Q&A with Frank Zaid: Changes to Ontario’s franchise legislation

By Frank Zaid

Q: What changes have been made recently to Ontario’s franchise legislation and what further changes are expected in the future?

A: Ontario’s franchise legislation, the Arthur Wishart (Franchise Disclosure, 2000) Act, was recently amended to allow for the electronic delivery of franchisors’ disclosure documents to franchisees. In addition, a newly established business law advisory council has made recommendations that could further modernize the act in several ways.

Electronic delivery of disclosure documents
Since the act was passed in 2000, the only allowable methods for franchisors to deliver their disclosure documents to franchisees were (a) personal delivery or (b) registered mail. Both of these methods had significant flaws, such as limitations on the weight of a document that can be served via registered mail. The legislation also quickly became antiquated because it did not permit electronic delivery. So, effective July 1, 2016, the act was amended expressly to allow franchisors to deliver their disclosure documents electronically and by prepaid courier.

To the latter point, while many franchise lawyers took the view personal delivery could already be achieved through the use of a courier, provided the courier delivered the disclosure document directly to the prospective franchisee in person, the new amendment expressly allows courier delivery, provided the franchisor pays the cost of delivery. (Incidentally, the amendments also include a change relating to a franchisee’s delivery of a notice of rescission to its franchisor. Effective July 1, 2016, Ontario’s legislation permits the delivery of a notice of rescission by courier, in addition to the previously permissible methods of personal delivery, registered mail or fax.)

For a disclosure document to be delivered electronically within Ontario, the following conditions must be met:

• The document must be delivered in a form that enables the franchisee to view, store, retrieve, and print it.
• The document may not contain any links to other external content.
• The document must contain an index for each of the separate electronic files—if any—of which it consists, the index must set out each file’s name and, if such a filename is not sufficiently descriptive of the subject matter dealt with in the file, the index must contain a statement of the file’s matter.
• The franchisor must receive a written acknowledgment of the document’s receipt.

Given these conditions, some franchisors and legal counsel have expressed the view the changes do not go far enough, in that it is imperative for the franchisor to obtain a written confirmation of receipt from a prospective franchisee after delivery of the disclosure document by electronic means, even though it could probably be established the document was transmitted to and subsequently opened or downloaded by the franchisee.

At any rate, the amendments allowing electronic delivery have helped bring Ontario’s legislation into conformity with all other Canadian provinces that have franchise legislation, allowing greater consistency of franchise business practices across the country, with some very minor differences.

In New Brunswick, for example, electronic disclosure document delivery is the same as in Ontario, except there is no requirement to obtain acknowledgment of receipt. Prince Edward Island, meanwhile, has the most variations from Ontario’s legislation, in that it does not require an index and also requires the disclosure document to (a) be delivered as a single, integrated, document or file, (b) contain no extraneous content beyond what is required or permitted by law and (c) conform, as to its content and format, to the requirements of the law. The franchisor must also keep records of its electronic delivery of disclosure documents (although this is a recommended practice for all franchisors).

Manitoba’s legislation is substantially the same as Ontario’s, except for some minor wording differences. It states the prospective franchisee must be able to “retrieve and process” the disclosure document, rather than “view, store, retrieve and print” it.

Alberta’s franchise legislation does not contain any specific delivery requirements. As such, electronic delivery of disclosure documents is already a regular practice in that province.

Finally, British Columbia’s Franchises Act—which received royal assent in 2015 and is now pending publication of the final regulations—expressly provides a disclosure document may be delivered personally, by e-mail or by any other prescribed method.