Will Saskatchewan become the next “disclosure province?” Saskatchewan is currently the only western province without franchise disclosure legislation.
Franchising is not federally regulated but is regulated at the provincial level. Franchisors with locations across Canada will know that currently six Canadian provinces have provincial franchise legislation. The six provinces (referred to as “disclosure provinces”) that currently have franchise legislation are:
- British Columbia,
- Alberta,
- Manitoba,
- Ontario,
- New Brunswick, and
- Prince Edward Island.
The Government of Saskatchewan is considering the enactment of provincial franchise disclosure legislation. Saskatchewan’s Ministry of Justice and Attorney General have already carried out public consultation on the implementation of such legislation, with the consultation period having closed on September 15, 2023. As noted above, there is currently no franchise-specific legislation in Saskatchewan and disputes are generally governed by common law principles usually based in contract law.
The proposed Saskatchewan legislation would be based on the Uniform Franchise Act (the “UFA”) adopted by the Uniform Law Conference of Canada in 2004. The UFA largely follows the Ontario and Alberta franchise legislation and creates a model regulatory regime for the operation of franchises in Canada. The UFA influenced the development of franchise laws in the other four disclosure provinces, so with Saskatchewan also potentially following the UFA, there would be some degree of uniformity and harmony among the disclosure provinces.
Franchise legislation regulates the offer and sale of franchises and regulates the ongoing franchise relationship. Generally, provincial franchise legislation has common principles including:
- Requiring compliance with the legislation – generally, it cannot be waived or contracted out of and supersedes any agreement between the franchisor and franchisee;
- Mandating that certain disclosure regarding the franchise is made by the franchisor, including financial information, so that a prospective franchisee can make an informed decision before entering into the franchise;
- Imposing a duty of fair dealing on the franchisor;
- Requiring that there is a “cooling-off” period between the time a franchise disclosure document is provided to a franchisee and the time a franchise agreement may be signed;
- Establishing statutory remedies for the franchisee, including a right of rescission and the ability to sue for misrepresentation by the franchisor; and
- Confirming franchisee rights to associate and form associations.
Franchising is common in Saskatchewan and in our view, such legislation is long overdue in this province. Courts have routinely recognized the inherent power imbalance in the franchisor-franchisee relationship in favor of the franchisor and have been influenced by this perspective in franchise cases. Franchise legislation in Saskatchewan will aim to address this power imbalance.
Right now, franchisors in Saskatchewan do not need to provide a franchise disclosure document to a potential franchisee. Franchisees should be aware of this, and closely review any franchise documents with a lawyer, especially a franchise agreement. Focus should be given to royalty and marketing fees, termination provisions, renewal conditions and fees, requirements for renovations and upgrades including design specifications, use of mandated suppliers and distributors and insurance requirements. In our view, until Saskatchewan enacts franchise legislation, potential franchisees in that province face greater risk starting a franchise in Saskatchewan than in a disclosure province. This increases the importance of Saskatchewan franchisees obtaining good legal advice.
If Saskatchewan enacts franchise legislation, we anticipate that this will not cause a significant barrier to entry into Saskatchewan for franchisors with existing operations in any of the disclosure provinces. Such franchisors will have prepared a compliant disclosure document, and with Saskatchewan’s legislation being based on the UFA, we anticipate any differences will be minor. The cost associated with compliance with any Saskatchewan legislation should be low; but the cost of non-compliance could be very high including exposing franchisors to rescission by franchisees. If Saskatchewan legislation is enacted, we highly recommend any franchisor doing business in Saskatchewan, or considering entering Saskatchewan, should consult with a lawyer to ensure compliance with provincial laws.
We can assist with navigating the franchise landscape in Western Canada. Contact us for further information.
By: Marta Davidson
Publication Date: November 10, 2023
Note: this article is for information purposes only and is not legal advice, is not exhaustive of all possible legal rights or remedies, and is not updated after the date of publication to account for changes to law or other circumstances that may impact its accuracy. Do not rely on these materials for legal advice or opinion. You should consult your own legal advisor for advice for your situation.
