On November 9, 2023, the Government of Saskatchewan introduced Bill 149, The Franchise Disclosure Act. For a general overview of what is proposed for The Franchise Disclosure Act, please see our previous blog.
If enacted, The Franchise Disclosure Act will grant certain rights and impose certain obligations, primarily on franchisors. This includes, among other things, the requirement for franchisors to provide a comprehensive disclosure document to prospective franchisees.
This raises an important question: How does Saskatchewan's Franchise Disclosure Act measure up to similar legislation across the country?
The Franchise Disclosure Act closely resembles franchise disclosure legislation in British Columbia, Alberta, Manitoba and Ontario. In fact, The Franchise Disclosure Act in its proposed iteration contains very few provisions that are unique and instead effectively selects language from existing franchise disclosure legislation in other Canadian provinces.
That said, there are a few noteworthy provisions as a result of unique tweaks and adjustments proposed by Saskatchewan:
- Application: When each province has implemented its respective franchise legislation, there have been slight differences as to how the legislation applies to existing franchise agreements in each jurisdiction. The Franchise Disclosure Act, if enacted, will apply to franchise agreements "wholly or partly in Saskatchewan entered on or after it comes into force." However, certain requirements apply to existing franchise agreements including: (i) the duty of fair dealing, (ii) the right to associate, (iii) exclusions for executor, administrator, sheriff, receiver, trustee, trustee in bankruptcy, liquidator or guardian on behalf of a person other than the franchisor or the estate of the franchisor, joint and several liability, inability to waive rights, and (iv) that seek to impact jurisdiction. As a result, franchisors and franchisees alike will need to be aware of the applicable provisions of The Franchise Disclosure Act even if a franchise agreement is already in place.
- Right to rescind "no later than two years" or "within two years": Franchise legislation across Canada includes a remedy to a franchisee to rescind (or cancel) the franchise agreement in the event that a franchisor fails to provide a disclosure document in the required timeline of two years, or if the disclosure provided omits material facts or amounts to no disclosure. Ontario, Manitoba and Alberta indicate this remedy is available "no later than two years," while B.C. specifies this remedy is available "within two years."
The language in the proposed The Franchise Disclosure Act adds the word "those" to the B.C. definition resulting in this remedy being available "if the franchisor fails to provide the disclosure document within those" two years. The use of this adjusted language in The Franchise Disclosure Act suggests that if a franchisor were to provide the disclosure document after the franchisee has signed a franchise agreement but before the two-year time period from signing expired, the applicable franchisee would no longer have access to the rescission remedy in respect of the initial disclosure.
The Franchise Disclosure Act employs nearly identical language to B.C.'s franchise legislation such that where a disclosure document is provided that does not meet the requirements, the timeline for franchisees to rescind is reduced to 60 days instead of two years. As such, a franchisor providing a late disclosure document within the two-year period would trigger and be subject to the 60 day rescission period granted to the franchisee for late disclosure. This seemingly provides a belated opportunity to the franchisee to make an informed decision in respect of continuing with the franchised business, while still reducing the rescission period for where no disclosure document is provided.
In sum, the two-year rescission period language is slightly distinct from that present in the franchise legislation of most of the other provinces. However, there remains some uncertainty as to how the distinct rescission remedy language proposed in The Franchise Disclosure Act will apply in practice and be interpreted by Canadian Courts.
- Disclosure documents to be substantially compliant: Saskatchewan has followed the approach in Manitoba and B.C. by providing some breathing room to franchisors who seek to approach their obligations in good faith, by providing that disclosure documents need only to be "substantially compliant" to abide by The Franchise Disclosure Act. The language adopted mirrors the exception contained in the B.C. franchise legislation, which indicates that a disclosure document that contains all the required information despite defects or technical irregularities will be considered to be compliant for the purpose of the legislation, provided such defects or irregularities do not affect the disclosure document's substance and there is substantial compliance. In other words, a franchisee should not be entitled to demand rescission of a franchise agreement and arrangement on a technical or immaterial deficiency.
