On September 14, 2017, the legislature of Ontario introduced the Cutting Unnecessary Red Tape Act, 2017. Bill 154 proposes amendments to several commercial statutes, including the Arthur Wishart Act (Franchise Disclosure), 2000 (the “Act”), in order to render them more streamlined and efficient.
In a much needed reform, the Bill amends the definition of “franchise agreement” to permit the signing of confidentiality agreements, non-disclosure agreements, site selection agreements and designation of territorial rights agreements prior to the expiry of the 14-day waiting period prescribed under subsection 5(1) of the Act. Another improvement is the amendment to paragraph 5(1) (b) of the Act to exclude from the definition of “consideration” the payment of a fully refundable deposit meeting two criteria: (i) it does not exceed the prescribed amount; and (ii) it is given under an agreement that does not bind the franchisee to enter into a franchise agreement.
The Bill expands the scope of the exemption from disclosure in paragraph 5 (7) (b) of the Act to cover the grant of a franchise to a person or to a corporation controlled by that person, if the person has been an officer or director of the franchisor or the franchisor’s associate for at least six months and is still an officer or director or has been within the prior four months.
Bill 158 clarifies the fractional franchisee disclosure exemption by establishing that anticipated sales within the first year of operation will be used to calculate whether or not the franchisee would be expected to exceed the prescribed percentage of total sales of the business during that year. In the current regulation, no time period is prescribed.
The legislation amends the small franchisee disclosure exemption in subparagraph 5(7)(g)(i) of the Act by only permitting the exemption from disclosure if the prospective franchisee’s required “total initial investment” does not exceed the amount prescribed. It replaces the existing exemption, which is available if the prospective franchisee’s “total annual investment to acquire and operate the franchise” does not exceed the prescribed amount. This amendment narrows the reach of the exemption by removing the ability to amortize an investment that exceeds the annual limit over a period of several years.
The sophisticated franchisee disclosure exemption in paragraph 5(7)(h) of the Act is amended by permitting the exemption from disclosure if the prospective franchisee’s required “total initial investment” exceeds the prescribed amount. This amendment replaces the existing exemption, which is available if the prospective franchisee is “investing in the acquisition and operation of the franchise” an amount greater than the prescribed amount.
The Bill removes from the Act all references to “service mark”, as this is a U.S. concept not recognized under the Canadian trademarks regime.
The legislation amends the definition of “franchise” so that it includes circumstances where the franchisor or its associate has the right to exercise significant control over, or to offer significant assistance in, the franchisee’s method of operation, in addition to the existing requirement that such parties actually exercise such control or offer such assistance.
The Bill was carried on second reading in the Ontario Legislature on October 3, 2017 and referred to the Standing Committee on Justice Policy for further review. It is anticipated that this Bill will receive Royal Assent in early 2018.
Richard Leblanc leads the Franchise Law Group at Miller Thomson LLP. He can be reached at rleblanc@millerthomson.com.
