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Q&A With Frank Zaid: Changes to franchise legislation in Ontario

Franchisors may now enter confidentiality agreements with prospective franchisees without triggering their disclosure obligations.

At the same time, several existing disclosure exemptions in AWA have been amended to include some long-overdue clarifications.

AWA’s exemption for a franchise licence granted to a single licensee, for example, contained no directions as to the scope of such a grant. This has now been clarified, requiring the relevant licence to be granted for all of Canada if the exemption is to be triggered.

There is also a disclosure exemption for a franchise that is to be operated within a larger business (i.e. a ‘fractional franchise’), where the franchise’s sales are not expected to exceed 20 per cent of the sales of the larger business. This exemption has been clarified to state the time period for measuring the anticipated percentage of sales is the first year of operations for the franchise.

The bill removes the term ‘service mark’ from AWA because it does not have legal significance in Canada as it does in other countries, principally the U.S. In Canada, trademarks include both product marks and service marks.

Finally, AWA requires a ‘statement of material change’ to be provided in certain circumstances, but the specific form and content of such a statement are not outlined anywhere in AWA or the corresponding regulations. A new amendment means any statement of material change will have to contain the elements prescribed by regulation.

Future changes
Ontario’s BLAC made a second round of recommendations in its fall 2017 report. At press time, this report is expected to be released by Ontario’s government in the near future for public consultation. It builds on the first report and addresses such issues as the definition and scope of ‘material facts,’ the standard to be used in assessing a franchisor’s compliance with its statutory disclosure obligations (i.e. absolute versus substantial compliance) and the ability to use franchise disclosure documents prepared for use in other jurisdictions in Ontario.

The second report also recommends other amendments that will provide further certainty into the disclosure compliance process, for the benefit of both franchisors and franchisees. They are all part of the BLAC’s ongoing mandate to assist the provincial government in streamlining its corporate and commercial legislation and, thus, making Ontario a more welcoming place to do business.

Frank Zaid practised franchise law for 40 years and has appeared as an expert witness in franchise disputes. Today, he is a franchise mediator, arbitrator and ombudsman with ADR Chambers in Toronto, where he chairs a special panel to resolve franchise disputes. He also operates his own business, Frank Zaid FRANlegal Support Services. For more information, contact him at (416) 322-8300 or (416) 362-8555 or via e-mail at fzaid@frankzaid.com or fzaid@adrchambers.com.

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