Franchisee rights

How BC law treats it

The Franchises Act, SBC 2015, c 35 gives franchisees a core set of rights. A franchisee is entitled to a disclosure document at least 14 days before signing any agreement or paying any money (s. 5). If disclosure is late or materially deficient, the franchisee may rescind within 60 days after receiving the document; if none was delivered, within two years after entering into the franchise agreement (s. 6). On rescission, the franchisor must refund money paid, buy back inventory, supplies and equipment, and compensate for losses, less amounts the Act permits. A franchisee who suffers a loss because of a misrepresentation in the disclosure document, or the franchisor's failure to comply with disclosure obligations, has a statutory right of action for damages (s. 7). Franchisees may also associate with each other and form or join an organization of franchisees, and a franchisor must not interfere with, prohibit or penalize them for doing so (s. 4). Every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement (s. 3), and that duty runs both ways. These statutory rights cannot be waived or released in the agreement (s. 13), although a release given in settling an actual claim is permitted. Other rights, such as territory, renewal, training, support, supply pricing and transfer, exist only if the franchise agreement provides them. The common law adds the duty of honest performance and the duty to exercise contractual discretion in good faith, which apply to franchisors and franchisees alike.

What it means for your business

Knowing which rights come from the statute and which come only from the contract helps a franchisee decide what to negotiate before signing and what leverage it has later. The statutory rights, especially rescission, are powerful but tied to short deadlines. Contractual rights such as territory protection and renewal must be bargained for. Joining or forming a franchisee association is protected and is often the most effective way to address system-wide problems. Example: Franchisees of a BC pizza chain form an association to push back on a new supplier rebate policy. When the franchisor threatens to deny renewals to association leaders, the franchisees rely on their statutory right to associate.

Risks and common mistakes

Assuming territory protection, renewal or support are guaranteed by statute rather than the agreement. Letting the 60 day rescission window pass while trying to resolve problems informally. Believing a clause waiving statutory rights in the agreement is binding. Forgetting that the duty of fair dealing also binds the franchisee. Not keeping a dated copy of the disclosure document and evidence of when it was received.