The Franchises Act

The Franchises Act, C.C.S.M. c. F156 (Assented to June 17, 2010) bilingual version (HTML) Table of Contents Section 1 Interpretation 2 Application 3 Fair dealing 4 Right to associate 5 Franchisor's obligation to disclose 6 Right to rescind agreement 7 Actions and defences 8 Joint and several liability 9 No derogation of other rights 10 Attempt to affect jurisdiction void 11 Rights cannot be waived 12 Burden of proof 13 Crown bound 14 Regulations 15 C.C.S.M. reference 16 Coming into force HER MAJESTY, by and with the advice and consent of the Legislative Assembly of Manitoba, enacts as follows: INTERPRETATION Definitions 1(1) The following definitions apply in this Act. "disclosure document" means the disclosure document required by section 5. (« document d'information ») "franchise" means a right to engage in a business in which the franchisee is required by contract or otherwise to make a payment or continuing payments (whether direct or indirect) or a commitment to make that payment or those payments to the franchisor or the franchisor's associate in the course of operating the business or as a condition of acquiring the franchise or commencing operations, and (a) in which (i) the franchisor grants the franchisee the right to sell, offer for sale or distribute goods or services that are substantially associated with the franchisor's, or the franchisor's associate's, trademark, trade name , logo or advertising, and (ii) the franchisor or the franchisor's associate exercises significant control over, or offers significant assistance in, the franchisee's method of operation under a business plan, including building design and furnishings, locations, business organization, marketing strategies or training; or (b) in which (i) the franchisor or the franchisor's associate grants the franchisee the representational or distribution rights — whether or not a trademark, trade name, logo or advertising is involved — to sell, offer for sale or distribute goods or services supplied by the franchisor or a supplier designated by the franchisor, and (ii) the franchisor, the franchisor's associate or another person designated by the franchisor provides location assistance, including (A) securing retail outlets or customer accounts for the goods or services to be distributed, offered for sale or sold, or (B) securing locations or sites for vending machines, display racks or other product sales displays used by the franchisee; and includes a master franchise and a subfranchise. (« franchise ») "franchise agreement" means any agreement that relates to a franchise between (a) a franchisor or franchisor's associate; and (b) a franchisee. (« contrat de franchisage ») "franchised business" means a business operating under a franchise agreement. (« entreprise franchisée ») "franchisee" means a person to whom a franchise is granted and includes (a) a subfranchisor with regard to that subfranchisor's relationship with a franchisor; and (b) a subfranchisee with regard to that subfranchisee's relationship with a subfranchisor. (« franchisé ») "franchise system" includes (a) the franchise's business plan or marketing plan; (b) the use of or association with a trademark, trade name, logo or advertising; (c) the obligations of the franchisor and franchisee with regard to the operation of the franchised business; and (d) the goodwill associated with the franchise. (« système de franchise ») "franchisor" means a person who grants or offers to grant a franchise and includes a subfranchisor with regard to that subfranchisor's relationship with a subfranchisee. (« franchiseur ») "franchisor's associate" means a person (a) who, directly or indirectly, (i) controls the franchisor, (ii) is controlled by the franchisor, or (iii) is controlled by another person who also directly or indirectly controls the franchisor; and (b) who (i) is directly involved in the grant of the franchise (A) by being involved in reviewing or approving the grant, or (B) by making representations to the prospective franchisee on behalf of the franchisor for the purpose of granting the franchise, marketing the franchise or otherwise offering to grant the franchise, or (ii) exercises significant operational control over the franchisee and to whom the franchisee has a continuing financial obligation in respect of the franchise. (« personne qui a un lien ») "franchisor's broker" means a person — other than the franchisor, franchisor's associate or franchisee — who, on behalf of the franchisor, (a) grants, markets or otherwise offers to grant a franchise; or (b) arranges for the grant of a franchise. (« courtier du franchiseur ») "grant" , in respect of a franchise, includes the sale or disposition of the franchise or of an interest in the franchise. (« concession ») "interest in the franchise" includes the ownership of shares in the corporation that owns the franchise. (« intérêt dans la franchise ») "master franchise" means a franchise that is a right granted by a franchisor to a subfranchisor to grant or offer to grant franchises for the subfranchisor's own account. (« franchise