Legal news and trends for Canadian in-house counsel and c-suite executives
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Federal and provincial legislation combined with a series of court rulings are deterring franchise activity in Canada and keeping American investors away. By Daryl-Lynn Carlson cial legislative developments, he says. Add to the mix several court decisions that have leveraged decisions against franchises and in favour of franchisees and you get the idea that franchisees are vulnerable as the "little guy." Dillon, a lawyer with Siskinds LLP, has tapped into the trend that Canada's P franchise environment is becoming increasingly complex both legislatively and as a result of recent court decisions. This has prompted in-house lawyers for franchises operating in Canada to be on alert and spend much more time reviewing their company's respective documents. At the same time, U.S.- based franchises are becoming exceedingly reluctant to enter the Canadian market. Generally, lawyers are discouraged by recent developments, which they agree have significantly served to put a damper on any franchise company's ability to ensure prosperity and success in any given province in Canada. Therefore, there is a pervasive misconception in Canada that franchisors are big and franchisees are small and vulnerable, and that there must be some ini- tiative within the court system to protect the "little guy," says Dillon, author of Franchise Legislation in Canada. Yet he notes most Canadian franchises are smaller than those in the U.S., and franchise owners are diligent in their efforts to ensure the success of their business from a corporate perspective. "Most of my clients are ethical, hard-working people who have no intention of ripping people off because they want their franchise to succeed." Still, there isn't any incentive for franchise companies to set up shop in Canada. In many provinces, they are required to include a document that must be signed by the president or chief executive officer of a franchise com- pany, which can expose them personally to liability regarding any legal issues that arise over documents should they be disputed by franchisees. "U.S. fran- chises are reluctant to come into Canada particularly because their presidents have to sign disclosure documents," says Dillon. "The risk is disproportionate and the cost of compliance is unreasonable." INHOUSE DECEMBER 2010/JANUARY 2011 • 23 eter Dillon, a franchise practitioner in London, Ont., has been tracking what he calls a "perfect storm" for a while. The conditions have been right to deter franchise activity in Canada, he says. "There is so much confusion and uncertainty facing counsel, both in-house at fran- chise companies and for outside lawyers, regarding the due diligence they must perform" to ensure their com- panies are in compliance with both federal and provin- HUAN TRAN