The Franchise Disclosure Act – What You Need to Know
McKercher's David J. Ukrainetz shares information about new protections set for franchised businesses in Saskatchewan.
A new scheme of protections for franchised businesses is set to arrive in Saskatchewan. The Franchise Disclosure Act received royal assent on May 8, 2024, bringing Saskatchewan law into step with several other provinces’ legislation. While there is currently no date set for the Act to come into force, and with no regulations laying out many of the specifics of the legislation, now is the time for those involved in Saskatchewan’s franchise industry to start considering how they can best prepare for these upcoming changes.
What is The Franchise Disclosure Act?
The Legislative Assembly of Saskatchewan first introduced the legislation last fall as Bill 149 (see: Government of Saskatchewan Introduces Bill to Enact Franchise Legislation – The Franchise Disclosure Act). Based on the Uniform Law Conference of Canada (“ULCC”) Uniform Franchises Act, the Act closely follows other provincial franchise legislation, especially British Columbia’s Franchises Act. The McKercher LLP franchise group has been actively involved in the development of Saskatchewan’s franchise legislation, including the initial proposal to the Saskatchewan Ministry of Justice and Attorney General (see: CBA Saskatchewan Franchise Act Proposal).
Once in force, the Act will impose a duty on franchisors to provide certain financial disclosure and material facts to franchisees (and prospective franchisees), among the other legal protections it will provide for franchisees. These requirements not only align Saskatchewan franchise law with other regulated provinces, but they also aim to address inherent inequalities that exist in the relationship between franchisors and franchisees. With Saskatchewan’s growing franchise industry, a clear legislative framework governing franchise agreements is a strong response to these concerns.
What does The Franchise Disclosure Act require?
The key features of the Act are as follows:
Duty of Fair Dealing – Parties to a franchise agreement have a duty to act in good faith and in line with reasonable commercial standards in the performance and enforcement of the franchise agreement, including in the exercise of a right under the franchise agreement;
Franchisee Rights to Associate and Form Associations – Franchisees may associate with other franchisees and may form or join an organization of franchisees without a franchisor interfering or imposing a penalty;
Franchisor Disclosure – A franchisor is required to provide a prospective franchisee with a disclosure document (containing certain prescribed information), and this disclosure document must be received by the prospective franchisee at least 14 days before the earlier of the signing by the prospective franchisee of the franchise agreement and the payment of any consideration by or on behalf of the prospective franchisee to the franchisor relating to the franchise;
Recission – A franchisee may rescind a franchise agreement within 60 days after receiving the disclosure document if the contents of the disclosure document do not meet the requirements of the Act;
Damages – If a franchisee suffers a loss because of a misrepresentation contained in the disclosure document, the franchisee has a right of action for damages against the franchisor; and
Waiver – Parties to a franchise agreement cannot opt out of The Franchise Disclosure Act or waive any rights under the Act, subject to certain exceptions.
What is included in a disclosure document?
Disclosure documents are a key feature of the Act, helping balance the inequality of information and experience between franchisors and franchisees. Under the Act, disclosure documents must include as follows:
Facts that would reasonably be expected to have a significant effect on the franchise’s value or price or the decision to acquire the franchise;
Certain financial statements;
Copies of all proposed franchise agreements and related agreements to be signed by the prospective franchisee; and
Statements to assist a prospective franchisee to make informed investment decisions.
At the time of writing, no regulations have been published for the Act, which will further detail the requirements for disclosure documents. For example, ULCC’s Uniform Franchises Act includes the following:
Risk warning statements encouraging prospective franchisees to seek financial information, obtain independent financial and legal advice, and contact other franchisees;
A description of restrictions or requirements related to dispute resolution;
Information about the franchise, including costs, earnings projections, purchase and sale restrictions, and territorial rights; and
Information about current and former franchisees (including contact information), businesses, and closures.
The regulations for The Franchise Disclosure Act will build on the requirements in the Act to clarify what information will be necessary for disclosure documents in Saskatchewan.
Does The Franchise Disclosure Act affect me?
Franchise agreements for businesses operated wholly or partially in Saskatchewan will be subject to the requirements of the Act. The scheme will apply to franchise agreements that are entered into on or after section 3 of the Act comes into force. This includes renewals of franchise agreements made before that time.
Importantly, certain parts of the Act will also apply to franchise agreements that already exist, such as the duty of fair dealing and franchisee association rights.
How can I prepare?
The Franchise Disclosure Act is not yet in force, and no regulations have been published. While the regulations will clarify the details, the Act is a significant change to franchise law in Saskatchewan and comes with significant requirements for franchisors, and franchise systems, operating in Saskatchewan. Individuals involved in the Saskatchewan franchise industry will want to begin considering whether the Act applies to them and what changes they will need to make. Planning will be especially important for changes related to requirements like fair dealing, which will apply to pre-existing agreements.
The McKercher LLP franchise group has a strong background in franchise law, including assisting franchisors on the enforcement of their agreements, advising clients on entering into franchise agreements, and active involvement in the development of the new franchise legislation in Saskatchewan. Our team of solicitor and litigation lawyers have experience at both the provincial and national levels and can provide guidance with respect to legislative changes in Saskatchewan franchise law and what these changes will mean to both Saskatchewan franchisors and franchisees.
Learn more about our Franchise Law team who provide guidance for franchisors and franchisees in Saskatchewan.
David J. Ukrainetz, Partner - McKercher LLP
Authored with the assistance of Kira J. Dmytryshyn, 2024 Summer Student