maîtresse ») "material change" means a change (a) in the business, operations, capital or control of the franchisor or franchisor's associate; or (b) in the franchise or the franchise system; that would reasonably be expected to have a significant adverse effect on the franchise's value or price to be granted or on the decision to acquire the franchise, and includes a decision to implement such a change made by the board of directors of the franchisor or franchisor's associate or by senior management of the franchisor or franchisor's associate who believe that the decision's confirmation by the board of directors is probable. (« changement important ») "material fact" means any information about (a) the business, operations, capital or control of the franchisor or franchisor's associate; or (b) the franchise or the franchise system; that would reasonably be expected to have a significant effect on the franchise's value or price to be granted or the decision to acquire the franchise. (« fait important ») "misrepresentation" includes (a) an untrue statement of a material fact; or (b) an omission to state a material fact that (i) is required to be stated, or (ii) is necessary to make a statement not misleading in light of the circumstances in which it was made. (« présentation inexacte des faits ») "officer" means (a) in relation to a corporation, a chief executive officer, president, vice-president, secretary, controller, treasurer or any other individual designated as an officer of the corporation by by-law or by resolution of the directors of the corporation; (b) any individual who performs functions or acts in a capacity similar to the functions or capacities referred to in clause (a); (c) in relation to any other entity, any individual designated as an officer of the entity by by-law, resolution of the members of the entity or otherwise. (« dirigeant ») "person" includes an individual, partnership, trustee and unincorporated association or organization. (« personne ») "prescribed" means prescribed by regulation under this Act. (Version anglaise seulement) "prospective franchisee" means a person (a) who has indicated, directly or indirectly, to a franchisor or a franchisor's associate or broker an interest in entering into a franchise agreement; or (b) whom a franchisor or a franchisor's associate or broker, directly or indirectly, invites to enter into a franchise agreement. (« franchisé éventuel ») "statement of material change" means the statement required by subsection 5(7). (« déclaration au sujet d'un changement important ») "subfranchise" means a franchise granted by a subfranchisor to a subfranchisee. (« sous-franchise ») Reference to "Act" includes regulations 1(2) In this Act, a reference to "this Act" includes the regulations under this Act. Corporation controlled by another person 1(3) A corporation is controlled by another person if (a) the corporation's voting securities carrying more than 50 percent of the votes for the election of directors are held — otherwise than by way of security only — by or for the benefit of the other person; and (b) the votes carried by those securities are entitled, if exercised, to elect a majority of the corporation's board of directors. APPLICATION New, extended and renewed franchise agreements 2(1) This Act applies to (a) a franchise agreement entered into on or after the coming into force of this section, if the franchised business is operated, or is to be operated, partly or wholly in Manitoba; and (b) a renewal or extension of a franchise agreement if (i) the renewal or extension is entered into on or after the coming into force of this section, (ii) the franchise agreement was entered into before, or is entered into after, the coming into force of this section, and (iii) the franchised business is operated, or is to be operated, partly or wholly in Manitoba. Existing franchise agreements 2(2) Sections 3 and 4, clause 5(11)⁠(d) and sections 9, 10, 11 and 12 apply to a franchise agreement entered into before the coming into force of this section, if the franchised business is operated partly or wholly in Manitoba. Non-application 2(3) This Act does not apply to (a) the relationship between an employer and employee; (b) the relationship between partners under a partnership agreement where the partnership operates a franchised business; (c) membership in an organization operated on a cooperative basis by and for independent retailers that (i) on a non-exclusive basis, purchases or arranges the purchase of wholesale goods or services primarily for resale by its member retailers, and (ii) does not grant representational rights to, or exercise significant operational control over, its member retailers; (d) membership in a cooperative corporation as defined under subsection 136(2) of the Income Tax Act (Canada) or as would be defined under that subsection, but for paragraph 136(2)⁠(c); (e) membership in an organization incorporated under the Canada Cooperatives Act ; (f) membership in an organization incorporated under The Cooperatives Act ; (g) an arrangement arising from an agreement