws/regs/current/_pdf-regs.php?reg=29/2012 . Following are highlights of the Act and Regulation. The Franchises Act and Regulation:

Require franchisors to provide prospective franchisees with a disclosure document enabling franchisees to make informed decisions about entering into a franchise agreement. The document would contain such information as names and backgrounds of the principals involved in the franchise, amount of the franchise fee, franchisee obligation to purchase goods or services from the franchisor, names and location of existing franchisees, and conditions of renewal or termination.
Require financial statements of the franchisor to be included in a disclosure document if the franchisor is not a mature franchisor satisfying all exemption criteria.
Require the disclosure document to be provided at least 14 days before the franchisee signs the franchise agreement or makes any payment other than a refundable deposit;
Allows the franchisor to take a refundable deposit from a prospective franchisee up to $100,000.
Give franchisees a right to rescind the agreement and recover any losses if a franchisor fails to provide the required information;
Give franchisees a right of action to recover losses caused by misrepresentation;
Give franchisees a right to associate with other franchisees and a right of action to recover damages if a franchisor imposes any penalties for associating;
Impose upon franchisors and franchisees a duty of fair dealing in performing and enforcing the franchise agreement. This duty would include a duty to act in good faith and in accordance with reasonable commercial standards; and
Give franchisors and franchisees a right of action for damages caused by a breach of the duty of fair dealing.
Require a venue within Manitoba if any dispute resolution is pursued through the courts.

For more information about the Franchises Act and Franchises Regulation, contact:

Manitoba Growth, Enterprise and Trade
Companies Office
Phone: 204-945-2500

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