UTGB Vol 5.pdf - Robson Hall Faculty of Law

102 Underneath the Golden Boy
Although these two cases are examples of a franchisee requesting the deposit
back after receiving a disclosure document, they serve to demonstrate how
easily a franchisor can abuse the franchisee by refusing to refund the depofit.
The defendant in Scott went as far as to argue that Scott had contracted with
another party and that, consequently, it did not have the deposit. If Manitoba's
franchise legislation was to require a refundable deposit before a disclosure
document is issued, not only will a franchisee be exposing himself to potential
abuse but he also will be paying money into an enterprise he knows very little
about. Considering that the purpose of such legislation is to protect franchisees
and help them make an informed decision, this provision would seriously
endanger that goal. Therefore, Manitoba should not allow franchisors to claim
refundable deposits before issuing disclosure documents.
However, since franchisors may still be desirous of proof of a franchisee's
legitimate interest, an alternative is required. After all, preparing disclosure
documents and providing franchisees with other informational materials comes
at a cost to franchisors. Thus, Manitoba legislation should allow franchisors to
request that franchisees make a deposit, in trust, with their own lawyers as a
show of faith. This deposit should not exceed 5% of the total franchise fee, up
to a maximum of $5 000, since doing otherwise would be too onerous for
franchisees. In including this requirement, fanchise legislation would ensure
franchisors still receive assurance of a franchisee's legitimate interest, while at
the same time protecting the franchisee's money from unscrupulous franchisors.
This deposit could then be used towards the franchise fee or as a retainer for the
franchisee's legal costs.
ii. Confidentiality Agreements
The purpose behind Confidentiality Agreements is to protect franchisors.
Developing a successful franchise system can only come about as a result of the
expenditure of considerable time and money by the franchisor. Each element of
the system, from the development of the products and services to the
advertising fund and marketing program, contains valuable information
proprietary to the franchisor. With so much invested in the business system, the
franchisor may require that the franchisee keep the franchise system strictly
confidential. 70 A typical confidentiality clause may look as follows:
The franchisee acknowledges that its knowledge of the operation of the Franchised
Business will be derived from the information disclosed to the directors, officers,
employees and agents of the Franchisee by the Franchisor pursuant to this agreement
and that certain of such information, including, without limitation the contents of the
Manual, is proprietary, confidential and a trade secret of the franchisor. The
Franchisee agrees that it shall maintain absolute confidentiality of such information
70 Zaid, supra note 67 at 20.