to use a trademark, trade name, logo or advertising designating a person who offers on a general basis, for consideration, a service for evaluating, testing or certifying goods, services or commodities; (h) an arrangement arising from an agreement between a licensor and a single licensee to license a specific trademark, trade name or logo in which that licence is the only one of its general nature and type to be granted in Canada by the licensor with respect to that trademark, trade name or logo; (i) a relationship or arrangement arising out of an oral agreement in which there is no writing that evidences any material term or aspect of the relationship or arrangement; or (j) an arrangement arising out of an agreement for (i) the purchase and sale of a reasonable amount of goods at a reasonable wholesale price, or (ii) the purchase of a reasonable amount of services at a reasonable price. DUTIES AND OBLIGATIONS Fair dealing 3(1) Every franchise agreement imposes on each party a duty of fair dealing in the performance and enforcement of the agreement. Right of action 3(2) A party to a franchise agreement has a right of action for damages against another party to the franchise agreement who breaches the duty of fair dealing. Interpretation 3(3) For the purpose of this section, (a) the duty of fair dealing includes the duty to act in good faith and in accordance with reasonable commercial standards; and (b) the performance and enforcement of a franchise agreement includes the exercise of a right under the agreement. Right to associate 4(1) A franchisee may associate with other franchisees and may form or join an organization of franchisees. Interfering with, prohibiting or restricting association 4(2) A franchisor or a franchisor's associate must not interfere with, prohibit or restrict — by contract or otherwise — a franchisee from forming or joining an organization of franchisees or from associating with other franchisees. Penalizing franchisee prohibited 4(3) A franchisor or a franchisor's associate must not — directly or indirectly — penalize, attempt to penalize or threaten to penalize a franchisee for exercising any right under this section. Provisions void 4(4) Any provision in a franchise agreement or other agreement relating to a franchise that purports to interfere with, prohibit or restrict a franchisee from exercising any right under this section is void. Right of action 4(5) The franchisee has a right of action for damages against a franchisor or franchisor's associate who contravenes this section. Franchisor's obligation to disclose 5(1) A franchisor must give every prospective franchisee a copy of the franchisor's disclosure document. Timing 5(2) The disclosure document must be received by the prospective franchisee at least 14 days before (a) the signing of the franchise agreement or any other agreement relating to the franchise by the prospective franchisee; or (b) the payment of any consideration relating to the franchise by or on behalf of the prospective franchisee to the franchisor or franchisor's associate; whichever is earlier. Timing when not delivered as one document 5(3) If the disclosure document is not delivered as one document, the requirement under subsection (2) is not met until the date of the delivery of the last document. Delivery methods 5(4) A disclosure document may be delivered personally or by registered mail, fax or any other prescribed method. Contents of disclosure document 5(5) The disclosure document must contain (a) all material facts; (b) the prescribed financial statements; (c) copies of all proposed franchise agreements and other agreements relating to the franchise to be signed by the prospective franchisee; (d) the prescribed statements about making an informed investment decision; (e) other prescribed information, statements, descriptions and certificates; and (f) copies of other prescribed documents. Disclosure re mediation, arbitration 5(6) If a franchise agreement provides that disputes may be referred to, or resolved by, mediation or arbitration, the disclosure document must include information about mediation procedures and arbitration proceedings, including (a) the criteria and methods for selecting a mediator or arbitrator; (b) the rules and procedures governing mediation and arbitration; (c) any confidentiality obligations imposed on parties to the mediation or arbitration; (d) the costs of mediation or arbitration proceedings or the method of calculating those costs; and (e) any other prescribed information and statements. Statement of material change 5(7) The franchisor must give the prospective franchisee a written statement describing any material change. Timing 5(8) The statement of material change must be received by the prospective franchisee as soon as practicable after the change has occurred and before (a) the signing of the franchise agreement or any other agreement relating to the franchise by the prospective franchisee; or (b) the payment of any consideration relating to the franchise by or on behalf of the prospective franchisee to the franchisor or franchisor's