Canada: A Closer Look At Saskatchewan's Proposed Franchise Legislation

BACKGROUND

As we previously reported, the Legislative Assembly of Saskatchewan recently introduced its franchise legislation, titled "Bill 149, The Franchise Disclosure Act" (the Bill). Leading up to the Bill's introduction, the Government of Saskatchewan announced that it was considering modelling the proposed legislation on the Uniform Franchises Act adopted by the Uniform Law Conference of Canada and sought public consultation on the matter. If and when the Bill comes into force, Saskatchewan will become the seventh Canadian province to enact franchise legislation, joining Ontario, Alberta, British Columbia, Manitoba, New Brunswick, and Prince Edward Island (the Regulated Provinces).

At a high level, the Bill largely mirrors many of the same rights and obligations found in existing Canadian franchise legislation in the Regulated Provinces. For example, the Bill imposes the duty of good faith and fair dealing on parties to a franchise agreement, confirms franchisees' right of association, imposes disclosure obligations on franchisors, and provides for franchisees' right to rescind or bring an action for misrepresentation in certain circumstances. However, there are some notable differences in the proposed Saskatchewan legislation.

NOTABLE DIFFERENCES

The Bill contains the following notable differences:

1. Definition of a "Franchise"

The Bill adopts a more narrow definition of what constitutes a "franchise," similar to the British Columbia Franchises Act, S.B.C. 2015, c. 35 (the BC Act) and the Manitoba The Franchises Act, C.C.S.M. c. F156 (the Manitoba Act). Under the Bill's proposed definition, a business would only qualify as a franchise if, among other things, the franchisor (or the franchisor's associate):

In contrast, the Ontario Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the Ontario Act) provides a broader definition of a "franchise", which is met if, among other things, the franchisor (or franchisor's associate):

In sum, a franchisor must have more than simply a contractual right to exercise significant control (or provide significant assistance) in order to meet the statutory definition of a "franchise" under the Saskatchewan Bill. Unlike the Ontario Act, the Bill's definition goes one step further and requires that there be actual evidence of the franchisor exercising significant control (or providing significant assistance). In practice, this may present greater challenges for those claiming certain rights under the Bill, as they will be required to meet a greater evidentiary burden to qualify.

2. Right to Rescind

As noted above, the Bill provides franchisees with a statutory right of rescission, which is a common feature among existing franchise legislation in the Regulated Provinces. However, unlike other Canadian franchise statutes, the Bill also states the following:

The above suggests that the franchisee's right to rescission would not be available if the franchisor provided a disclosure document within the stated two-year period, even if that disclosure document was provided after the signing of a franchise agreement. This may be an unintended consequence of the language chosen to draft this provision. After all, one of the primary objectives of mandating the delivery of a disclosure document is to assist the prospective franchisee in making an informed investment decision, which by its very nature would occur before the signing of a franchise agreement.

3. Substantial Compliance

Following in the footsteps of the BC Act and the Manitoba Act, and unlike the Ontario Act, the Bill includes a substantial compliance provision, which expressly provides that a mere defect in form, technical irregularity or error not affecting the substance of a disclosure document will not give rise to rescission if a disclosure document is otherwise substantially in compliance with the Bill. The same provision applies equally to statements of material change.

4. Application to Government Entities

Unlike other existing Canadian franchise statutes, the Bill does not include any exemptions for government entities. For example, the Ontario Act includes a provision which states that the statute does not apply to service contracts or franchise-like relationships with the Crown or an agent of the Crown. Similarly, the BC Act provides an exemption to the provincial government from the requirement to provide financial statements in disclosure documents. Neither of these exemptions, nor any similar provisions, are included in the Bill.

5. Prescribing Regulations

The Bill grants significant power and discretion to the Lieutenant Governor in Council to make regulations respecting, among other items, "any other matter or thing that the Lieutenant Governor in Council considers necessary to carry out the intent of this Act". This blanket authority differs from the BC Act, which only empowers the Lieutenant Governor in Council to make regulations over a limited number of issues.

The Bill also specifically provides that any additional information or documents to be included in disclosure documents for Saskatchewan may be prescribed by regulation. At present, there are no draft regulations for review, and as such, no direction on how Saskatchewan's disclosure obligations may differ from the other Regulated Provinces.

NEXT STEPS

Since the Bill is substantially similar to the legislation in other Regulated Provinces, we expect there to be a degree of uniformity and predictability for franchisors across Canada, and existing case law outside the province – though not binding – will be persuasive to the Saskatchewan courts in shaping the law under the Bill.

The Bill has passed through its first and second reading and is currently at the committee stage. During the committee stage, members of the Legislative Assembly of the Government of Saskatchewan are reviewing the Bill which may result in proposed amendments. Once the committee stage is complete, the Bill will return to the legislature for third reading. If and when it passes through third reading, the Bill will come into force by Order of Lieutenant Governor. In the meantime, franchisors currently operating in Saskatchewan or planning to expand there should consult with their legal advisors to ensure they are aware of important developments and timelines with respect to these legislative developments, so that they are equipped to issue compliant disclosure once the proposed Bill ultimately becomes law.

See here for the full text of the Bill.

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.