Franchises promise a lot of opportunities for profit and growth, both for franchisees and franchisors. To seal the deal, franchise agreements are signed by both parties.
Before signing on the dotted line, it’s important to know the ins and outs of franchises. That’s where franchise agreement lawyers come in.
Canada’s franchise law is under the control of provinces and territories. There’s no federal law on franchises.
Since franchises are contractual in nature, other matters that are not covered by the provincial or territorial franchise statutes will fall under Canada’s contract law. This also includes the Québec Civil Code and common law for all other provinces and territories.
Franchise agreements are legally binding contracts between a franchisee and a franchisor. Its subject is the use of the franchisor’s brand by the franchisee, subject to certain fees and other conditions.
It would also include the specific rights and obligations of each party to the agreement. These rights and obligations must also include what has been provided by the Canadian laws on franchises.
Purpose of a franchise agreement
One of the main purposes of a franchise agreement is to manage the legal relationship between the franchisor and the franchisee. This will help prevent any dispute between them, or if a dispute should arise, the agreement will help address them.
The agreement also protects the rights and interests of both parties. For instance, it ensures that a franchisor’s intellectual property is protected. On the other hand, a franchisee’s freedom to do business is also guaranteed.
Conditions of a franchise agreement
Below are some of the most general conditions or clauses that must be found in a franchise agreement. Always consult a franchise agreement lawyer before, during, and after signing it.
- Payments: how much should the franchisee pay, which may include royalties and other related fees (e.g. marketing fund)
- Schedule of payments: when should the franchisee pay, in what manner, and sanctions for any late payments (if there’s any)
- Reports: indicates the reports that the franchisee must send to the franchisor (e.g. sales report) and its frequency (e.g. weekly, monthly)
- Territory: specifies the location (e.g. city, district) where the franchisee can only operate, and restrictions on proximity with the franchisor’s other stores
- Term of the agreement: how long is the duration of the agreement between the parties, including its starting and ending dates
- Operations: specifies the obligation of either party when it comes to training of employees, flow of operations, and maintenance
- Marketing: distinguishes the marketing roles of both parties (e.g. franchisee must be responsible for the local marketing; franchisor is responsible for all others)
- Transfers: franchisor may restrict the franchisee from transferring its rights and interests, unless allowed by the franchisor or the agreement
- Renewal: specifies the process of renewing the agreement after its term, including certain conditions upon either party
- Termination: provides the specific prohibited acts of either party that will result in the agreement’s pre-termination
- Dispute resolution clause: location and process of resolving the disputes between the parties (e.g. alternative dispute resolution procedures and filing of case in court)
- Damages: agreement may include the amount of liquidated damages that the violating party is liable for any pre-termination of the agreement
- Confidentiality clause: prevents the franchisee from publicly divulging the intellectual properties (e.g. trade secrets) of the franchisor
- Non-compete clause: prevents the franchisee from contracting with any of the franchisor’s competition during a certain period after the agreement’s termination
Watch this video to learn more about non-compete clause and how may it be directly or indirectly violated:
For more on franchise agreements, consult with a Canadian franchise agreement lawyer in your area. Franchisors and franchisees in Toronto and nearby areas may reach out to a Lexpert-Ranked best franchise lawyer in Ontario.
Different terms for different businesses
However, there are certain conditions that may differ with every business to be franchised. For example, a franchise agreement between a service business and a retail business will be different from each other.
This is where franchise agreement lawyers are of big help. They know the important provisions that the agreement must contain depending on the type of business.
If there’s a missing or inapplicable condition, they can also negotiate that it be included or changed.
Generally, franchise agreement lawyers help their clients from the start until the end of a franchise agreement. Their job mainly revolves around the franchise agreement, such as its drafting and negotiating, including its enforcement.
A franchise agreement lawyer can also assume the role of a franchise dispute lawyer when resolving disagreements as they arise.
A franchise agreement lawyer can work either for a franchisor or a franchisee. The scope of work will then differ between the two.
Working for franchisors
Related to advising franchisors on their contracts, Canadian franchise agreement lawyers can also advise clients on the impact of other laws on these contracts. This includes advising clients how to protect their intellectual properties, which must be included in their contracts.
If there’s a breach of contract related to intellectual properties, franchise agreement lawyers can guide clients on the contractual and statutory liability of the franchisee.
Foreign franchisors also seek the help of franchise agreement lawyers when conducting business in Canada. With their knowledge of Canadian franchise laws and international laws, franchise agreement lawyers make sure that franchisors can legally do business in Canada.
Working for franchisees
When actively seeking the right franchisor, it’s advisable that a franchisee be assisted by a franchise agreement lawyer.
Aside from helping them finalize the franchise agreement, a franchise agreement lawyer can help franchisees with labor and employment concerns.
Since the usual agreement is that the employees would be under their responsibility, franchisees must also know how to run the business in line with Canada’s labor laws.
The work of a franchise agreement lawyer can also cross over into corporate matters. They help franchisees implement the provisions of their agreement related to operations, marketing, and advertising.
To learn more on how a franchise agreement lawyer can help you – either as a franchisor or a franchisee – consult with one of the best franchise lawyers as ranked by Lexpert.