associate; whichever is earlier. Information to be accurate, clear, concise 5(9) The information in a disclosure document and statement of material change must be accurately, clearly and concisely set out. Substantial compliance 5(10) A franchisor complies with this section (a) if the franchisor's disclosure document substantially complies with this Act; and (b) even if the disclosure document contains a technical irregularity or mistake not affecting the substance of the document. Non-application 5(11) This section does not apply to (a) the grant of a franchise by a franchisee if (i) the franchisee is not the franchisor or the franchisor's associate or a director, officer or employee of either of them, (ii) the grant of the franchise is for the franchisee's own account, (iii) in the case of a master franchise, the entire franchise is granted, and (iv) the grant of the franchise is not effected by or through the franchisor; (b) the grant of a franchise to a person who has been an officer or director of the franchisor or franchisor's associate for at least six months immediately before the grant of the franchise for that person's own account; (c) the grant of an additional franchise to an existing franchisee if (i) that additional franchise is substantially the same as the existing franchise that the franchisee is operating, and (ii) there has been no material change since the existing franchise agreement or its latest renewal or extension was entered into; (d) the grant of a franchise by an executor, administrator, sheriff, receiver, trustee, trustee in bankruptcy or guardian on behalf of a person other than the franchisor or the franchisor's estate; (e) the grant of a franchise to a person to sell goods or services within a business in which that person has an interest if the sales arising from those goods or services — as anticipated by the parties or that should be anticipated by the parties at the time the franchise agreement is entered into — will not exceed 20 percent of the business's total sales during the first year of the franchise's operation; (f) the renewal or extension of a franchise agreement if there has been (i) no interruption in the operation of the franchised business, and (ii) no material change since the franchise agreement or its latest renewal or extension was entered into; (g) the grant of a franchise if the prospective franchisee is required to make a total annual investment to acquire and operate the franchise in an amount that does not exceed the prescribed amount; (h) the grant of a franchise if (i) the franchise agreement is not valid for longer than one year and does not involve the payment of a non-refundable fee, and (ii) the franchisor or franchisor's associate provides location assistance to the franchisee, including (A) securing retail outlets or customer accounts for the goods or services to be distributed, offered for sale or sold, or (B) securing locations or sites for vending machines, display racks or other product sales displays used by the franchisee; or (i) the grant of a franchise if the franchisor is governed by section 55 of the Competition Act (Canada). Interpretation — franchise agreement 5(12) For the purpose of clauses (2)⁠(a) and (8)⁠(a), an agreement is not a franchise agreement or any other agreement relating to the franchise if the agreement only contains terms about (a) keeping confidential, or prohibiting the use of, any information or material that may be provided to the prospective franchisee; or (b) designating a location, site or territory for a prospective franchisee. Exception re interpretation of franchise agreement 5(13) Despite subsection (12), an agreement that contains only terms described in clause (12)⁠(a) or (b) is a franchise agreement or any other agreement relating to the franchise for the purpose of clauses (2)⁠(a) and (8)⁠(a) if the agreement (a) requires keeping confidential or prohibits the use of information (i) that is or comes into the public domain without breaching the agreement, (ii) that is disclosed to any person without breaching the agreement, or (iii) that is disclosed with the consent of all the parties to the agreement; or (b) prohibits the disclosure of information to an organization of franchisees, other franchisees of the same franchise system or a franchisee's professional advisors. Interpretation — fully refundable deposit not included 5(14) For the purpose of clauses (2)⁠(b) and (8)⁠(b), the payment of any consideration relating to a franchise does not include the payment of a fully refundable deposit that (a) does not exceed the prescribed amount; (b) is refundable without any deductions; and (c) is given under an agreement that in no way binds the prospective franchisee to enter into any franchise agreement. Exception 5(15) The Crown is not required to include the financial statements otherwise required by clause (5)⁠(b) in its disclosure document. Interpretation — grant effected by or through franchisor 5(16) For the purpose of subclause (11)⁠(a)⁠(iv), a grant is not effected by or through a franchisor merely because (a) the franchisor