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Ask the Experts: Franchisee freedom

Business Woman Celebrating Success Towards City SkylineBy Chad Finkelstein
Generally, a franchisee’s freedom to independently conduct local contests will be governed by the advertising provisions of the franchise agreement. Most franchisors reserve the right to require franchisees to participate in system-wide contests and sweepstakes, to ensure promotions are run in a consistent and uniform manner, but local advertising terms of the agreement may also permit franchisees to run their own local contests, subject to the franchisor’s consent. A common example is a business card draw for a free meal, service or product.

Franchisees should be aware, once a franchisor authorizes a local contest, the franchise agreement will usually reserve the right for the franchisor to assert ownership over that concept, along with associated materials and intellectual property.

There are distinctions between a legal contest and illegal gambling operations. If any promotional operation involves (a) a mandatory payment to entry, (b) a prize and (c) inherent chance or randomness, then that operation will be deemed gambling. So, legally conducted contests must eliminate at least one of those three elements.

The most common option is to drop the requirement of payment; we have all become accustomed to the phrase, “No purchase necessary.” By providing a method of entry whereby the participant does not have to pay, contest organizers can confidently operate within the confines of the law.

Other contest organizers add a skill-testing question as a prerequisite to the awarding of the prize, to prevent the contest from including the chance/randomness element, but given that other prohibitions exist under the Criminal Code of Canada with respect to games that mix chance and skill, franchisees should still be sure to seek specialized legal advice before offering such contests to the general public.

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