Franchisor obligations

How BC law treats it

The Franchises Act, SBC 2015, c 35 imposes a short list of statutory duties on franchisors. The franchisor must deliver a disclosure document that complies with the Act and regulations at least 14 days before the franchisee signs or pays (s. 5), and disclose material changes before signing. It must deal fairly in performing and enforcing the franchise agreement (s. 3). It must not interfere with, prohibit or penalize franchisees who associate with each other (s. 4). The Act has no regulator or registration requirement, so compliance is enforced through franchisee rescission and damages claims. Everything else comes from the franchise agreement. Training, ongoing support, marketing, territory protection, supply arrangements, use of the advertising fund and renewal are contractual. The Act does not require ongoing support or give a statutory right to renew. When the agreement gives the franchisor discretion, for example over approving locations, suppliers or transfers, that discretion must be exercised reasonably and in line with the purposes for which it was granted (Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7), and the franchisor must not knowingly mislead franchisees (Bhasin v Hrynew, 2014 SCC 71). Franchisors also need to comply with general laws, including the Trademarks Act for brand protection, the federal Competition Act, RSC 1985, c C-34, under which resale price maintenance is a reviewable practice (s. 76), and privacy law for customer data collected across the system.

What it means for your business

A franchisor's biggest legal risk in BC is usually its disclosure document, because defects can lead to rescission claims years later. Inconsistent enforcement, misuse of advertising funds or retaliation against franchisee associations can lead to fair dealing claims across the system. A compliance program that updates the disclosure document, documents discretionary decisions and treats franchisees consistently protects the brand and supports resale value when the franchisor itself is sold. Example: A growing Vancouver franchisor sets an annual calendar to update its disclosure document and financial statements, and requires head office staff to record reasons when declining a franchisee's proposed supplier.

Risks and common mistakes

Using an out-of-date disclosure document that omits recent litigation or material changes. Promising support or territory protection in sales conversations that the agreement does not include. Retaliating against franchisees who organize or join an association. Exercising approval discretion arbitrarily or for purposes unrelated to the agreement. Dictating minimum resale prices without considering the Competition Act.