Ontario Franchise law changes – 2020

Ontario is enforcing pending changes to its Franchise Legislation. The pending updates and changes to Ontario Franchise Law (Arthur Wishart Act) will be brought into force on September 1, 2020.


In this article we have summarised the top five changes that the franchisors and franchisees should pay attention to.

CURRENT LAW & REGULATIONSUPDATES AND CHANGES

1

DEPOSIT

Franchisors can not accept any deposit from the Franchisees before the statutory 14-day disclosure period has elapsed.
In other words, franchisors must first provide disclosure documents to the franchisees and wait for a mandatory period of 14 days before accepting any deposit for the franchise arrangement.

AFTER SEPTEMBER 1, 2020

Franchisors can accept deposits from franchisees before sending disclosure documents, provided the following three conditions are fulfilled:

i. Limit on Deposit: The deposit does not exceed 20% of the franchise fee, up to a maximum of $100,000;
ii. Fully Refundable: After receiving disclosure documents and waiting for the mandatory 14-day period, if the Franchisee decides not to enter into the franchise agreement, the deposit must be fully refunded by the franchisor, without any deductions; and
iii. No Binding Commitment: Payment of deposit should not bind the franchisee to enter into a franchise agreement in any way.

2

CONFIDENTIALITY AGREEMENT

A Franchisor can not ask a franchisee to sign any documents (including confidentiality or nondisclosure agreement) before the statutory 14-day period.
In other words, the confidentiality or non-disclosure agreement must be a part of disclosure documents.

AFTER SEPTEMBER 1, 2020


Franchisors can require franchisees to sign a confidentiality or nondisclosure agreements before providing the franchisees with franchise disclosure documents and waiting for the mandatory 14-day period.
Confidentiality or non-disclosure agreements are not required to be a part of disclosure documents.

3

LOCATION, SITE OR TERRITORY AGREEMENT

A franchisor cannot require a franchisee to sign any agreement designating a location, site or territory to the franchisee, without triggering the statutory 14-day period.
In other words, the location, site or territory agreement must be a part of disclosure documents.

AFTER SEPTEMBER 1, 2020

Franchisors can require franchisees to sign a location, site or territory designation agreement before providing the disclosure documents and waiting for the mandatory 14-day period.
Location, site or territory designation agreements are not required to be a part of disclosure documents.

4

FRANCHISE DISCLOSURE DOCUMENT EXEMPTION FOR PAST OFFICER OR DIRECTOR

A franchisor is not required to provide disclosure documents to a franchisee who has been an officer or director of the franchisor or franchisor’s associate for at least 6 months.
The disclosure exemption does not apply to a corporation owned by such franchisee.

AFTER SEPTEMBER 1, 2020

A franchisor will not be required to provide franchise disclosure documents to a franchisee (including to any corporation owned by such franchisee) who has been an officer or director of the franchisor for at least 6 months and:
• Is currently such an officer or director; or
• Was such an officer or director for minimum 6 months and not more than 4 months have passed since that person left that employment.

5

EXEMPTION FOR FRANCHISE NOT EXCEEDING PRESCRIBED AMOUNT

Franchisors are not required to provide disclosure documents to a franchisee if the total investment to acquire and operate a franchise is less than $5,000 or more than $5,000,000 per year.

AFTER SEPTEMBER 1, 2020

The total investment values have changed to any initial investment that is less than $15,000 or more than $3,000,000.
Total initial investment is also defined in detail (which excludes operating costs).

This article only addresses five key changes being enforced under Ontario’s Franchise Law.

Jham Law helps franchisors and franchisees with their legal representations.

If you need need any help, contact us for a free telephone consultation.

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