has a right — exercisable on reasonable grounds — to approve or disapprove the grant; or (b) a fee must be paid to the franchisor (i) in an amount set out in the franchise agreement, or (ii) in an amount that does not exceed the reasonable actual costs incurred by the franchisor to process the grant. Rescission 6(1) A franchisee may rescind the franchise agreement — without penalty or obligation — no later than 60 days after receiving the disclosure document if (a) the franchisor failed to provide the disclosure document or a statement of material change within the time required by section 5; or (b) the contents of the disclosure document did not meet the requirements of section 5. Rescission for no disclosure 6(2) A franchisee may rescind the franchise agreement — without penalty or obligation — no later than two years after entering into it if the franchisor never provided the disclosure document. Notice of rescission 6(3) Notice of rescission must be in writing and must be delivered to the franchisor personally or by registered mail, fax or other prescribed method at the franchisor's address for service or to any other person designated for that purpose in the franchise agreement. Effective date of rescission 6(4) The notice of rescission is effective (a) on the day it is delivered personally; (b) on the fifth day after it was mailed; (c) on the day it is sent by fax, if sent before 5:00 p.m.; (d) on the day after it was sent by fax, if sent at or after 5:00 p.m.; or (e) on the day determined in accordance with the regulations, if sent by a prescribed delivery method. Franchisor's obligations on rescission 6(5) Within 60 days of the effective date of rescission, a franchisor or franchisor's associate must (a) refund to the franchisee any money received from or on behalf of the franchisee, other than money for inventory, supplies or equipment; (b) purchase from the franchisee any inventory that the franchisee had purchased pursuant to the franchise agreement and remaining at the effective date of rescission at a price equal to the purchase price paid by the franchisee; (c) purchase from the franchisee any supplies and equipment that the franchisee had purchased pursuant to the franchise agreement at a price equal to the purchase price paid by the franchisee; and (d) compensate the franchisee for any losses that the franchisee incurred in acquiring, setting up and operating the franchise, less the amounts set out in clauses (a) to (c). ACTIONS AND DEFENCES Damages for misrepresentation, failure to disclose 7(1) If a franchisee suffers a loss because of a misrepresentation contained in the disclosure document or a statement of material change or as a result of the franchisor's failure to comply in any way with section 5, the franchisee has a right of action for damages against (a) the franchisor; (b) the franchisor's associate; (c) the franchisor's broker; and (d) every person who signed the disclosure document or statement of material change. Deemed reliance on misrepresentation 7(2) If a disclosure document or statement of material change contains a misrepresentation, a franchisee who acquired a franchise to which the document or statement relates is deemed to have relied on the misrepresentation. Deemed reliance on disclosure document 7(3) If a franchisor failed to comply with section 5 with respect to a statement of material change, a franchisee who acquired a franchise to which the material change relates is deemed to have relied on the information set out in the disclosure document. Defence re franchisee's knowledge 7(4) A person is not liable in an action for misrepresentation under this section if the person proves that the franchisee acquired the franchise with knowledge of the misrepresentation or material change. Defence re person's lack of knowledge 7(5) A person — other than a franchisor — is not liable in an action for misrepresentation under this section if the person proves that (a) the disclosure document or statement of material change was given to the franchisee without the person's knowledge or consent and that, on becoming aware of its having been given, the person promptly gave written notice to the franchisee and the franchisor that it was given without that person's knowledge or consent; (b) after the disclosure document or statement of material change was given to the franchisee and before the franchise was acquired by the franchisee, on becoming aware of any misrepresentation in the document or statement, the person withdrew consent to it and gave written notice of the withdrawal and the reasons for it to the franchisee and the franchisor; (c) with respect to any part of the disclosure document or statement of material change purporting to be made on the authority of an expert or purporting to be a copy of or an extract from an expert's report, opinion or statement, the person had no reasonable grounds to believe and did not believe that (i) there had been a misrepresentation, (ii) the part of the document or statement did not fairly represent the expert's report, opinion or statement, or (iii) the part of