Canada: PEI Becomes Third Province To Enact Franchise Legislation

On July 1, 2006, the Prince Edward Island Franchises Act will come into force, making PEI the third Canadian province, after Alberta and Ontario, to regulate the relationship between franchisors and franchisees.

The PEI Act is substantially similar to the existing Ontario legislation, as well as the Alberta legislation. Like the Ontario Act, it requires a franchisor to provide a prospective franchisee with a disclosure document at least 14 days before the franchisee enters into an agreement related to the franchise or makes any payment to the franchisor.

The disclosure document must contain all material facts, including all material facts prescribed by accompanying regulations. If the franchisor fails to provide the disclosure document on time (or at all), the franchisee may rescind the franchise agreement. Also, similar to the Ontario legislation, the PEI Act imposes a duty of fair dealing on parties to a franchise agreement and also grants franchisees a right to associate and form franchisee organizations.

However, there are important differences between the Ontario Act and the new PEI Act. For example, the PEI Act expands the duty of fair dealing with respect to the performance and enforcement of a franchise agreement to include the exercise of a right. It also excludes confidentiality and site selection agreements from the definition of a franchise agreement, thereby allowing parties to enter into such agreements before disclosure is provided.

Disclosure-related provisions of the PEI Act come into force on January 1, 2007, and franchisors have until then to prepare disclosure documents. All non-disclosure aspects of the Act come into force July 1, 2006.

On December 7, 2005, the minister of justice for the Province of New Brunswick introduced Bill 6, known as the Franchise Act. The New Brunswick Act has only received first reading and a timetable for continuing progress of the legislation is uncertain. The New Brunswick Act, at first reading, is quite similar to the Acts in Ontario, Alberta and PEI.

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