Authors: Ahmed Malik, Melissa Cattini, Nicole Graham
On April 15, 2024, the Intergovernmental Affairs and Justice Committee (the “Committee”) adopted Bill No. 149 The Franchise Disclosure Act (the “Franchise Disclosure Act”), subject to a single amendment.
Insight from the Committee
When the Committee met, the Saskatchewan Government confirmed that the proposed legislation was intended to closely follow British Columbia’s Franchises Act (the “B.C. Act”), with the exception of a few minor drafting changes.
The B.C. Act was implemented more recently (in 2017), while Ontario, Prince Edward Island, New Brunswick and Manitoba franchise disclosure legislation were put in place between 2001 and 2012. As a result, the Saskatchewan Government appears to have sought to implement the more recent legislation in an effort to capture any “lessons learnt” from the gradual development and implementation of franchise disclosure legislation across other parts of the country.
This approach highlights two things: (1) that the Franchise Disclosure Act is intended to bring franchise disclosure requirements in Saskatchewan up to par with the franchise disclosure legislation and requirements in other Canadian jurisdictions, but (2) does not seek to alter the prevailing approach or introduce novel requirements to the franchise disclosure regulatory landscape.
The amendment
In our previous blog outlining certain differences between the Franchise Disclosure Act and that in other Canadian jurisdictions, the MLT Aikins Franchise Law group highlighted how the Franchise Disclosure Act contained a slight language difference in its proposed section 7(2) from the comparable language employed in the B.C. Act.
In particular, the original draft of the Franchise Disclosure Act and the B.C. Act language read as follows:
| Franchise Disclosure Act | B.C. Act |
| “A franchisee may rescind the franchise agreement, without penalty or obligation, within 2 years after entering into the franchise agreement if the franchisor fails to provide the disclosure document within those 2 years.”
|
“A franchisee may rescind a franchise agreement, without penalty or obligation, within 2 years after entering into the franchise agreement, if a franchisor never provided a disclosure document.” |
The original language proposed left open a possible interpretation that once a disclosure document is provided by a franchisor, even if it not provided within the prescribed timeframe (14 days prior to signing a franchise agreement or accepting any payment in relation to the franchised business), as long as it was within the two-year period following signing of the franchise agreement, the statutory rescission remedy would no longer be available to the subject franchisee. This would have represented a significant relaxation of the timing and procedural standards of the franchisor’s disclosure requirements, as well as a significant limitation on franchisee rights and protections currently in place in existing legislation.
An example
Consider a scenario where a franchisor failed to provide a disclosure document and the franchisee nevertheless agreed to proceed to enter into the franchise agreement and pay initial franchise fees, as required, to the franchisor. The franchisee would have made a significant investment and be bound to material obligations and covenants without having had the opportunity to evaluate “all material facts” of the franchised business and their investment. This is the informational imbalance and risk allocation that existing franchise legislation in Canada is aimed at correcting.
In this scenario, if the franchisor were to then deliver a disclosure document – say – three months after the franchisee had already signed the franchise agreement, there was a risk of an interpretation that the statutory rescission remedy would no longer be available to the franchisee despite no disclosure having been provided at the prescribed time. As noted in our blog, such an interpretation would be contrary to the underlying intention of the Franchise Disclosure Act of ensuring that franchisees have the ability to make an informed decision.
Amendment approval
In recognition of the potential interpretive risks associated with this drafting choice, the Committee approved an amendment which will update the Franchise Disclosure Act provision to replace the phrase “fails to provide the disclosure document within those two years” to “never provided a disclosure document.”
With this change, the legislation now aligns with the language employed by the B.C. Act, and the rescission provisions are most likely to be interpreted as follows:
- No disclosure document is provided: the rescission remedy is available to franchisees for two years from when the applicable franchise agreement is entered into.
- Disclosure document did not meet the required timeline or not all required contents are included: the franchisee has the ability to rescind the disclosure document for up to 60 days after it is provided.
Effectively, the updated language clarifies that – in scenarios similar to the example discussed above – providing the disclosure document after the timing prescribed in the legislation will not operate as a bar to the franchisee accessing its statutory rescission remedy. However, it would trigger the 60-day rescission period from the date the disclosure was provided.
The Franchise Disclosure Act so amended provides a higher degree of balance of risk and responsibility between the parties to a franchise arrangement. Franchisors may still remedy substantive, procedural and timing errors and inadvertent deficiencies in franchise disclosure. However, when doing so, the franchisees will still have the opportunity to conduct meaningful review of such disclosure and make an informed decision about whether to elect to proceed with the franchised business or rescind their franchise agreement.
Next steps
The Franchise Disclosure Act will now return to the Saskatchewan legislature for its third reading. Following third reading, if approved it will proceed to receive royal assent and will then come into force by order of the Lieutenant Governor in Council.
Regulations to the Franchise Disclosure Act have yet to be published. This leaves broad authority to include by way of Regulation, among other things, additional substantive and procedural disclosure requirements. Until these have been specified, there will remain a degree of uncertainty as to the bar that Saskatchewan franchisors will have to meet. For example, the Franchise Disclosure Act requires personal delivery of the disclosure document or by a method set out by Regulation.
As discussed in our blog and suggestions submitted to the Government of Saskatchewan, we recommend the adoption of additional methods of delivery, including electronic delivery, to allow for flexibility and consistency with the business realities franchise systems face.
If Regulations do not accompany the Franchise Disclosure Act at the time it comes into force, it will be important for franchisors and franchisees alike to remain informed and proactive in understanding how potential changes could impact their current practices.
Our Franchise group will continue to monitor the Franchise Disclosure Act as it progresses through the Saskatchewan legislature.
MLT Aikins has extensive experience advising franchisors on franchise structures, agreements, disclosure documents, enforcement and dispute resolution processes in Western Canada. Contact one of our franchise lawyers to learn more.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.