the document or statement was not a fair copy of, or extract from, the expert's report, opinion or statement; (d) with respect to any part of the disclosure document or statement of material change purporting to be made on the authority of a written statement by a public officer or purporting to be a copy of or an extract from a report, opinion or statement of a public officer, the person had no reasonable grounds to believe and did not believe that (i) there had been a misrepresentation, (ii) the part of the document or statement did not fairly represent the report, opinion or statement of the public officer, or (iii) the part of the document or statement was not a fair copy of, or extract from, the report, opinion or statement of the public officer; or (e) with respect to any part of the disclosure document or statement of material change not purporting to be made on the authority of an expert or of a public officer's written statement and not purporting to be a copy of or an extract from a report, opinion or statement of an expert or public officer, the person (i) conducted an investigation sufficient to provide reasonable grounds for believing that there was no misrepresentation, and (ii) believed there was no misrepresentation. JOINT AND SEVERAL LIABILITY Breach re duty of fair dealing 8(1) All or any one or more of the parties to a franchise agreement who are found to be liable in an action under subsection 3(2) (duty of fair dealing) or who accept liability with respect to an action brought under that subsection are jointly and severally liable. Breach re right to associate 8(2) All or any one or more of a franchisor or franchisor's associates who are found to be liable in an action under subsection 4(5) (right to associate) or who accept liability with respect to an action brought under that subsection are jointly and severally liable. Breach re misrepresentation, failure to disclose 8(3) All or any one or more of the persons specified in subsection 7(1) (misrepresentation, failure to disclose) who are found to be liable in an action under that subsection or who accept liability with respect to an action brought under that subsection are jointly and severally liable. GENERAL No derogation of other rights 9 The rights conferred by or under this Act are in addition to, and do not derogate from, any other right or remedy any party to a franchise agreement may have at law. Attempt to affect jurisdiction void 10(1) Any provision in a franchise agreement purporting to restrict the application of the law of Manitoba or to restrict jurisdiction or venue to a forum outside Manitoba is void with respect to a claim otherwise enforceable under this Act in Manitoba. Exception 10(2) Subsection (1) does not apply to a claim if an action based on the claim was commenced before the coming into force of this section. Rights cannot be waived 11 Any purported waiver or release by a franchisee or a prospective franchisee of a right conferred by or under this Act or of an obligation or requirement imposed on a franchisor or franchisor's associate by or under this Act is void. Burden of proof 12 In a proceeding under this Act, the burden of proving an exemption or an exclusion from a requirement or provision is on the person claiming it. Crown bound 13 This Act binds the Crown. REGULATIONS Regulations 14(1) The Lieutenant Governor in Council may make regulations (a) prescribing and governing information, financial and other statements, costs, fees and payments, descriptions and certificates that must be disclosed under section 5, and respecting the form and manner in which the information is to be disclosed; (b) prescribing an amount for the purpose of clause 5(11)⁠(g); (c) prescribing delivery methods for the purpose of subsections 5(4) and 6(3), and respecting rules surrounding the use of those methods, including the day on which a notice of rescission delivered by those methods is effective for the purpose of clause 6(4)⁠(e); (d) governing the use of disclosure documents from other jurisdictions; (e) prescribing any other matter required or authorized by this Act to be prescribed by regulation; (f) respecting any matter the Lieutenant Governor in Council considers necessary or advisable to carry out the purpose of this Act. General or specific application 14(2) A regulation made under subsection (1) may be general or specific in its application. Public consultation in regulation development 14(3) Except in circumstances that the minister appointed by the Lieutenant Governor in Council to administer this Act considers to be of an urgent nature, in the formation or substantive review of regulations made under this section, the minister must provide an opportunity for public consultation regarding the proposed regulation or amendment. C.C.S.M. REFERENCE AND COMING INTO FORCE C.C.S.M. reference 15 This Act may be referred to as chapter F156 of the Continuing Consolidation of the Statutes of Manitoba . Coming into force 16 This Act comes into force on a day to be fixed by proclamation. NOTE: S.M. 2010, c. 13 was proclaimed in force October 1, 2012.