Underneath the Golden Boy - Robson Hall Faculty of Law

288 Underneath the Golden Boy
One specific suggestion made to the Commission relates to the sale of a
franchise by a franchisee. Typically, if a franchisee sells his or her franchise and
assigns the agreement and/or sub-lease to the purchaser, the original franchisee
remains liable for all obligations contained in the agreements. This is a typical
provision of commercial leases. However, some franchise agreements also
provide that if the purchaser subsequently renews the agreements for a further
term, the original franchisee continues to be liable for all obligations of the
purchaser under the renewed agreements, despite having had no input into their
terms. It was suggested that Manitoba franchise legislation provide that, in this
situation, the obligations of the franchisee do not extend beyond the term of his
or her original agreements and any renewals signed by that franchisee. 224
A contrary view to suggestions for additional restrictive provisions is that
disclosure legislation reflects the right balance in the franchise relationship, and
the freedom of the franchisor to exercise control over the operation of the
business on an ongoing basis is necessary for the creation and maintenance of
the business brand. Franchisor control and flexibility creates and adds value to
the franchise identity, which is why franchisees invest in the franchise in the first
place, and there is no ‘one size fits all’ solution for disputes involving companies
operating in a wide range of industries. As well, many obligations contained in
franchise relationship regulatory proposals are ambiguous, creating uncertainty
and potentially leading to increased litigation and increased costs.
Comprehensive pre-sale disclosure and the ability to contact present and former
franchisees ensure that the prospective franchisee is able to obtain the
information necessary to determine the likelihood of disputes occurring within a
specific franchise relationship. 225
As well, unlike federal regulation in the U.S. and Australia, Canadian
jurisdictions have incorporated a standard of conduct—the duty of fair dealing—
in their legislation. 226 In fact, it has been suggested that existing Canadian
224
Correspondence from A.L. Weinberg, Q.C. (January 2, 2007).
225
See U.S. General Accounting Office, supra note 9 at 72-74, outlining the views of the U.S.
International Franchise Association, which has opposed federal franchise relationship
legislation. The IFA also opposed proposed ‘minimum standards of fair conduct’, which
included a duty of good faith, a duty of due care (or competency) and a fiduciary duty for
franchisors in relation to accounting and advertising programs.
226
There is also no private right of action for franchisees under the U.S. FTC Franchise Disclosure
Rule, and the American Franchisee Association has advocated for franchisee access to the
courts: see J. Chun, “Separate but equal Two associations seek franchise reform through
different means – American Franchisee Association, AFA, and the American Association of
Franchisees & Dealers - AAFD” Entrepreneur (September 1996), online:
(date accessed: May
15, 2007).