The practice area of franchise lawyers is essentially a commercial law practice area which, due to the special needs of this important industry, necessarily incorporates various legal skills normally associated with other, unrelated practice areas. For this reason it has attained, in Canada and internationally, the status of a distinct practice area.
Generally the practice area includes documentation work including preparation of applications, franchise agreements, assignments, guarantees, indemnities and security agreements; regulatory compliance work including prospectus preparation, disclosure documents, and offering circulars; financing work which may include public offerings and private investment syndications; commercial leasing and other real estate arrangements; acquisition and sales work involving purchasing or disposing of new and existing franchises, as well as entire franchise systems; master franchise or area development agreements; international work which includes the establishment of foreign franchise systems in Canada and the Canadianization of foreign franchise documentation; intellectual property work including securing patents, copyright and particularly trademark protection; and sales and tax planning work which may include significant cross-border (particularly Canada-US) aspects.
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While there are no federal laws on franchises in Canada, there are franchise-specific disclosure laws or disclosure legislations in some provinces, namely – in British Columbia, Alberta, Manitoba, New Brunswick, Ontario, and Prince Edward Island. For Quebec, although there is also no provincial law on franchises, the relationship between the franchisee and the franchisor, and their contract, are governed by its Civil Code.
Generally, these disclosure legislations are mostly the same although they may differ is some terminologies used. Thus, franchise lawyers are best consulted for the specific details of each provincial franchise legislation. Below are some of their commonalities:
Specific definitions of a “franchise” among the different franchise legislations may deviate from each other; but commonly, a franchise is the right granted by the franchisor for a franchisee to use the former’s trademark, trade name, logo or advertising during the latter’s business, hence obligating the franchisee to tender payment to the franchisor as agreed upon by both parties in a franchise contract.
Along with this is the right of the franchisor to exercise major control over the franchisee’s operations, marketing, physical designs, location and outlets, and other forms of control. Assistance may also be provided by the franchisor, such as staff and management training, among others. Franchise lawyers are commonly used to clarify these contracts for either party.
The said franchise contract may also contain other rights and obligations the parties may stipulate. Mostly, these franchise contracts are contracts of adhesion, or a consumer-standard form, which means that they are prepared only by one party (the franchisor, in this case), and the other party (the franchisee) will only either accede or deny such contract. Although, such terms and conditions in the franchise contract may still be subject to negotiations, depending on both parties.
Hence, it is important to engage the services of a franchise lawyer at this time, since a franchise contract will provide for the specific rights and obligations of both parties, methods of settling disputes, grounds of rescission, and other important details. Franchise lawyers may assist in interpreting such contracts and may also help in negotiations if there are unfavourable conditions therein.
These franchise legislations apply both to domestic franchisors (Canadian-owned businesses offering a franchise) and foreign franchisors (foreign companies entering Canadian jurisdiction).
Before the signing of the franchise contract, a franchisor is obligated under the law to provide the prospective franchisee a disclosure document, which would provide for all the details of the franchise and all material facts that might affect the decision of the prospective franchisee in pursuing the franchise contract. This is a mandatory act from the franchisor required by law, which must also include for a certificate of disclosure to be signed by the franchisor.
This is based on the rationale that parties to a franchise contract are burdened with disclosing necessary information for the perfection of the contract in good faith.
Should there be violation on this obligation of a franchisor to provide a disclosure agreement, a franchisee would be entitled to either the rescission of the contract, or relief for damages on the ground of misrepresentation on the part of the franchisor.
After the signing of the franchise contract, and for the duration of the franchise, both parties are expected to diligently follow what has been agreed upon by in the franchise contract. This is in addition to the minimum statutory standards found in federal and provincial laws on commerce, labour, competition, intellectual property rights, and arbitration or mediation laws should the franchise agreement have an arbitration or mediation clause.
Since there is no single federal government agency regulating franchises, remedies against any of the contracting parties arising out of a franchise contract are filed before and resolved by the judicial courts. Here, franchise lawyers assist clients (who may either be the franchisee or franchisor) in pursuing said remedies, which may be for specific performance, rescission of the contract, or for damages.
Franchisees may also form an association or organisation under the law. In turn, franchisors may not impair this right of franchisees, either directly through a prohibition in the franchise contract, or indirectly through the acts of the franchisor.
A franchise’s life starts in the offer, either of the franchisee or the franchisor. Negotiations may ensue, with the execution of the disclosure document by the franchisor. The signing of the franchise contract or agreement thus lawfully creates the franchise.
Franchise lawyers may represent either party in any of these stages since compliance with the law depends upon the specific provincial law that shall govern the preparation, perfection, and consummation of the franchise contract.
A franchisor or franchisee who is not in default may legally break out of a franchise agreement. Absent any fault attributable to either party, the franchise contract or agreement may also be bilaterally rescinded, or upon the expiration of the said contract or agreement on the date stipulated therein.
The franchise legislations have a strong emphasis on the duty of the franchisor to deliver the disclosure document to the franchisee, to help the latter make a consensual decision whether to enter a franchise contract or not. If there is failure by the franchisor on this obligation, the franchisee is entitled to the rescission of the contract, damages, and losses incurred by the franchisee.
The breach of the franchise agreement may be committed by either the franchisee or the franchisor and may have different effects and reliefs on both parties.
Franchise lawyers may help franchisees with regards to their tax obligations. But generally, franchisees are subject to income tax, whose rate may depend on the province they are located at, such as the GST/HST, QST, or PST.
Interested in entering into a franchise agreement, or is already in one and seeks advise for any disputes thereof? Head down below for a list of the best franchise lawyers to reach Lexpert Ranked status.