- Disclosure document must be delivered personally: In its current form, only personal delivery of a disclosure document is permitted under The Franchise Disclosure Act. This differs from Ontario, B.C., Alberta and Manitoba which have each provided for a few acceptable forms of delivery (including electronic delivery, subject to the other requirements of the legislation), while leaving it open for other prescribed delivery methods to be set out by regulation. In doing so, The Franchise Disclosure Act does not adopt the MLT Aikins Franchise Law Group's suggestion (in response to the Government of Saskatchewan's request for comments on the proposed legislation) to provide flexibility in methods of delivery. That said, it is most likely that additional delivery methods will be prescribed in the Regulations to The Franchise Disclosure Act that remain to be seen. However, it is important to note that if no Regulation comes into force alongside The Franchise Disclosure Act, personal delivery will be necessary for a franchisor to satisfy its disclosure obligation.
- Disclosure document must be delivered as one document: The Franchise Disclosure Act does not adopt the MLT Aikins Franchise Law Group's suggestion (in response to Saskatchewan's request for comments on the proposed legislation) to allow for the disclosure document to be delivered as multiple documents, identified as being part of the whole document, as is the case in Manitoba's franchise legislation. Instead, there is a requirement that a disclosure document be delivered as one, whole document. From a practical perspective, such a requirement interpreted strictly can create certain challenges for franchisors. For example, when sizeable appendices to a disclosure document, operating manuals and financial statements and the like either cannot be formatted to be attached to the disclosure document or where a disclosure document becomes too large to send electronically by easily accessible electronic means (such as through email or download). The concerns include that this may inadvertently create accessibility issues and delays for prospective franchisees, as well as having an unintended chilling effect on information included by franchisors in a disclosure document (on account of the document's size).
- The definition of "franchise": The Franchise Disclosure Act proposes the same definition of a "franchise" as the legislation in Manitoba and B.C. – which, among other things, requires that a franchisor or a franchisor's associate to "exercise significant control" over a franchisee and/or its franchised business. Ontario, in contrast, requires only that a franchisor have the right to exercise significant control over the franchisee or the franchised business for the business relationship to fall within the definition of "franchise" for the purpose of the legislation. As a result of this language choice, it appears that evidence of actions and control exerted on the part of the "franchisor" (and not just the contractual right to exercise such control) will be required in order to demonstrate that a franchisor-franchisee relationship exists.
- Application to the Government of Saskatchewan: Unlike Ontario's franchise legislation which specifies that it does not apply to service contracts or franchise-like arrangements with the Government of Ontario or its agent, The Franchise Disclosure Act contains no exclusions for the Government of Saskatchewan. Similarly, unlike in Manitoba and B.C.'s franchise legislation, there is no exception in The Franchise Disclosure Act that allows for the Crown to leave out financial statements when preparing a disclosure document.
What this means for franchisors
It is critical that franchisors (or business owners operating a "franchise" by any other name, that fall within the new proposed definition of same) start preparing for the implementation of The Franchise Disclosure Act by ensuring that they understand their rights and obligations under the proposed legislation, and that their current practices are inline or can be timely brought in line with the associated requirements. Among other things, it will be critical to start preparing a disclosure document for a franchised business in Saskatchewan.
Once the Government of Saskatchewan puts Regulations in place to accompany The Franchise Disclosure Act, additional detail will be available as to what a franchisor will need to specifically include in a disclosure document in order to comply with the legislation, particularly given the fairly broad right given to the Lieutenant Governor in Council to develop such Regulations.
MLT Aikins has extensive experience advising franchisors on franchise structures, multi-unit franchise arrangements, area developers, master franchisees and all related franchise agreements and disclosure documents in Saskatchewan and Manitoba, as well as under similar franchise legislation across Western Canada. Contact one of our franchise lawyers to learn more.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
